Family of Four Taking Flight to Financial Independence

Family of Four: One Year Budget in Spain Less Than $30,000 (An Update!)

So where are we with our journey to FI?  We are now on track to reach FIRE (Financial Independence Retire Early) within the next calendar year (as in on or before August 2020).

As we've mentioned previously, we plan to take off to Spain for at least a school year (and possibly go back for more).  We have a few important updates.  But first, be sure to read our previous post Family of Four: One Year Budget in Spain Less Than $40,000.  It provides specific details regarding our estimated spending (at that time).

Update: Rent / Utilities

We secured an apartment (in the historic Albaicin neighborhood of Granada)!  

As we originally mentioned in our first post on this topic, our goal was to keep our rent / utilities below $1,750 per month.  After much thought and research, we decided to rent through Airbnb (which should work for our Non-Lucrative Visa applications).  We found a great little 2 bedroom / 1 bathroom apartment (newly renovated) in the Albaicin (which is the neighborhood that we wanted) for only $930 / month.  We also have found a school for the kids that we are strongly interested in (more on that another time).  It will only be approximately a 9 minute walk to school (yes, we said walk!).  Granada is a walking town (with public transportation also) which is one of the reasons why we picked it.

Granada is located in the AndalucĂ­a region of Spain.

So why the Albaicin?  The Albaicin is a Medieval Moorish area that dates back Nasrid Kingdom.  It has narrow winding streets on a hill with little access to cars, and it was declared a World Heritage Site by UNESCO in 1994.  We love the history and that it is so different than what the kids / we are use to now.

Back to the apartment / financial information ...

The great thing about renting through Airbnb is that the internet, water, and trash are all included in the price, so the only other utility we have to pay is electricity.  

Also we no longer have to worry about the exchange rate because this price is locked in using USD so if there are some currency exchange swings while we are in Spain, they will have minimal impact on our daily lives.  

To sum it up, $930 per month in rent and maybe $150 per month for electricity (at most).  This puts us at about $1,080 per month which is way less than our goal of staying below $1,750.  We also don't plan to be there during the warmest months (warmest = July and August) since we will arrive in Granada in September so that should help keep the bill lower.  It does get cold in Granada (compared to what we are use to in Houston) but since the apartment is fairly small, we think we will be able to heat it easily (without running up the electricity too much).  Yes, the apartment has A/C and heat (which is not available in all places there)!

How does this impact our overall spending for our first year of retirement? 

In our original post we wanted to stay under $38,400.  Now that we have some concrete numbers to work with, we will provide a financial update.

So we have lowered our already low spending from $32,071 to $27,871 (compared to our last post / estimated spending).  We will probably apply some of these savings to more travel because it is so cheap to travel between countries AND because our goal has never been to spend as little as possible.  It's about spending on what is important to us and staying within our means.  It is a balancing act!

We will continue to update this post as we go along.  

From Tara: 

So what is next?  All things!  Here are some areas that I am working on / need to work on ...

Granada, Spain: I'm researching more about Granada, Spain.  I'm mostly focusing on this right now (with the exception of several areas under "Preparation."  Again, another balancing act!).

  • History (And what to eventually share / teach the kids)...
  • Places to See
  • Basic Facts
  • Important info for living there (versus visiting).
  • Family-friendly info.
  • Other important places to know about (doctors, etc).

Preparation: I won't dive into this too much, but this involves things to take care of here and prep for when we arrive in Spain.  Here are a few examples (but there are many more!):

  • Non-lucrative Visa: I am handling this one.  A lot will go into this application for all four of us.  More on this monster another time.
  • Our Home / Our Stuff
  • Visa process for WHEN we arrive.
  • Research golf for the kids for when we arrive (our oldest plays and our youngest is also learning!)

Again, just a few examples!

Education: Although I've already found a school (hopefully!) that I am interested in for the kids (thanks to making connections with some wonderful American expats in social media groups), there is still much I would like to do to prepare.  For example (a few things to share):

  • Enrollment Process
  • Second Choice School Options
  • Creating curriculum to supplement their education (for example: English)
  • Plan for supplementing their school education through World Schooling (through travel ... ?  By helping to write blog posts?  Etc.)

Four Take Flight: There is much I want to do here to improve our blog purpose and experience over time.  Again, a few examples:

  • Improve actual blog.
  • Social media platforms.
  • Erik providing financial consulting.
  • I will provide more art curriculum / other education ideas and curriculum.

