Family of Four Taking Flight to Financial Independence

FI: So You Are FI? But How Do You Give Back?

A topic I see sometimes in the FI (financial independence) / FIRE (financial independence retire early) groups is giving back.  Sometimes people may ask ... well how much do you donate per month?  Or what percentage of your spending goes towards donation per month?  Or ... how else do you serve others?  Or maybe when you retire / RE (retire early) do you now spend time volunteering?  After all, you probably are watching your money closely and / or now have the money (and / or time) to do so (give back through various means).

Regardless of whether you are FI (or retired / retired early), I think it is important to give back whether that is time, skills, financially or otherwise.

At one time I was a very active volunteer (but then full-time teaching and my own kids happened).  I had the time to give back ... I enjoyed volunteering, and I also was in the process of switching careers (advertising to art museum education and eventually in the art classroom).  When I lived in NYC, I volunteered with organizations such as The Museum of Modern Art (Family Programs), and when I returned to Houston I spent time at organizations such as The Menil Collection and Lawndale Art Center ... just to name a few.  These opportunities gave me the chance to do something I enjoyed, help others, and gain experience in a new career (and build up my resume).  Not to mention there were definitely other perks like meeting new friends / contacts.

So now that we reached FIRE ... (and the kids aren’t currently in the school system), we have the time (or more time rather) to dedicate some of our time to service / volunteering.  (Remember part of our appeal to FIRE is time!).  I thought this would also be a good opportunity to learn more about giving back to others, gain new experiences (just like I did in the arts!), and I also like how we can connect to hands-on learning experiences (City Schooling for us!).

We started volunteering at Hermann Park’s Japanese Garden through Hermann Park Conservancy.  Hermann Park is within walking distance from us so it’s a great way to give back to our immediate community (and feel even more a part of the community).  Also we are trying to keep as safe as possible with COVID-19 so I thought an outdoor experience would be best.  I don’t know that they normally take volunteers as young as our kids (right now age 9 and 7), but I am with them the entire time.  There are also specific areas of the park where families can volunteer - the Japanese Garden is one of them.

Our first time to volunteer in Hermann Park’s Japanese Garden.

Did I mention it is hot in Houston?  Cooling off after volunteering (on our walk home through Hermann Park).

So far we volunteered one time, and it was a great experience despite the oppressive Houston heat!  I did sign us up for once a month.  I think we may be able to push it to twice a month, but I didn’t want the kids to get “burnt out” (no pun intended) due to the heat.  I wanted them to enjoy the experience.  Maybe once October hits (sometimes still warm, but not as bad as July / August), I can sign up for 2x a month.

How did our first volunteer experience in the Japanese Garden go?  To sum it up: The kids have been asking to go back ... “when do we get to go help again in the Japanese Garden?”  I take that as a good sign, and it was very hot when we volunteered (in pants and closed-toe shoes per the garden’s request!).

Our volunteer contact at the gardens was kind and great with the kids.  We were able to easily socially distance from her / other volunteers (and wore masks).  The other volunteers seemed to be mostly teens (and the adults with them), and they worked in a separate area of the gardens.  Hermann Park provided gloves and other garden tools (I also bought gardening gloves for the kids that we will use next time).

The volunteer coordinator did a great job of talking to the kids about the importance of volunteer work - not only serving / giving back to your community but also for the experience.  It might have gone a little over their heads (getting experience before entering college / the working world), but I am glad she pointed this out / they were exposed to this idea.  She also talked a little bit about the Japanese Garden (how they are viewed / used differently in Japan versus the US) and related it to the work that we would be doing that day.

We helped with putting pebbles / stones / rocks back where they belonged, and we helped to do some weeding.  The kids really enjoyed it (minus the heat), and they were proud of their hard work.  It also has made them notice nature better / taking care of their community (park / gardens) even more so.  Also what a great way to explore science in a hands-on manner - City Schooling!  The kids were really learning without me having to even relate it to “direct instruction,” but also our volunteer leader did point out some things to the kids - such as the mushrooms they saw ... why not to pick those (the squirrels love them apparently), and how they grow.  Now on our walks, they are always pointing out the mushrooms.

