Family of Four Taking Flight to Financial Independence

How To Make $1,000,000 In 8 Years


The quickest way to FI (financial independence) is to have an extremely high savings rate.  We touched on this in our post about reducing debt when we showed that in a matter of just a few years you can go from saving around $12,000 per year to $48,000 per year.  And these numbers were based on "normal" salaries.

In other words, you don’t have to make $200,000+ per year to save this kind of money.  Savings rate is more important than the amount you make.  Savings rate is more important than the amount you make.  (Repeat, as necessary).


Public Art In Brooklyn, NYC.  Yes!  $1 Million in 8 Years!

What Does My Savings Rate Need To Be?

Everyone is different, but typically in the FIRE (financial independence retire early) community people aim for a savings rate between 50 - 70% of total income.  You can calculate your savings rate by first figuring out how much money you brought in for the year (regular income, 401k, employer contribution to 401k, dividends, etc).  Next add up the money you did not spend.  Finally, divide total unspent by total income and multiply by 100 (Confusing right? Let’s look at an example).  

Here is an example of a typical year for us: 





So we are currently sitting at a 67% savings rate for 2018.  Take some time to calculate your savings rate and strive to have it eventually fall within that 50 - 70% range, and you will be well on your way to reaching FI.  

But You Mentioned $1,000,000 In 8 Years…..

Let's play with the numbers to see just how powerful a high savings rate can be.  

Our family started saving for FIRE back in 2015, once all of our debt was paid off.  It was at this time that we started living off of just one salary (a teacher's salary!).  Here is a breakdown by year of what we have been able to save.  (The annual increases typically come from the salary adjustments we receive).  

I will also forecast out the next few years just so we can better illustrate the power of compound interest in the chart below.  Everything after 2018 is what our planned savings amount for that year would be (in reality we should reach FI by the end of 2019 so these aren't our exact numbers, just an example).  Note, just like above our numbers include: 

-Savings in our Vanguard Taxable Account
-Savings in my company's 401k plan / plus the company match of 5%.
-Dividends earned from investments.


While these numbers alone look great, this isn’t their true value because they will all be invested straight into our favorite Vanguard index fund: VTSAX.  Being invested this way will historically net you about a 10% rate of return in the long run.  When you adjust for inflation (typically 3%), we have an inflation adjusted rate of return of 7%. 


Wow!  We just went from ZERO to $1 Million in 8 years! 

That is the power of having an extremely high savings rate, while also reaping the benefits of compound interest from a low-cost total stock market index fund.  

I can’t stress enough the importance of having a large % of your investment portfolio allocated to stocks.  For those that want to be conservative and smooth out the wild ride of the stock market an allocation of 75% stocks (VTSAX) and 25% bonds (VBTLX) is the way to go.  

The key to reaching FI is having an extremely high savings rate (ideally between 50 - 70%) and investing those savings into VTSAX.  The higher the savings rate, the more quickly you reach FI!

What is your savings rate? 

-Erik

How To Survive The Next Financial Apocalypse


Retiring early sounds nice and all, but what are you going to do when the stock market crashes again?

Calmly riding out the next financial storm (Lego Art in Houston).

This is by far the most commonly asked question in regards to early retirement, and rightfully so, because the stock market is going to crash again.  If you’re in your 30’s / early 40's like us, you will probably witness at least 3 - 4 more major stock market collapses in your life.  

What will we do when the inevitable happens?  Simple.  We’ll turn to our safety margins to ride out the storm.  

What are safety margins?

Safety margins are ways that you can protect investments during economic downturns.  Living off of the 4% philosophy of withdrawals is great and extremely safe on its own.  But when the market does tank, rather than continue to withdrawal down your investments, it’s good to be able to let them sit while you tap into your safety margins.

Safety Margin I: Cash

The first safety margin everyone should have in place is cash.  Cash is king, and when the market tanks, it is your best friend.  A good practice is to have 3 - 5 years of spending set aside in cash.  This will provide you with enough of a cushion to ride out any economic downturn that we have experienced in the history of the stock market to date.  

