Author Topic: Financial Independence at 27  (Read 37553 times)

Herbert Derp

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Financial Independence at 27
« on: November 23, 2012, 11:16:36 PM »
I've always been a frugal person, but yesterday I discovered mustachianism and I was inspired! After running some simple calculations, I think I can start saving 100% of my paycheck by the time I turn 27. I am currently 22 and started my career five months ago.

Here is my reasoning. In my monthly budget I currently allocate $2000 for all forms of spending. However, it seems that I am actually spending closer to $1500 due to my frugal nature, if mint.com is to be believed. After some research, I believe that I can cut my monthly expenses to below $1000 if I stop spending hundreds of dollars at department stores, leave my $875/month studio apartment, and rent a single room in someone else's apartment on craigslist for about $500/month (it might even be more than the paltry 295 square feet I have now!).

So in order to become financially independent, I need to have an investment income of at least $1000/month. I am not at all familiar with mutual funds or the stock market, but I hope I can achieve a 4% return on my investments (after taxes?). This means I need to invest $300k in order to live off of the $12k/year profit. At this current point in time I have $42k invested in mutual funds and $1.8k in my 401(K) account.

Under my current budget, I am contributing $3.5k/month to savings. Using this savings calculator, with a $42k initial investment, $3.5k monthly deposit, and 4% interest compounded monthly, I get $283k after five years which just falls short of my goal. But if I can cut monthly expenses to $1k, it means I can contribute $4.5k/month which gives me $350k after five years! At which point I would make around $14k per year from investments and be financially independent!

But can I do better? I could work part-time as a tutor, but I have no idea how much I would make from that or if I am motivated enough to work extra hours. Additionally, can I save on taxes or something if I max out my 401(K) before investing in mutual funds? I am currently having the maximum of 4% withheld from my paycheck each month, but could I manually stick more money in there each month?

Also, how bad are my calculations? As I said before, the 4% investment return is mostly an asspull, but seems conservative based on the fund history. In any case, financial independence at 27 is a very aggressive goal and I am ready to throw down the gauntlet!
« Last Edit: August 03, 2013, 04:43:51 PM by Herbert Derp »

Honest Abe

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Re: Financial Independence at 27
« Reply #1 on: November 24, 2012, 01:28:43 AM »
Don't forget that the 14k you receive from investments is taxable

But good for you setting an aggressive goal!

dahlink

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Re: Financial Independence at 27
« Reply #2 on: November 24, 2012, 01:50:39 AM »
Gratz on finding this site and getting motivated at such an early age.  I'm only 30 but if I'd known the things that are here I would have so much more of a "stache" by now.  Welcome to the club and stick with it.

Herbert Derp

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Re: Financial Independence at 27
« Reply #3 on: November 24, 2012, 02:09:01 AM »
How much taxes can I expect to pay on capital gains? The only thing that comes to mind is Mitt Romney and the oft-quoted 15% figure... If I paid 15% of the $14k in taxes it would leave me with $11.9k, which is 100 dollars away from financial independence. Maybe I should pick up that tutoring job... lol

But seriously, I think my estimates are a bit conservative. The 4% ROI figure may be a little low, and I also don't consider any bonuses or raises in my salary or the effects of inflation. There is a lot of stuff to consider; it is boggling my mind right now.

By the way, the mutual funds I purchased are as such:
$21k VBIAX
$21k VBILX

I like VBILX because it seemed to resist the recession in 2008 and always goes up steadily. I got the VBIAX because people said index funds were good, but it doesn't really seem to do much better than VBILX. Should I replace it with something riskier like VTSAX? I don't mind dips in the economy as long as it goes back up again since I am aiming for the long-term.
« Last Edit: August 03, 2013, 04:45:12 PM by Herbert Derp »

keith

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Re: Financial Independence at 27
« Reply #4 on: November 24, 2012, 03:07:11 AM »
Awesome, good to see someone else get started really early on this and be excited about it. On paper it sounds good - just don't forget to plan for potential upcoming lifestyle changes that may affect your savings rate or your post-FI expenses.

