Case Study: How soon til FIRE?

[AllenCodySmith]

Alright, I've been wanting to do this for a while, and since July was the first month in a while that our expenses were way more than our income I figured why not tell the world about it.

Here is our situation:

I'm 27, DW is 26 and we have two young kiddos.

Occupation: Engineer (DW is a stay-at-home mom for our two little girls (2 1/2 yrs & 6 months)
Income (gross): $5,719.73 per month
Other income:
-Book royalties: $339.94 (fluctuates anywhere from $300 - $500)
-coaching: $85 per hour (I coach around two hours per month)
-Book publishing for clients: $600 per project (1 project a month)

Expenses:
Mortage: $1606.19 ($1281.34 princ/int + $324.85 tax/insur)
Electricity: $124.92
Water/sewage: $62.25
Internet: $43.90
Phones: $100 (switching to talk and text for $28 per month for two lines)
Car insurance (2 cars): $127.75
Gas: $182.38 (this has been a crazy month for traveling)
Charities: $398 (canceling till we get our act together)
Tithe: $650 (changes with income)
Food/groceries: $884.48 ($419.54 of that was from eating out alone! **barfs in mouth but then swallows remembering how expensive that barf was**)
--This is where I expect to cut down food to about $350 - $400 per month.


Subscriptions:
Microsoft Office: $6.99 per month
Clipping magic: $3.99 per month (a graphic tool for work)
Canva: $12.99 per month (canceled)
Audible: $14.99 per month (canceled)
Crunchy Roll: $6.95 per month (canceled but man do I love cartoons. Some things just don't die when you grow up)

Time Share: $355.33 per month (Yep, got sucked into one of those. Embarrassing to even mention. You don't have to mention how stupid that was but you can if you want.)

Debt:
Home: $161,438.60 left on 15 year, fixed, 4.7% loan
Time share: $19,474.06 left on a 5 year loan.

Assets:
Cash: $67,596.59
Two cars fully paid off worth ~$8k

I'd like to leave my job within 5 years (possible work part-time if I have to) and focus on writing more books, coaching, public speaking and book launch consulting for clients so I can work mostly from home. My wife is hoping to get a job at daycare which will pull in ~$1500 a month plus offers free daycare for our two kids which makes the job very enticing.

Part of my plan (other than taking huge wacks at our expenses) is to pay off the timeshare and immediately start paying off the house with anything extra we have.

I almost forgot to mention, I get promoted in October so my gross income will be around $7,769.99 per month starting then.

Any help and guidance (and tough love) would be greatly appreciated.

**Fist Bump**

-Cody

[marty998]

What are the penalties for selling out of the timeshare?

The cars are not assets. They cost you money to hold (insurance, petrol, repairs etc) and will depreciate over time so you can put a "$0" down as their worth. How do you plan to replace them when they need to be replaced?

What does coaching entail? It pays you a higher income per hour than your main job.... You could do that 3 days a week for 8 hours a day and you'd be earning a higher income (though probably less secure).

How much is your house worth? Is it old? Have you budgeted for things breaking down? Appliances, kitchen, roof, hot water system etc.

Will you have to start paying school fees in a couple of years time?

[Freedomin5]

How much do you need to save to generate enough income to cover your FIRE expenses? That will give you an idea of whether you can FIRE in five years.

First, create an estimated FIRE budget. For example, you could potentially drop down to one car (saving both on gas and insurance). Maybe tithing would go down as your income goes down. Let’s say monthly expenses are estimated to be at $2500/month (numbers for illustrative purposes only).

You currently generate around $1000/month in your side business. So using current figures you would need an extra $1500/month in investment income to cover your expenses. Using the 4% rule of thumb, you would need $450k saved in your investment accounts. (by the way, why do you have no retirement accounts or retirement savings?)

You have $62k right now. At your current savings rate, how long will it take you to save another $388k (450k - 62k)? Can you save $77,600 per year (around $6500/month) given your current income and expenses?

(Another aside: Why are your savings all in cash? You do realize that your money is actually losing purchasing power every year? If it’s an emergency fund, put it in a high-interest savings account. If it’s for retirement, put it in a retirement account. After maxing your retirement accounts, put it in a taxable account invested in index funds)

Now, I realize that this is a conservative estimate given that your side income may grow, but it does give you a ballpark figure. And it highlights what you may want to target and how to move forward. For example, you could decide to FIRE in 10 years instead, or to cut expenses even more, or to work hard to grow your side income so that it can cover your expenses, etc. and of course, you can adjust that figure as you get closer to the FIRE date. At least this type of estimate gives you a goal to work towards.