Wait!!  We assume that a typical early retiree lives on around $40k per year.  Are you telling me that I need $120,000 - $200,000 extra cash for when the market tanks?  No, not really.  Rather than worry about covering 100% of your expenses (in this example 4% or $40,000 per year), all you need to do is have enough to cover 1% of your expenses.  Thus you drop your withdrawal rate from a safe 4% to a bulletproof 3%.  Using our example of someone living off of $40,000 (4% of $1,000,000) this means that for this safety margin to be effective you only need a cash cushion of $30,000 - $50,000 (3 - 5 years worth).   Not too shabby.

Let us take 2008 as an example.  As bad as 2008 was (the market dropped about 40%), in 2009 the market was back up over 26% and has been up every year since.  So rather than pulling the 4% from your investments in 2008, you could have pulled maybe 3% from investments and 1% from your cash cushion and been just fine!  That should get you excited.

Safety Margin II: Be Flexible

Being flexible, should probably be number one on this list because it is absolutely key to having a successful retirement.  There are numerous ways to be flexible in early retirement.  It could be anything from reducing your grocery budget to deciding to take a cheaper vacation.  Here’s one example.  Let’s say you’re retired and enjoying the good life, and the bottom falls out of the stock market.  You’re a pro and so you don’t panic.  You adjust your withdrawals down to about 3% and tap some of your cash cushion.  Next you decide maybe it’s not the best year to take that big vacation to Disney World (or destination of your choice), so maybe you decide on a staycation and just do fun things around your own city for a couple of weeks.  Either way you have remained flexible and adjusted your lifestyle (temporarily) to help weather the storm.  Mickey Mouse will be there next year (I promise!).

Safety Margin III: Part Time Work / Side Hustle

Wait, WHAT?  Work??  I thought this was (early) retirement?!  You don’t work in retirement! 

Alright, settle down, and let’s consider some facts.  If you are an early retiree, you are probably still young, educated, and healthy.  Just because you’re “retired” doesn’t mean you are never again allowed or able to make any more money.  How silly is that? 

This is one of the most debated topics when talking about FIRE (financial independence retire early).  Being FIRE does not mean you are not allowed to work.  Being FIRE does mean that work is no longer mandatory.  You can instead pursue what interests you, and do it on your own time.  

Additionally, keep in mind, you no longer need $100k per year to get by.  Rather, $5k - $10k per year would be more than enough as a safety margin.  For example, let’s go back to our family living off of $40,000 per year at a 4% withdrawal rate.  Bringing in $5k just lowered your withdrawal rate from 4% to 3.5% or from $40,000 to $35,000.  That’s huge!

Safety Margin IV: Geographic Arbitrage

If you’re like us and part of your plan for early retirement involves a lot of travel, then geographic arbitrage is a very powerful safety margin.  When things get bad, instead of panicking you could just go to Croatia.  Or maybe Thailand is more your speed.  I don’t know about you, but spending time in either of those places while living off of considerably less money while you ride out the storm sounds like a win win to me!

The ride isn’t always going to be smooth.  There are going to be plenty of twists and turns along the way, but remain confident that your investments will last and continue to grow.  After all, up to this point you have been disciplined enough to clean up your budget, pay down all of your debt, invest, and reach FI (financial independence) much earlier than most people.  Do you really think that when you get to retirement that you are all of the sudden going to start making poor decisions with your money?  No!  You have a solid plan.  All you have to do is implement it, and sit back and enjoy the flight.

Are you ready to take flight with us?  Are you ready for the next financial apocalypse?

-Erik

Financial Independence With Kids? But Kids Are So Expensive!!

Have you ever said (or heard someone say) "kids are so expensive!"?

FIRE (Financial Independence Retire Early) with kids?!  With two average professional salaries (we are (way) below $200k total)??  And one being a teacher's salary?  How can you save enough (kids are so expensive!)?  Yep, not only can it be done, but it will be done by us ... and it has been done by others (Root of Good).