Examples:
* Are you planning on buying a home?
* What about family, or children later?
* If you have employer sponsored health insurance now, don't forget to add that into your post-FI expenses (since you probably don't have to pay for it now).

If I were in your shoes I would work a few extra years to really build a huge buffer for that stuff.

Honest Abe

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Re: Financial Independence at 27
« Reply #5 on: November 24, 2012, 07:34:10 AM »
re: Tax rates.... I believe the income you're considering is dividend income. Currently qualified dividends are taxed at 15% as per the "Bush Tax Cuts" however if (when) the law is rewritten you can likely expect dividends to be taxed at 25% or as ordinary income (% varies)

MooreBonds

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Re: Financial Independence at 27
« Reply #6 on: November 24, 2012, 08:53:38 AM »
So in order to become financially independent, I need to have an investment income of at least $1000/month. I am not at all familiar with mutual funds or the stock market, but I hope I can achieve a 4% return on my investments (after taxes?). This means I need to invest $300k in order to live off of the $12k/year profit. At this current point in time I have $42k invested in mutual funds and $1.8k in my 401(K) account.

Congrats on a strong start with clear goals that you're motivated to reach. However, some temperance is in order.

Whenever I see someone post on the forums with a belly full of fire to reach FIRE, it's great to see...but when they are talking about retiring at early 30s/late 20s, on a microbudget of $10k-15k/year, assuming a 4% withdrawal rate, I try to introduce a few facts that don't often appear in their realm of consciousness:

4% SWR 'myths' - It's true that you could very well retire on a 4% SWR and never have money issues.  However, when by your own admission you don't understand mutual funds all that well, it makes me even more nervous. The 4% withdrawal rate that many people use and reference was a scientific study undertaken by academic researchers to find out "if someone retires, what 'safe' withdrawal rate could they have used on their portfolio and have withstood ANY 30 year retirement period in the US's history. Even including retiring on the eve of the Great Depression?"

The answer was: 4%. Thus the 4% Safe Withdrawal Rate "rule" was born.

However, there are 2 huge caveats:
1. Note that this is for a ***30 year*** retirement period. Not only can the future vary somewhat from the past, but in their study, if you finished year 30 with just $100 in your portfolio, it was considered a 'success'. They didn't care what happened in year 31, because their study was for just 30 years (assuming you retired in your 60s, as most people do). If you extend the period to 40, 50, or even 60 years, the SWR drops considerably, to somewhere in the low 3%. And while this period includes the Great Depression, it also includes the boom of production/profits from WWII. So although you might have retired on the even of the GD (which some parallel to the 2008/2009 crash), I don't know that we would have a similar boom waiting for us around the corner.

2. The 4% SWR study only focused on the US. When you look at retirees in other foreign countries, only Canadians have a higher SWR than the US's 4% (for a 30 year period):
http://www.fpanet.org/journal/CurrentIssue/TableofContents/AnInternationalPerspectiveonSafeWithdrawalRates/

Most other countries in the study have a SWR of the mid to low 3%, or even lower.

Also, don't let your invincibility of youth make you assume that you only need this $12k budget (adjusted for inflation) for the rest of your life. Things can cost more as you age. After 10-20 years of 'retirement', you might wish to do more things that might cost money - and when 80% of your budget is consumed by rent and utilities and food, you don't have much left. Unless you want to try to get a job after being out of the workforce for 20-30 years.

You'll never have the same opportunity to earn as much as you are at 30 (presuming you want to permanently retire for the rest of your life), so, (IMO) far better to work an extra 5 years to completely seal the deal - rather than forever limiting you to just $12k/year budget AND rolling the dice and wondering if your -15%, -5%, -10% streak of returns will bounce back with a good gain, or if it will stagnate and force you back to work in your 40s/50s/60s. You might think "I'll be able to wing it without worrying".....but imagine 20 years down the road: will you lie awake at night, not being able to sleep, worrying if you'll have to look for a job because your portfolio isn't turning out the performance you hoped for? It's easy to imagine 3 or 4 consecutive years of future losses now...but actually going through 1,095 days or 1,460 days of it can be a much different experience than theory might predict.

arebelspy

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Re: Financial Independence at 27
« Reply #7 on: November 24, 2012, 09:15:50 AM »
Quote
Also, don't let your invincibility of youth make you assume that you only need this $12k budget (adjusted for inflation) for the rest of your life. Things can cost more as you age. After 10-20 years of 'retirement', you might wish to do more things that might cost money - and when 80% of your budget is consumed by rent and utilities and food, you don't have much left. Unless you want to try to get a job after being out of the workforce for 20-30 years.