Travel: I'd like to research some of our travel plans and preparation PRIOR to arriving in Spain ... Where to?  Here are some places we are thinking.  What do you think?

  • Madrid
  • Barcelona
  • Malaga
  • Granada's more local beaches / mountains
  • Paris
  • Morocco

What do you think?  We will provide financial updates / general updates as we prepare to take flight towards financial independence.  Any questions about our journey?  Where might financial independence take you?

-Erik (and Tara)

Home Sweet Home: Renter's Equity

Home Sweet Home ... if only it was this easy?
What is the "American Dream"?

Buy the house with the white picket fence ...?  Lock in that 30 year mortgage?  Put in those 40 (+!?) years of employment?  Then enjoy 10 - 15 “quality” years of retirement??  Does that sound about right?

What about THIS American Dream?  

Forget the house (and that white picket fence...)... and definitely forget borrowing from banks!

RENT, INVEST, simplify and enjoy 40 - 60 years of quality EARLY retirement.  How does this sound?

This isn’t going to be a post where I try to convince you one way or the other in the debate about whether it is better to rent versus own.  The fact of the matter is there are just too many different scenarios and too many different real estate / rental markets (just too many variables!).  I get a headache just thinking about it.  There is no right or wrong here.  What best fits your lifestyle?  Rather than enter into an endless rent versus own debate, we are going to illustrate how one can establish what I like to call “renter’s equity.”

What Are We?

We are currently “homeowners” (actually like many Americans our age, the bank owns our home, and we pay them a good chunk of money every month to slowly chip away at the power they hold over us ... side note: we are in a great financial situation where we COULD pay off our home, but it doesn't make sense for our current situation).  We love our home for many reasons.  Most importantly it has been a wonderful place to raise our family.  We also had the unique opportunity of buying land (reasonably priced at the time in a suburb of Houston), hiring a very talented architect (Brett Zamore Design) and awesome family-owned home builder (Mealer Homes) (in fact our architect and home has been featured in a local publication - Houstonia). 

BUT ... despite all that, our FI journey is taking us elsewhere (and actually our plan was to never stay in the Houston area long-term ... it is just too hot!) ... and now back to renter's equity ... 

In our FI journey we are going to squash the “American Dream” of being homeowners and become renters (possibly for life? ... but never say never).  Renting will fit best with our lifestyle as early retirees.  It will allow us to live very cheaply in Spain (and / or travel the world).  Renting will also allow us the flexibility when we come back state side (if we come back?) to try out different parts of the country to see where we are most happy (East Coast?  West Coast?  Mountains?  Country?  City?).  

We are choosing to rent for the flexibility but also for the peace of mind.  As renters, we won’t have to put a HUGE down payment when we move in or be charged any closing costs.  We won’t have to ever pay property taxes, and we won’t have to worry about any maintenance costs catching us by surprise.  

But ... What About Your Equity?

But as renters you just “throw your money away", no?!!  And as homeowners you earn equity!  Using the examples below we are going to show you why we feel that in our case renting is going to be more beneficial versus owning, and we have figured out a way to earn “renter’s equity.” 

Example: Homeowners

Let’s say Family A buys a house for $300,000 at a 4.5% interest rate on a 30 year fixed mortgage.  They put 20% at closing so the mortgage is actually for $240,000.  (We used this calculator to see the mortgage numbers).

For the purposes of this post we are going to assume that the house increases in value by an average of 4% per year over the next 30 years.  This will help us estimate the property taxes year after year (we are using a tax rate of 1.86% based on the area that we currently live).  

Family A: Homeowners

So over the 30 years Family A has paid $300,000 ($240,000 + $60,000) in principal, $312,950 in property taxes (these will vary depending on where you live), around $10,000 in closing costs (an estimate), $198,000 in interest to the bank (you basically bought the bank another house, thanks!), and (conservatively speaking) about $100,000 in upgrades / maintenance over the years (new roof, new AC, new fence, new counter tops, new appliances, new flooring, yard care, etc….)  All in all, the $300,000 house has cost over $920,700 over the last 30 years (do you feel like you’re living in an almost $1,000,000 home, Family A?).    

Family B: Renters

You Are Just Throwing Your Money Away In Rent!