I'm going to bring you a series of posts related to saving money even WITH kids.

The Arts

I'll start with entertaining the kids for free or cheap around town which is one of my favorite things to do with them.  Even before kids I liked exploring the city.  If you don't live in Houston, you can probably find some similar activities if you are near a major metropolitan area.  Or if you aren't near a major metro area, I'd love to hear your thoughts on free or cheap entertainment nearby.

What about the arts?  Museums?  Experiencing Picasso or Warhol for free with your kids?  Teaching them about artists and the world through viewing the art?  Teaching about proper museum manners?  And for free (or cheap)?  Yes, please.  Sign me up!

My passion is experiencing the arts, learning about art, and making art for myself and my kids.  This is my 10th year teaching art in a public school.  I've taught Pre-K through 12th (except for 5th Grade), and before that I worked in art museums (Education, Public Relations, and Specials Events).  And previous to museums, I worked in advertising, and as a child I always loved the arts.  So this is easy for me, and I love to share the arts with others!

In the summertime I do Art Thursdays with my kids, and during the school year we just try to get out and experience art as much as we can (and at home).

My youngest enjoying art (Oscar de la Renta) last Spring.

The Museum of Fine Arts, Houston

My favorite art museum in Houston is The Menil Collection.  But today I will start with The Museum of Fine Arts, Houston (MFAH).  Did you know that kids 12 and under are always free?  And everyone is free on Thursday (courtesy of Shell) which is why we try to visit on a Thursday.  If you have a Bank of America card (we do), the first full weekend of the month is free (one free general admission for each cardholder) so this is helpful during the school year when it is harder to get there on Thursday.  But wait!  They are open later on Thursday (until 9 pm) if you want to try to go after school hours.  Read more about the MFAH's admission costs here.

Okay ... now that I got you in for free, but what about parking?!  Isn't that difficult and expensive?  (The rail is an option too if that is convenient for you).

Parking

Honestly parking for free use to be easier.  If you are dead set on parking for free (and are good at parallel parking) you may be able to find a nearby street available that does not have a meter and walk a bit (go towards the neighborhoods near the Contemporary Arts Museum Houston).  This will be harder during peak hours.

If you are only there for a few hours, metered parking a few blocks away (towards the Children's Museum of Houston) is the cheaper route if you don't mind walking a few blocks.  I've found this is cheaper (less than $10 for a few hours) than their parking garages.

I personally prefer their new parking garage (new underground parking garage on 5101 Montrose Blvd.) because you can visit the sculpture garden and the new outdoor area easily on your way back from the museum to your parking spot.  This parking garage is $10 for visitors up to 4 hours and $6 for MFAH Members for up to 4 hours.  (We will talk more about membership another time).

You can find parking for free or up to $10!  Not too bad.  Read more about transportation / parking here.

The Art

Have you ever experienced an art museum with kids?  Or is it intimidating to you?  Don't let it be!

Oscar de la Renta show at the MFAH in the Spring.
What do we see and do at The Museum of Fine Arts, Houston?

My kids are 7 years and 5 years, and since we hardly ever pay admission price (maybe for a special exhibition) I'm never stressed about having to spend a ton of time in the museum.

I usually pick one area that I want to see or have the kids see (or sometimes ask their ideas too).  For example, this summer we went to look at Pre-Columbian art in their collection since we were taking a trip to Belize a few weeks later to see Mayan ruins.  Sometimes we will pick a theme - for example, "let's see how many animals we can find at the art museum today!"

I also suggest packing a sketchbook and some writing materials for the kids and have that on hand to draw and write (You can find these for less than $5 even at your local grocery store, or just bring some paper and writing materials you already have at home).

Oscar de la Renta show at the MFAH in the Spring.

Let the kids guide the experience, or here are some easy questions:


  • What do you see?  Why do you say that?
  • Why do you think the artist made this?

If family / kids activities are available, we visit those.  In the summer there are activities on Thursdays (free!) at the MFAH, and there are activities year-round on Sundays.  Read more about the MFAH's Family Programs here.