100% agree with this.  You may get a partner, have a kid, whatever. 

Aim to save as much as you can to give you as much flexibility as possible.  Become FI for awhile, then realize that maybe you want something else and do more work and gain more money.  Whatever.

Bottom line is LBYM, save as much as possible, and be flexible.

The other thing: enjoy your time now.  You are quite young.  Don't sacrifice too much and regret giving up your youth and the fun times of your twenties.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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kudy

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Re: Financial Independence at 27
« Reply #8 on: November 24, 2012, 10:45:08 AM »
...I think I can start saving 100% of my paycheck by the time I turn 27. I am currently 22 and started my career five months ago.

The above quote makes me think that you aren't necessarily hoping or planning to quit your career after you reach the FI point?  Sometimes it's just exciting to be able to reach the goal of saving 100% of your paychecks, especially if you enjoy your career.

I got the impression that you may continue to stash awesome amounts of money away after reaching the FI goal. I think there are two distinct groups of people that frequent these forums: those who want FI so they can retire and give the middle finger to a job they hate; and those who pursue FI so they can have options and feel rock solid in their ability to live a free life with or without the career that helped them get to their FI goal.

I personally really enjoy what I do right now. I'll probably still enjoy it in 10 years, but I'd absolutely love if most of my living expenses were covered by income from investments at that point.  I'd also be proud if my principles hadn't changed to allow a huge amount of lifestyle inflation... basically, there's pride that comes from a great savings rate, and there's pride that comes from living a life of simplicity for simplicity sake.
« Last Edit: November 24, 2012, 10:46:48 AM by kudy »

Herbert Derp

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Re: Financial Independence at 27
« Reply #9 on: November 24, 2012, 02:31:51 PM »
kudy, you are correct in your reading of my post. I have no plans of quitting my career until I reach my mid thirties or forties. The way I see it, in theory I could retire at thirty but I would have to live for the rest of my life on a shoestring budget and worry about inflation destroying my fixed income. That's crazy. I want to make sacrifices now and live more comfortably in the future.

After 5 years of saving, I will have $14k investment income. But after 10 years I will have $29k! And after 15 years I will have over a million dollars saved and $47k investment income. Plus, if I can advance my career during this time I will have even more money. That is much more livable than $14k; maybe I could retire at 37 instead of 27. It's still an early retirement.

In any case, my goal is to have my investment income exceed my living expenses at 27, because it is just awesome and gives me flexibility that hardly anyone my age has. If I decide to change my lifestyle later on, I can still put myself in the best possible situation by saving as much as possible right now.
« Last Edit: November 24, 2012, 03:52:59 PM by Herbert Derp »

arebelspy

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Re: Financial Independence at 27
« Reply #10 on: November 24, 2012, 03:45:37 PM »
Absolutely.  A plan to hit FI at 27 and FIRE at 37 is totally feasible, and will give you flexibility to do other things earlier.  Save as much as you can as early as you can while enjoying life and you'll do just fine.  :)
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Nords

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Re: Financial Independence at 27
« Reply #11 on: November 24, 2012, 04:56:27 PM »
I've always been a frugal person, but yesterday I discovered mustachianism and I was inspired! After running some simple calculations, I think I can start saving 100% of my paycheck by the time I turn 27. I am currently 22 and started my career five months ago.Also, how bad are my calculations? As I said before, the 4% investment return is mostly an asspull, but seems conservative based on the fund history. In any case, financial independence at 27 is a very aggressive goal and I am ready to throw down the gauntlet!
Despite all of the buzzkill (perhaps because we've seen this burst of enthusiasm before) your math is correct.