Sure you aren’t going to get any equity when you move from your rental property, but you have been able to save from some of the expenses that you haven’t had to pay as a homeowner.  Let’s set up another example. 

Family B is in the same financial standing as Family A; however, they decide to rent rather than own.  Naturally they are more open (and able) to move around their city, state, country and even world over this 30 year time frame in order to find a place that has reasonable rental prices while providing a high quality of life.  Now, I don’t have some Magic 8 ball to tell me how much rent is going to cost Family B thirty years from now, but seeing as how they are open to moving if needed, I am comfortable coming up with a range of $1,200 - $2,500 per month.  Let’s pick the middle ground and say that over the course of 30 years their rent averages $1,850 per month.

As renters Family B has experienced different parts of the country (and possibly even the world) and has cost them about $666,000.  This is $254,730 less than the homeowners.  

Now, Family B doesn't have equity, but they do have this extra $254,730 which is going to represent their renter’s equity.  Let’s divide that up evenly over 30 years (keeping it simple), and invest it into VTSAX at a 7% inflation adjusted rate of return.  

Wow, so Family B divided up the $254,730 that they saved as renters evenly over 30 years at $8,491 per year and invested that amount every year directly into VTSAX.  Now they have $858,200 sitting in their Vanguard account.  Family B can treat this as their “equity” as renters.  This essentially lowers the $666,000 that they paid to rent over the last 30 years to, well, a surplus of $192,200 ($858,200 - $666,000) which is the equivalent of paying themselves $6,407 per year to rent ($192,200 / 30 years)!

Something To Think About 

Again, I’m not here to convince you one way or the other because there are just too many variables when making this decision.  What I hope you gain from this post is to not just assume that owning a home is profitable and that renting is “throwing away” your money ... but rather run the numbers for your particular situation, and see what they say (they won’t lie!)!

So what do you think?  What is your situation?  Are you a homeowner?  A renter?  What do you think about "renter's equity"?


Travel: Can You Travel And Save For FI? (CO Trip)

Can you travel and still save for FIFor us ... the short answer is yes.  Yes, you can.  But we've also made it a priority (at least for our family).

Want to reach FI?  1) Eliminate debt.  2) Invest!  Invest!  Invest!  3) Remember your high savings rate.  4) Continue to budget, budget, budget.

So that last point ... we work travel into our budget.  Our big (planned) trip this year was to Colorado (Snow Mountain Ranch (SMR)) in June.  We wouldn't really describe this trip as a big travel hack like some of our previous trips, but it is something we planned for in the budget.  With that said, we definitely cut costs where we can though.

Fraser River Trail in Winter Park, CO.

Canoeing at SMR.

Let's take a look at the numbers.

Plane Tickets:  How could we have saved here?  We could have looked at Spirit Airlines (a budget airline).  Another obvious choice ... drive.  Or we could have chosen to travel hack (for example with credit cards).

What are your hacks when it comes to flight costs?

At the airport with our Tortuga bags.  Trying to learn how to travel light for nomad life.

Snow Mountain Ranch Cabin: 

Overall we think Snow Mountain Ranch (SMR) is not only a great place to visit, but it is very family-friendly and affordable (or as affordable as you make your visit).  If you stay at SMR many of the activities are "free" or included in your stay, and SMR definitely caters to families (for example:  several great playgrounds!).  We've been twice so far (once for a snow trip in January 2018), and we can see why some families go back annually.

But more on SMR in a bit ...

Playground at SMR.

How could we have saved with our cabin?  First, we had to get a three bedroom cabin because it was the only thing available (we recommend you call the day and morning cabins open up for your timing!  We did that, but still it is a popular destination ... with that said, it still never felt crowded at all).  We could have considered their other location at Estes Park.  But they also have other lodging options available if you are feeling more adventurous (or want to save some money!).  They have lodges, yurts, and even camp grounds available.

How do you save with lodging on trips?

Turo Car Rental: This was our first time using Turo, and this will definitely not be our last.  I've heard that Turo can be cheaper than regular car rental companies.  I'm not 100% sure if this was cheaper for us, but there was definitely less headache versus a regular car rental company.

Never heard of Turo?  Think Airbnb but for cars.  I'm guessing every situation is different, but for us our contact was great at communicating (but we never had to meet him in person).  Our Turo rental car was already at a car lot at the airport.  We had detailed directions on how to get and access the car (a short shuttle bus ride to the parking lot from the airport).  We also had zero issues with the car, and the drop off at the car lot on our way back was also easy.