Family Programs at the MFAH this summer.

Family Programs at the MFAH this summer.

Next we pick a few easily entertaining spots for kids.  We visit Dan Flavin's "The Light Inside" tunnel (connects the Law building and Beck building underground!), and given their age - my kids are easily entertained by the vast array of stairs, escalators, and elevators (if you have a baby / toddler I do not recommend a stroller in the Law building!).


An art museum (usually) isn't the place to be loud, horse around, or run so I typically let them get their energy out in the Cullen Sculpture Garden.  The MFAH just recently added on to their outdoor space too which includes a water play area - great for beating the heat in Houston (and free!).

Getting out energy in the Sculpture Garden in the Spring.

Exploring the new outdoor area (this summer).

The new outdoor area has a water play area (this summer)!

Food


But my kids are going to get hungry?  I am going to get hungry!  How to save on food?

I always pack reusable water bottles and lunch / snacks in a small Igloo thermos bag.  I don't have to worry about having to spend money on lunch (although sometimes I budget that in) or listen to hungry children.  And we eat in the sculpture garden!

Bonus: Art Museum Manners 

I recommend speaking to your kids about art museum manners before you go (mine have been going since birth, but I always remind them before we walk in).  The link above provides even more museum manners.

  • No outside voices - quiet voices!  We can be loud when we go to the sculpture garden.  (Yes, sometimes there are noisy activities, but mostly you do not want your child screaming in the art museum).  We don't want to disturb other visitors.
  • Walking feet.  No running inside.  We can run when we go to the sculpture garden.  We want to be safe inside, and we don't want to damage the art.
  • No touching the art unless it says to touch, and no pointing at the art because we don't accidentally want to touch it.  The oils on our fingers and hands can damage the art.
  • Have fun!

I usually go over no horse play and be kind to each other (they are siblings), but you do the rules that best fit your own kids / age of your kids.  (When my kids were toddler age I made sure I was holding on to them or had them close by since I definitely had one runner!).

When you leave ... ask, "What was your favorite work of art today?  Why?"  I always get interesting answers!  I love to hear what left an impression on them.

There you go.  A trip to an art museum for possibly under $10 (not including gas).  My favorite kind of free entertainment!

So what do you think?  Up for a (free or cheap) art day with your kids?  If you aren't in the Houston area, what art museums (or other art) do you have nearby?

-Tara

How To Invest Like A Pro (For The Average Joe)


In Can You Reduce Your Spending? we talked about cleaning up your budget and paying down your debt.  Now that your budget is cleaned up and you have excess cash, how do you invest?  

I know what you’re thinking.  When you see the word, “investing” you may hear these words in your head: 

Confusing?!  Complicated!!!  Scary?!  Recession!!!

If this is you, I have good news.  By the time you’re done reading this post, you will have all of the information that you need to become a successful investor.  I promise it really is easy, and anyone can do it.  

Is your current investment tool a piggy bank?

Where To Invest?

First you need to select an investment company, and in my opinion there is only one to go with - Vanguard.  I recommend Vanguard because of their unique ownership structure.  Most investment companies are owned by outside shareholders, and in order to pay the “outsiders” the investment company has to charge their investors (you and me) fees.  Vanguard is owned by the funds that it offers which are owned by the investors (you and me).  There is no outside ownership.  Read more about the unique way Vanguard is structured here.

What Type Of Account Do I Open?

If you decide to go with Vanguard (good choice!), you now need to open your account.  For most people pursuing early retirement this is going to be a taxable account (when you eventually start to pull your 4% per year in early retirement, you will be taxed on the dividends and long term capital gains from this account).  Don’t sweat the tax implications because if you are a couple filing jointly, your first $77,200 of income is taxed at a zero rate.  Most people living in early retirement live on much less.

Open your taxable Vanguard account here.  

What Fund(s) To Invest In?

This is the easiest part! 