Since this is an FI blog, total cost?: $0 (sort of).  Of course it is volunteering, so you don’t pay for the experience, but we did buy a few things ... They requested pants and closed-toe shoes for gardening.  The kids needed new pants anyways for Fall so I did purchase those (Cat and Jack from Target).  They also needed new shoes since they’ve been in mostly sandals this summer so we got Xero shoes (minimalist barefoot shoes).  But these are two items we would have purchased eventually anyways.  They said they would provide gloves for kids (turned out to be winter gloves), but I did purchase gardening gloves that came later.  I was able to buy a pack of 3 pairs for less than $10 from VGO.  I bought directly from the company since I am trying to avoid supporting Amazon.

Our youngest “Bridged Over” to a Girl Scout Brownie in the Japanese Garden this summer.

Where else may we volunteer?  I still need to research opportunities more.  One idea I have that was suggested by a few people - Kids Meals Inc.  They have several different opportunities, but one age appropriate / COVID-19 safe opportunity is to decorate and donate lunch sacks for kids meals.  

Do you have any other organizations to suggest to us?  How do you give back?  Do you participate in volunteer work?

In the Houston area and want to be a part of our City Schooling?  We still have one spot left in our September 3 Art Adventure which will take place in The Museum of Fine Arts, Houston’s Sculpture Garden.  Contact us for more info.

And don’t miss Erik’s latest financial post on 401k accounts!

Like what you read?  Comment below, and share our post!


September 2020: City School Art Adventures

If you are in the Houston area, we would love to have you join us for our City School Art Adventures!  We just released the focus / themes for our two September dates (see the images below for more details).

September 3: Shapes in the Sculpture Garden

September 17: People and Painting (and Poetry!)

Both City School Art Adventures will take place in The Museum of Fine Arts, Houston’s Sculpture Garden.  Bonus?  The Museum of Fine Arts, Houston (MFAH) is always free on Thursdays courtesy of Shell Oil Company, and the Cullen Sculpture Garden is always free and open to the public.  You can visit the MFAH with your family (and cool off in the AC!) after our Art Adventure.  You can read more about their COVID-19 safety protocols and timed ticket information here.

We’ve also visited the MFAH since COVID-19, and you can read more about our personal experience here (What If You Could Have Recess In A Sculpture Garden?).

Their sculpture garden is very large and has shaded areas.  Tables are also available, and I will bring wipes to clean them.  Artists will also be able to use clipboards during the Art Adventure.

401k Basics: Strategy To Increase Contributions And Your Paycheck

One of the first things you do when you get a new job is set up your 401k (if you’re fortunate enough to work for a company that offers one).  For a lot of people this means putting 5% in to reach the company match (aka free money), and then they forget about it for the next 30+ years (not the best strategy in my opinion!).  

First .. is 5% enough?  Probably not.  Some people will be more aggressive and start with a 10% contribution.  Is 10% enough?  How do you determine what is enough?  When and how can you increase your 401k contribution amount?  

Is there a way to increase your contribution and increase your paycheck?  The answer is, YES.

Is your 401k leading you down the right path?

It’s important to keep in mind companies are moving more and more away from pension plans and towards 401k plans.  This is or might be your main source of income in retirement.  Don’t be a person who plans to live off of Social Security (SS) in retirement.  Rather think of SS as a bonus if it is there when you retire. 

For this post we are going to make the following assumptions:  

Person A: Starts their career in 2020 with a salary of $60,000.

Person A: Consistently receives annual salary adjustments that average 2.5% per year.

Person A: Works for a company that offers a 5% company match (free money).  

Person A: Has access to / invests in a S&P 500 index fund in their 401k plan.  (As they get closer to retirement, they may allocate 10 - 20% of this to a total bond market fund.  For this post, lets keep it simple and assume they stay 100% invested in the S&P 500 Fund).

Rate of Return = ROR; Return on Investment = ROI

Example 1: 

Person A needs to decide the amount they want to contribute.  We know they are offered a 5% match from the company, so to do anything less than this is literally like throwing money away.  In Example 1, we will assume they are going to contribute 5%, and then they forget about it.  Over the years they consider logging in and adjusting their contribution amount, but they hate the idea of making their paychecks smaller ... and they just never really get around to it.  Lets see how much they are left with in this 30 year estimate.  Note: Salary increased based 2.5% each year, and the example is based on salary starting at $60,000.