Have you ever rented a car from a normal car rental company?  Nearly every time we have it is a huge pain ... very few people working the desk, long lines, lots of waiting, etc.

Do you have any car rental hacks?

Our Turo car.  Thumbs up from us!

Dog Boarding: How could we have saved here?

We could have considered other boarding options (she went to a normal boarder that also has doggie daycare and other perks) like family or friends that do pet setting.  But on the flip side we trust this location, and she enjoys her time there.

Do you have pet hacks for when you travel (and can't bring them with you)?

CO Trip Spending: I think we did a decent job of keeping spending low (under $300), and this included food.  We saved on food by stopping at the grocery store on the way in (only one trip) and cooking in the cabin.  We did get a few things while we were out at SMR, Grand Lake, and in Winter Park, but mostly we ate at the cabin.  Most of our "entertainment" was included at SMR or free (hello, nature!).

We did spend money on their pizza at SMR.  It is awesome!

Historic tour of Rowley Homestead at SMR (yes, complimentary tour).

How do you plan out or save with "extra" spending on trips?

YMCA Day Camp, Snow Tubing, Canoeing: We did pay for a few extras at SMR.  In fact, they have even more to do than we participated in!  There are endless amount of activities for families.

At the Snow Tubing Hill (SMR).

Snow Tubing at SMR.

We thought the kids would enjoy the Day Camp so we put them in it for one day, and this also gave us an opportunity to do a hike that would have been too difficult for them (A complimentary guided hike - SMR puts together a weekly calendar of mostly complimentary activities that you can participate in).  I'm not sure the Day Camp was much of a hit.  I think mainly because they would have rather have been hanging with us, but they both really enjoyed the horseback trail ride (older child) and pony ride (younger child).

Snow Tubing was a huge hit and definitely worth the extra cost.  In fact, it might have been their favorite activity of the whole trip.

The canoeing cost was very minimal, and the kids have never done that before.  Not a hit with the youngest, but I'm glad we did it.

Canoeing at SMR.

As far as saving here ... I think these were all worth the costs.  We also planned ahead for these which was key.  We didn't add them in once we arrived.

Snow Mountain Ranch / Our CO Trip:

Like I've mentioned above, SMR is such a great place (and affordable) for families.  There are really an endless amount of things to do right at SMR / on site.  All of these are listed on their website (some off the SMR site) - I will bold the ones we participated in!:

Archery (our son did this in Day Camp), Camp Fires, Canoeing, Challenge Courses, Craft Shop, Day Camp, Disc Golf, Electric Bike Rental, Fishing, Free Summer Activities and Concerts, Grand Lake, Historical Sites, Hiking, Horseback Riding, Indoor and Outdoor Climbing Wall, Miniature Golf, Mountain Biking, Playgrounds, Roller Skating, Sand Volleyball, Swimming, The Kiva Center (Indoor Rec Center), Tennis, Therapeutic Riding Center, White Water Rafting, Zip Line, Summer Tubing Hill

And of course just enjoying the outdoors was one of the main reasons why we came to SMR and CO.  We did at least two hikes while we were at SMR - the Waterfall Hike with the kids and the 9 Mile Hike (it wasn't 9 miles, just the name of it).

But another perk of SMR it has a great location close to other areas including Grand Lake, Rocky Mountain National Park, and Winter Park (we took advantage of all three).

Grand Lake is an awesome mountain town less than 40 min from SMR.  We enjoyed the lake (despite the cold mountain water the kids still got in) and a small beach (the kids loved it!) (Grand Lake Town Beach and Dock).  When we visited parking was easy, free, and close by, and it is a less than 5 minute walk to their historic old western boardwalk where we enjoyed some ice cream before heading to Rocky Mountain National Park.

Grand Lake, CO
Grand Lake, CO

After enjoying Grand Lake we took a very short drive to Adams Falls hike (Rocky Mountain National Park).  The trail head was located in Grand Lake.  This was an easy and beautiful hike for the whole family.  We continued on to the East Inlet trail to get to the first meadow area.  Beautiful!