Before I begin, let’s talk about what we are not.  We are not day traders, and we are not short term investors.  We are buyers and long term investors.  When the stock market is up, we buy.  When the stock market is down, we buy.  We know that if (or when) another 2008 happens, we would buy as much as possible while others panic and sell (because the market will go back up).

What funds should you invest in with Vanguard?  The good news is there are only two, and depending on your risk tolerance we could lower it to just one (like us).  


This fund covers every single company that is in the US Stock Market.

This fund covers every type of Bond in the US Bond Market.


Next decide how you want to allocate your funds.  If you are okay with some volatility in your account, you could just stay 100% in VTSAX.  If you want to smooth the ride out a little bit you could do 75% in VTSAX and 25% in VBTLX.  

As an example, we are currently sitting in 100% VTSAX.  Once we retire I am considering changing to 90% in VTSAX and 10% in VBTLX (but would never go lower than a 75% / 25% split regardless of age).  

For more on this investment strategy, I’m going to point you to one of the posts in Jim Collins Stock Series again.  If you haven’t read the series yet, I highly recommend you do it as soon as possible. 

What About Fees?

Not only is Vanguard’s company structure designed to benefit the investor, but they also consistently offer the lowest fees.  The amount of fees you pay is very important and can save you thousands over the long run.  

An example:

If you have $100,000 invested in VTSAX with Vanguard you are going to pay an expense ratio of $.04 % (these are the fees they will deduct every year).  $40 per year for every $100,000 invested ($100,000 X .0004 (move the decimal over 2 places) = $40.)

Even if other companies offer similar fees for a similar investment (most do not), they still can’t touch the unique ownership structure of Vanguard that we discussed above.  Other investment companies are set up to make money off of you, and Vanguard is set up to make money for you while charging the lowest possible fees. 

What About My 401k / IRA?

If you are fortunate enough to work for a company that offers a 401k Plan you should be maxing this account out.  I’m not talking about maxing it out to the company match.  I’m talking about putting in $18,500 if you are under 50, or $24,500 for those that are over 50.  Don’t worry about early withdrawal penalties for those reaching FI (financial independence) before the age of 59 ½, there are ways around that (For more information on this let me introduce you to the Mad Fientist.  This guy is a genius!).

If your 401k is with Vanguard, congrats you are one of the lucky ones and can invest in VTSAX and VBTLX.  If you are with a company like Fidelity, search out a low cost Total Stock Market Fund and a Total Bond Market Fund to invest in.  For example, my 401k is with Fidelity, and there is a S&P 500 Index fund with rates comparable to Vanguard that I invest in. 

If you have an IRA, I suggest rolling over to Vanguard (if you aren't already there!) and investing as mentioned above in VTSAX and VBTLX.  

That’s It!

To sum it up.  Vanguard, VTSAX, VBTLX.  Got it?

So what do you think?  Where do you currently invest?  What do you think about this strategy?  Any questions?

-Erik

What Are You Going To Do?


But … what are you going to do?

Once we reach FI (financial independence), we won’t have to work.  So now what?  

What would you do?  Would you keep working?

Initially we thought about moving to a state where the kids (heck, all of us!) could enjoy the seasons and outdoors (Houston is great and all (for many reasons that I won't go into right now), but it feels like the surface of the sun from about May through September.  And that is putting it nicely.)  We were thinking … maybe Colorado?  Or even Bend, Oregon?  Those may still be on the table … 

2018 Snow Trip to CO
But our next thought was … why not travel?  Why not travel while the kids are young?  Max is in his third year of Dual Language (English / Spanish), and Sadie is starting her first year of Dual so why not Spain?  I’ve loved our Dual program (shout out to their teachers!) … so maybe we should build upon that?  Our current idea (nothing set in stone) is to maybe take flight to Spain for a school year (yes, enrolling them in public school - hope their Spanish holds up well!) once we reach FI.  We like the idea of being able to immerse them in the Spanish language / culture.  But ... time will tell.