More along these lines is at EarlyRetirementExtreme.com and another check of your math is http://the-military-guide.com/2011/01/03/how-many-years-does-it-take-to-become-financially-independent-2/

icefr

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Re: Financial Independence at 27
« Reply #12 on: November 26, 2012, 09:51:26 PM »
I'm on a similar path to you. I'm now 24 and have been working for almost 3 years. I bought a condo this year and my original calculations showed that I could pay off the mortgage in 5 years, but now I am forecasting that it will only take 4 years. I estimate that it will take me another 6 years after paying off the mortgage to reach FI, on a $30k per year budget (with no mortgage payment).

Every time I've done this math, the mortgage payoff date comes in, as does the FI date. That's the magic of your salary compounding. My total (gross) income has been increasing ~20% YOY, which has made a huge difference in my cash flow and monthly savings. I have a ton of RSUs as well and my employer's stock price has been going up quite nicely, so every RSU vest has been worth more than the last one. That's made a huge difference in my income increases, in addition to the raises. Plus, you'll probably get more RSUs granted at annual review time.

In your situation, I would definitely max out your 401(k) in 2013, dollar cost averaging it each month. That would shave $17,500 off your taxable income, which if you're in the 28% tax bracket would save you $4,900 in federal income taxes.

Doing math like this is so much fun and super motivating for me - it sounds like you have the same idea! I would love to hit FI by 30, but my math is currently showing 34 and I'm okay with that, though I do think I could bring it in a few years earlier over the next few years.

Even if you don't hit your goal...you'll still have incredibly more flexibility than most people your age.

arebelspy

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Re: Financial Independence at 27
« Reply #13 on: November 27, 2012, 07:56:38 AM »
30k/yr. with no mortgage payment seems much more reasonable (though you may want a bigger place eventually), though it isn't necessary and OP's 12k/yr. could work.  See: Jacob and other ERE folks.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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James

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Re: Financial Independence at 27
« Reply #14 on: November 27, 2012, 08:14:00 AM »
Excellent plan, definitely the way to set yourself up well for the rest of your life!

chucklesmcgee

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Re: Financial Independence at 27
« Reply #15 on: December 06, 2012, 03:00:25 PM »
Don't forget that the 14k you receive from investments is taxable

Yeah, but throw in the standard deduction and other credits and it'll basically be nothing.

I'm 25 and pretty much in the same boat. Business has really taken off in the last year and probably will grow quite a bit more. Net investable assets (not counting business inventory) should clear 200k this month. Feels good. To be honest though, business is outsourced and run 4 hour-work-week style, so I don't really have any strong desire to quit. It's also pretty fun seeing all that cash pile up.

I've kept most of my recurring expenses pretty low, but have felt a bit of lifestyle inflation. My goal now is to at least get my stache generating enough to cover those recurring costs. I'll keep saving and working after that, but it'll be a nice bit of security knowing that if my business fails I can more or less maintain my present lifestyle. As my stache grows after that, I may increase my lifestyle somewhat.

k9

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Re: Financial Independence at 27
« Reply #16 on: December 07, 2012, 08:08:44 AM »
Wow, FI at 27. Sounds good. If only I had known this (then no-existent) forum when I was your age !

The advantage when reaching FI this young is that it's much easier to see you've actually been a little optimistic and need to work a little more to grow your stash a little. Older semi-early retirees don't always have that option.

Matte

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Re: Financial Independence at 27
« Reply #17 on: December 08, 2012, 10:23:45 AM »
Great goal, great work to achieve it! Even though il bet you will work past your f I date il bet it will feel better knowing you don't have to.  Great work.

josephpg

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Re: Financial Independence at 27
« Reply #18 on: December 28, 2012, 02:32:35 PM »
any tips for a 20 yr old with no college and 1500 a month from a software dev job?

AlexK

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Re: Financial Independence at 27
« Reply #19 on: December 28, 2012, 03:35:41 PM »
You are in a great position, I say that because of your mental state and age. 