On the expenses side of things, you need to get out of that timeshare. Your mortgage is also really high for your income. Can you move to a smaller/cheaper place? And you’re already targeting the food piece , so that’s good.

[tamuaggie2011]

I'd like to leave my job within 5 years (possible work part-time if I have to) and focus on writing more books, coaching, public speaking and book launch consulting for clients so I can work mostly from home. My wife is hoping to get a job at daycare which will pull in ~$1500 a month plus offers free daycare for our two kids which makes the job very enticing.

I think this is most important not only because it establishes the why of what you and your wife are doing but also provides indirectly the how. Over the next five years I would really try and get a solid estimate of how much monthly income this will bring. As you work on trimming the expenses and increasing savings (definitely in more lucrative accounts as other posters have mentioned. You really can't just have everything sitting in cash) you will know more about how much you "need per month".

As a motivation, I really think 5 years is more than doable because for you and DW it sounds like FIRE isn't anything like a "Retirement" so much as a "shift only to meaningful work that allows us to care for our family".

[AllenCodySmith]

What are the penalties for selling out of the timeshare?

The cars are not assets. They cost you money to hold (insurance, petrol, repairs etc) and will depreciate over time so you can put a "$0" down as their worth. How do you plan to replace them when they need to be replaced?

What does coaching entail? It pays you a higher income per hour than your main job.... You could do that 3 days a week for 8 hours a day and you'd be earning a higher income (though probably less secure).

How much is your house worth? Is it old? Have you budgeted for things breaking down? Appliances, kitchen, roof, hot water system etc.

Will you have to start paying school fees in a couple of years time?

I'm reading through the contract on the timeshare to see what that looks like to sell out.

Can't argue with that. The cars are definitely not an asset given that perspective. Talking it over with DW to drop down to one vehicle and selling the other.

Coaching is done for skype so I do that from home. I would need to build up to having more regular clients which is doable though less secure.

House was built in 1986. Worth $195k. I have not allocated any money toward house maintenance. All appliances are new minus the hot water heater which is 5 years old.

Our kids would go to the local public school. No direct school fees but there will be the indirect cost of school supplies (backpacks, markers, etc).

[AllenCodySmith]

How much do you need to save to generate enough income to cover your FIRE expenses? That will give you an idea of whether you can FIRE in five years.

First, create an estimated FIRE budget. For example, you could potentially drop down to one car (saving both on gas and insurance). Maybe tithing would go down as your income goes down. Let’s say monthly expenses are estimated to be at $2500/month (numbers for illustrative purposes only).

You currently generate around $1000/month in your side business. So using current figures you would need an extra $1500/month in investment income to cover your expenses. Using the 4% rule of thumb, you would need $450k saved in your investment accounts. (by the way, why do you have no retirement accounts or retirement savings?)

You have $62k right now. At your current savings rate, how long will it take you to save another $388k (450k - 62k)? Can you save $77,600 per year (around $6500/month) given your current income and expenses?

(Another aside: Why are your savings all in cash? You do realize that your money is actually losing purchasing power every year? If it’s an emergency fund, put it in a high-interest savings account. If it’s for retirement, put it in a retirement account. After maxing your retirement accounts, put it in a taxable account invested in index funds)

Now, I realize that this is a conservative estimate given that your side income may grow, but it does give you a ballpark figure. And it highlights what you may want to target and how to move forward. For example, you could decide to FIRE in 10 years instead, or to cut expenses even more, or to work hard to grow your side income so that it can cover your expenses, etc. and of course, you can adjust that figure as you get closer to the FIRE date. At least this type of estimate gives you a goal to work towards.

On the expenses side of things, you need to get out of that timeshare. Your mortgage is also really high for your income. Can you move to a smaller/cheaper place? And you’re already targeting the food piece , so that’s good.

Paying off the house, getting rid of the timeshare, and dropping down to one vehicle, adding medical insurance for our family, dropping down our food expenses to a reasonable amount, and accounting for house and car maintenance along with a 25% margin, our FIRE expenses come out to be $2,286.25. So about $2,500 like you said.