Adams Falls Trail (Rocky Mountain National Park) 

Adams Falls Trail (Rocky Mountain National Park)
East Inlet Trail (Rocky Mountain National Park)

We also spent some time in Winter Park on our last day before we had to head to the airport.  It's only a short drive from SMR on the way to the airport.  Everything we did in Winter Park (basically a trail, eating, and a local public park for the kids) was within walking distance of each other.  We love walking towns!

Fraser River Trail (Winter Park)
Fraser Valley Hot Dog gets a big thumbs up from me.  Be sure to visit if you are in Winter Park.

Public park in Winter Park, CO.

SMR is also only about a 2 hour drive into the mountains from the Denver airport.  Added bonus on our drive this time ... we hit snow on our way to SMR.  Nothing like an unexpected snow trip on our summer trip (for Texas kids this was awesome)!

Snow on our drive up the mountain to SMR.

We found SNOW on the Waterfall Hike at SMR (in our Vivobarefoot land & water shoes).

So what do you think ... would you consider a trip to SMR?  How do you budget and plan for travel?  What are your travel hacks?


You Can Access Your 401k Early (Before It's Too Late!) (Part I)

Shortcut To Penalty-Free Early Withdrawals From Your 401k (Part I)

A common question that is asked when planning for early retirement (ER) is how to access funds from retirement accounts such as a 401k.  Typically, a person is penalized a 10% early withdrawal penalty when trying to access these accounts before they turn 59 ½.  So how can you gain access to pull your 4% safe withdrawal rate from these accounts without incurring the 10% penalty?

I am going to introduce you to one of the work arounds for this which is creating a Roth IRA Conversion Ladder.  Let’s dive in, shall we?

As always, we will use the standard assumption of $1,000,000 at 4% withdrawal rate or $40,000 per year for the below scenario.  Need more information about this?  Read here.

Access Your 401k Before It's Too Late! (MFAH)

What is the purpose of a Roth IRA Conversion Ladder?

A Roth IRA Conversion Ladder will allow for a person to access funds from their retirement accounts without being penalized before they turn 59 ½.  

How do you set up a Roth IRA Conversion Ladder?

1) Work and contribute to 401k (Where we are now!)
2) Retire early and convert 401k to Traditional IRA
3) Convert portion of Traditional IRA to Roth IRA (Roth IRA Conversion Ladder)
4) Wait 5 years
5) Withdraw penalty-free!

When you retire you will roll your 401k into a traditional IRA (this is pretty par for the course).  Most people who retire at traditional retirement age (or over 59 ½) don’t have to do anything further.  They are old enough to withdrawal from the traditional IRA without being penalized the 10%.  

However, for those of us in the ER community, we may want access to these funds before turning 59 ½ without paying a penalty, and this is where the Roth IRA Conversion Ladder comes into play.  

Note, this is one of two ways to avoid the early withdrawal penalty (we will go over the other one in part 2 of this series).

An Example:

Person A plans to achieve FIRE at the age of 40 and currently has $500,000 in a taxable Vanguard Account and $500,000 that has been rolled into a Traditional IRA.  We know that they can easily take $20,000 from the Taxable Vanguard account ($500,000 *.04) but what about the additional $20,000 from the Traditional IRA? This is where the conversion ladder comes in. They can convert $20,000 from their Traditional IRA to their Roth IRA, thus setting up their conversion ladder.  However, the catch is, as shown above, they can’t touch this $20,000 for 5 years.  

How do I make up that money for the first 5 years of ER?

Option 1: You could plan to earn money through part-time work for the first 5 years of your ER to supplement the $20,000.  Once year 6 starts (and assuming you did similar conversions in years, 2, 3, 4, etc.) you can now begin withdrawing from your Roth penalty-free the amount you converted 5 years previous.  

Option 2: Another option would be to have enough cash saved up to sustain you for the first 5 years.  For our example that would equal $100,000 or $20,000 per year for 5 years.   

Option 3: Or what about a combination of the two?  Say $10,000 in part-time work and $50,000 in cash (50,000 / 5 years = $10,000 per year)?  

There are many ways to make it work, and it is definitely a handy little tool to keep in your back pocket.  

Also if you start a conversion and then end up not needing the money in 5 years that’s okay too.  You don’t HAVE to withdraw it. 

If you plan accordingly and if your cost of living is low enough (as it often is in ER) your conversions may not only be penalty-free, but they can potentially be tax-free as well!  So there you have it.  Early access to your retirement account penalty-free.  

What do you think?  Did you know about this?  Would you consider it?