Where would our next flight take us?  That’s the scary / exciting part.  Would we want to spend a longer time in Spain?  Would we want to spend a year somewhere else outside of the US?  Would we want to settle back in the US - Colorado or Bend, OR (or another place?) and take time to travel in the summer time when the kids aren't in school?

Our main goals right now are … 
  • Giving the kids an opportunity to be immersed in the Spanish language / culture.
  • Learn about life with the kids through travel (whether that is full-time travel or on school breaks).
  • Spending more time with family (my sister is in NYC, and we would have the flexibility to be able to visit more or for a longer period of time).

Another idea is to live in one big (expensive!) city once a year (a month or more) and show how it is possible to live off a smaller annual budget.  First stop, NYC (well, we will be visiting there regardless).  Paris anyone?  London?  San Fran?  DC?  Tokyo?  (With Airbnb it is all possible!).

And what about just the opportunity to … 

Explore?  Nap?  Find art and make art?  (Still) Teach art?  Sell art?  Write art or other educational curriculum (which I may be making for my kids anyways)?  Read?  Write?  Volunteer?  Netflix Binge?  (Drink wine?  Eat tapas?)

How about you?  What do you plan to do when you retire?

-Tara

Can You Reduce Your Spending?


Reducing Spending?  Let the kids play for free in the backyard / park in the mud!

If you are considering FI (financial independence), “where do I start” may be the first (and sometimes overwhelming) question.  I asked myself this question in 2013, and the answer is reducing your debt and cutting spending.  This part is not the most exciting (and certainly isn’t easy), but it is absolutely necessary to reach your FI goals.  You can’t save for FI if you haven’t paid off your debt.  Let me say that again ... You can't save for FI if you haven't paid off your debt.

Where to begin?  

  • Get out a pen and paper, or open up a spreadsheet.  Do what works for you.
  • Write down your total take home monthly income at the top.
  • Below that subtract out all of your monthly expenses.  Not sure?  Look at your bank account, or completely track your spending this month (Need help?  Try using Personal Capital or Mint).

Reality check, right?  The number staring back at you may be a little depressing to look at, but we are going to work on that.  It will get better (if you want it to).

Let’s come up with a hypothetical situation to put this into perspective.  We will assume this is a dual income household with two kids.  Then we will take a look at how the numbers improve by making some key changes.  

The first budget is where many people are right now.  They are looking at a lot of debt.  But look - there is still close to $1,000 left over each month.  The best thing to do with the $1,000 is to start paying down debt as much as possible.  Start with the highest interest accounts first (probably credit cards).  If you start applying any extra money to paying down debt, you are well on your way to FI.  


But we aren’t done yet!  Let’s clean up this budget a little bit by making some lifestyle changes.  In this second budget, we have made some changes to help pay down debt as quickly as possible.  Decide what is important to you, and what you can adjust.  

In this example … 

Goodbye Cable! (We said goodbye to ours in 2013, and we don’t miss it.)  Goodbye Gym Membership! (Exercise is great, and you should do it.  But are there cheaper (or free) ways to exercise especially if you are paying down debt?).  Lower Grocery Spending.  Drive less.  Lower your Electric Bill (Either by researching for a better rate or turning up the temperature a few degrees.  It makes a difference.)  Lower Entertainment Spending.  Cheaper Cell Phone Plans (Republic Wireless anyone?)


Check it out!  You now have an extra $1,000 per month to allocate to paying down your debt.  Just by making some rather small changes we have gone from paying down $12,000 per year in debt to $24,000 per year.  

I used a two year time frame to pay down the debt as an example.  Everyone’s situation is a different, so just keep paying it down as quickly as possible until your debt is gone.  Now our third budget … 

In the third budget, after two years of aggressively paying down debt, it is all paid off in our example scenario.  Now we can start saving / investing for early retirement at $4,000 per month which is $48,000 per year!


All this being said, none of this is easy.  It’s always hard to make lifestyle changes, especially when there are multiple people involved.  But in our experience, every lifestyle change we made has led to improved quality of life and happiness.  And you are literally buying yourself an extra 20 - 25 years of freedom (depending on your age of course)!