We see that by contributing 5% with a 5% company match this scenario provides around $855,000 in 30 years.  That amount doesn’t look too bad in the year 2020, but in the year 2050 this would only provide about $350k worth of spending power after accounting for 30 years of inflation (based on this calculator using 3% inflation).

I don’t know about you, but I’d like to have more than that waiting for me after putting in 30 long years of work.  

Example 2: 

In this example, Person A decides to be more aggressive with their initial contribution (good for them!), and they start with 10%.  But just like in the first example, the years go by, life gets in the way... They get married, have kids, buy a house, etc.  Even if they wanted to increase their contribution at this point, they simple can’t imagine decreasing their pay check to do it.  They make the decision to hold steady at 10% for the 30 year period.  Let’s see how they do after 30 years.  Note: Salary increased based 2.5% each year, and the example is based on salary starting at $60,000.

That extra 5% per year contribution really paid off.  As you can see above, instead of having $855,000 after 30 years, they are left with around $1,283,000.  This certainly is a better situation to be in financially, but let’s consult our chart to see how much spending power this will give us 30 years down the road. 

This time Person A has a spending power of around $529,000 during retirement.  This is certainly better than in the first scenario, but this is still not nearly as good as one would think.   

This brings us to the personal strategy that I used during my career.  With this strategy, a person can increase their 401k contribution while still increasing their pay check.  Here’s how to apply it:

Example 3: 

Typically every year your employer is going to provide you with salary adjustments.  Let’s assume they fall between 2 - 3% per year.  For this example, we are using the middle ground and assuming an average of 2.5% salary adjustment per year.  Let’s also assume this adjustment takes place in March each year.  This means by late February, your supervisor has already gone over your salary adjustment, and you know the exact amount.  Assuming a 2.5% salary adjustment, you would allocate 50% of this to your 401k contribution (or 1.25%).  

Timing Is Everything

The trick is to do this BEFORE the salary adjustment happens.  In this example, it changes in March, so in late February (preferably after finding out your exact adjustment for the year) you would need to log into your 401k and increase your contribution by 1.25(or whatever 50% of your salary adjustment equals).  The timing is important because it usually takes a pay cycle for the change in your 401k to go into effect.  In this example you are still left with a salary increase of 1.25% on your next paycheck.  Congratulations!  You have just managed to increase your 401k contribution while also experiencing a bigger paycheck from your salary adjustment.

Let’s look at the 30 year numbers when using this strategy. For this chart, Person A is going to start off similar to the last example with a 10% contribution, and then they are going to increase it by 1.25% per year (50% of their 2.5% salary adjustment).  Using this strategy, Person A is able to start maxing out their 401k at the current allowable max of $19,500 by year 2032, and Person A continues to max it out through 2050.  Note: Salary increased based 2.5% each year, and the example is based on salary starting at $60,000.

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Person A is left with around $1,967,000 after 30 years, and the spending value in today’s dollars of $810,000.  Now things are looking much better!

The Takeaway

If you have a 401k and you are contributing 5% or less, it almost certainly isn’t going to be enough in retirement.  

If you are contributing 10% for 30 years this definitely helps; if you also have a Roth IRA and Social Security, this could provide a decent retirement.  But who wants to settle for decent?? 

Using the strategy presented in the last example, you are able to slowly increase your 401k contribution amount every year while also experiencing a bigger pay check from your annual salary adjustment.  You timed the changes in your 401k contribution amount a couple of weeks before the salary adjustment goes into effect.  In other words, your 401k gets a raise AND your bank account gets a raise!

So what do you think?  Do you contribute to a 401k?  Do you increase your contribution (and paycheck) yearly until you max it out?  Like what you read?  Comment below, and share our post!

Contact us (Erik) to see how we can help you with your 401k or other numbers: Financial Consulting.

Read Tara’s latest post here ... City School: Raising Kids To Be FI (Financially Independent).