I've got a retirement account through my work. They only recently starting matching so I'm setting that up now. I really should have started putting money into that sooner so now I'm kicking myself in the butt for it.

Our savings rate isn't anywhere near that high (which I imagine is a good way of knowing whether our FIRE date is reasonable lol). If nothing changes, our savings rate is $1,443. If we pay off or manage to get rid of our timeshare, lower our expenses and include the promotion/raise in October, our savings rate will be $3,729.

Just looking at my first entry, our real goal is to lower our expenses as much as possible, pay off all debt, and increase side income to the point we can live off that in 5 years and from there work toward FIRE.

Is that dumb? Should I stay in the workforce longer and focus on building up investment accounts rather than paying off debt instead?

Part of me just really wants to be debt-free and focus on that rather than focus on building up an investment account but that may be unwise.

Thank you for taking the time to respond to my post. I really appreciate that!

[AllenCodySmith]

I think this is most important not only because it establishes the why of what you and your wife are doing but also provides indirectly the how. Over the next five years I would really try and get a solid estimate of how much monthly income this will bring. As you work on trimming the expenses and increasing savings (definitely in more lucrative accounts as other posters have mentioned. You really can't just have everything sitting in cash) you will know more about how much you "need per month".

As a motivation, I really think 5 years is more than doable because for you and DW it sounds like FIRE isn't anything like a "Retirement" so much as a "shift only to meaningful work that allows us to care for our family".

I know. I've got way too much sitting in a savings account not doing anything. I'm struggling between using it to pay off debt versus putting it in an investment account.

And you are correct, our initial goal isn't "retirement" and more of a shift in how we make income and then work toward FIRE.

[Freedomin5]

Paying off the house, getting rid of the timeshare, and dropping down to one vehicle, adding medical insurance for our family, dropping down our food expenses to a reasonable amount, and accounting for house and car maintenance along with a 25% margin, our FIRE expenses come out to be $2,286.25. So about $2,500 like you said.

I've got a retirement account through my work. They only recently starting matching so I'm setting that up now. I really should have started putting money into that sooner so now I'm kicking myself in the butt for it.

Our savings rate isn't anywhere near that high (which I imagine is a good way of knowing whether our FIRE date is reasonable lol). If nothing changes, our savings rate is $1,443. If we pay off or manage to get rid of our timeshare, lower our expenses and include the promotion/raise in October, our savings rate will be $3,729.

Just looking at my first entry, our real goal is to lower our expenses as much as possible, pay off all debt, and increase side income to the point we can live off that in 5 years and from there work toward FIRE.

Is that dumb? Should I stay in the workforce longer and focus on building up investment accounts rather than paying off debt instead?

Part of me just really wants to be debt-free and focus on that rather than focus on building up an investment account but that may be unwise.

Thank you for taking the time to respond to my post. I really appreciate that!

Don't worry about starting to contribute to your retirement accounts "late". You're only 27. You still have time. Make sure you try to max out your accounts, not just contribute enough to get the employer match.

Just looking at my first entry, our real goal is to lower our expenses as much as possible, pay off all debt, and increase side income to the point we can live off that in 5 years and from there work toward FIRE.

No, that is not dumb at all. That is actually a really good plan. I would add "contribute to investment accounts that generate passive income". Most wealthy people have 4+ income streams. Basically, if anything happens to one income stream, you still have the other investments/businesses generating income for you.

With regard to contributing to investment accounts vs. paying off debts, the general rule of thumb is to pay off any debts with interest rates greater than 5% before contributing to investment accounts. More specific details on Investment Order can be found on the Investment Order thread: https://forum.mrmoneymustache.com/investor-alley/investment-order/

[ErrantVenture]

...
Debt:
Home: $161,438.60 left on 15 year, fixed, 4.7% loan
Time share: $19,474.06 left on a 5 year loan.
...
-Cody

I'm thoroughly ready to get schooled by smarter, bigger mustaches than mine.

Right now, 15 year mortgage interest rates are going to be lower than that, and you can quite easily get a 30 year mortgage rate in the 4's.

If your goal is to lower your monthly expenses, and put more into the 401(k), would it make sense to refinance into a 30 year to get a lower monthly payment? with a rate in the low 4's or even 3's, your savings can be invested in the market and compound forever, and you can still chose to pay it off at an accelerated rate later.

Does anyone know the pro's and con's of this approach?