So can you give up that extra Starbucks coffee?  What can you cut out or lower spending on?

-Erik

Taking Flight With Financial Independence


Will You Take Flight With Us?

We are on our few year countdown to our big adventure of financial independence (more on that below).  Will you join us on this journey?

We are two adults + two elementary-aged kids (+ one fun loving dog!) living and loving life in Texas, and we are prepping for financial independence and taking flight in a few years.  We look forward to bringing you our preparation for the journey, and Erik will share the financial side.  I also plan to bring you more on family, art, and travel.

This photo is one of my favorites from a summer adventure (New York City / Liberty Island / Statue of Liberty).  I think it sums up our (financial independence) adventure well ... rainy and everything isn't always easy / doesn't always go as planned but still finding joy in the rain and puddles.  I also like to teach my kids through hands on adventures and experiences (and travel!).  What a better way to teach about freedom and immigration than a visit to the Statue of Liberty?

And where will our flight take us in a few years?  Time will tell, but we are currently looking at first stop ... Spain.  Will you take flight with us?

-Tara

What Is Financial Independence?

Life comes down to choices.  Every day people choose what to eat, what to wear, what to do, etc.  And at the end of the day, the hope is that you live your life in a way that allows you to pursue your definition of happiness.  Figuring out my definition of happiness is what led me and my family to pursue financial independence (FI) as early as possible.

The most important thing to me is time with my family.  Time doesn’t stop for anyone, and it didn’t take me long to realize that I did not want to spend my time working and being dependent on a job to provide for my financial needs for the next 30+ years like so many other people my age (late 30s).  I want to have the freedom to spend as much time as possible with my family.

These are the thoughts that led me to the idea of financial independence.  Once I did some digging, I found out that there are a lot of other people who share this thought that time doesn’t need to be spent working for a paycheck until you’re 65 years old.  There is another way (and in my opinion, a better way)!  In fact, The New York Times published an article today about the FIRE (Financial Independence Retire Early) movement, "How to Retire in Your 30s With $1 Million in the Bank".

What is financial independence (FI)?  FI is simply figuring out how much money you need to live on each year to cover all of your expenses.  Once you figure that out, the rest is just basic math that is built around the 4% rule.

What is the 4% rule?  The 4% rule comes from The Trinity Study that was conducted by professors who figured out that through all the stock market ups and downs, if a person was invested correctly (we’ll touch on this in a minute) they would be able to pull 4% from their investments year over year and never run out of money.

For example, if you need $40,000 per year to cover all your expenses then you would need investments that total $1,000,000 ($1,000,000 * .04 = $40,000).  Based on the 4% rule, you could pull this $40,000 per year (with adjustments each year for inflation).  You will not only never run out of money, but more often than not, you will end up with a lot more money in the long run.

What are we personally doing to reach FI as quickly as possible?  We don't throw our money away.  In 2013 when I first started reading about FI, I sat down and listed out all of our monthly expenses in a spreadsheet.  I cut out the expenses that I felt were unnecessary (I’m looking at you Cable TV!).  It took about 2 years (from 2013 – 2015) for us to trim the fat from our budget and to pay down typical debts (school loans, car loans, etc.)  Once all those things were removed from our monthly budget, I realized that we could cover all our expenses just from my wife’s teacher salary (yes, you heard that correctly - a teacher's salary!).  In other words, we could invest 100% of my salary (the higher of the two salaries), and starting in February of 2015 that is exactly what we did.

Where do we invest?  This is the easiest part.  I’m not going to provide a lot of detail on it yet, but we invest in a Total Stock Market Index Fund (VTSAX) with Vanguard.  We also have my 401k which is through Fidelity that we max out, and it is invested in a S&P 500 Index Fund.  I learned of this investment strategy from the Stock Series by Jim Collins.  This series is amazing and anyone interested in pursuing FI should take some time to read it.

That is an introduction of our journey to FI, and we look forward to sharing this journey with you.

-Erik