I am 39 years old with 20 years of expenses in investments (when that number gets to 25 years, you are FI assuming 4% withdrawal rate). I started working toward that goal only in 2008, so it doesn't take long. I'm already past the point of investment income exceeding expenses because I have rental property which is returning >10%. Jacob's Early Retirement Extreme blog is what motivated me to believe early FI was possible. The funny thing is once you see consumerism for what it is, living cheap isn't a sacrifice at all.

You will likely change your mind about things as you get older and you might decide to take a different route in life. But whatever you decide in the future, having a pile of money and the ability to live cheap opens up a whole lot of possibilities. Keep us posted on the growing 'stache.

Herbert Derp

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Re: Financial Independence at 27
« Reply #20 on: January 09, 2013, 11:03:54 PM »
I am 39 years old with 20 years of expenses in investments (when that number gets to 25 years, you are FI assuming 4% withdrawal rate). I started working toward that goal only in 2008, so it doesn't take long. I'm already past the point of investment income exceeding expenses because I have rental property which is returning >10%. Jacob's Early Retirement Extreme blog is what motivated me to believe early FI was possible. The funny thing is once you see consumerism for what it is, living cheap isn't a sacrifice at all.

So you define financial independence as having enough money that you could afford to retire permanently? I was just taking it as having passive income that exceeds your expenses. Under your definition I would NOT be able to reach financial independence at 27.

In other news I have been trying my best to stick to the plan. Last month I was able to invest $4.4k and this month I invested $5k. My investments have gone up by $620 in the month and a half that I have had them for. Now that I see the power of mutual funds, I really regret that I had all my money sitting in my bank account for so many months. I'm still waiting impatiently for the time when I can change apartments and start saving big on rent.

I did buy a brand new smartphone which is already putting me over-budget only nine days into the month--but I will be able to make back a good bit of that money by selling my old phone. So there is still a chance that I can stay under budget this month.

It's worth noting that after I started this topic, I was able examine my spending and slash my monthly budget from $2k to $1.5k. My plan remains to slash it again five months from now to $1k when I move.
« Last Edit: January 10, 2013, 12:10:34 PM by Herbert Derp »

arebelspy

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Re: Financial Independence at 27
« Reply #21 on: January 10, 2013, 09:01:28 AM »
So you define financial independence as having enough money that you could afford to retire permanently? I was just taking it as having passive income that exceeds your expenses. Under your definition I would NOT be able to reach financial independence at 27.

Explain the difference to me.

If your passive income exceeds your expenses... you can afford to retire permanently.  (Unless your expenses rise, but it's more or less assuming they won't - if they will, then it's basically a benchmark of "when passive income exceeds (peak) expected expenses".)

So yes, I think most would define it as the former, but the latter should coincide in nearly every case I can think of.

How do you find "passive income that exceeds your expenses" != "being able to retire permanently"?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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TLV

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Re: Financial Independence at 27
« Reply #22 on: January 10, 2013, 10:19:46 AM »
The 4% rule usually has passive income exceeding expenses (by 1-3 percentage points), in order to allow expenses to rise with inflation.

AJ

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Re: Financial Independence at 27
« Reply #23 on: January 10, 2013, 12:10:01 PM »
any tips for a 20 yr old with no college and 1500 a month from a software dev job?

Yes: figure out why you are only making 1500 a month from a software dev job. Then fix it. :)

Herbert Derp

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Re: Financial Independence at 27
« Reply #24 on: January 10, 2013, 12:15:47 PM »
Explain the difference to me.

If your passive income exceeds your expenses... you can afford to retire permanently.  (Unless your expenses rise, but it's more or less assuming they won't - if they will, then it's basically a benchmark of "when passive income exceeds (peak) expected expenses".)

So yes, I think most would define it as the former, but the latter should coincide in nearly every case I can think of.

How do you find "passive income that exceeds your expenses" != "being able to retire permanently"?

I was expecting that expenses would rise due to inflation. If I spend 100% of my investment income, it means in theory my investment income is going to stay the same while expenses rise. So you have to account for inflation.

arebelspy

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Re: Financial Independence at 27
« Reply #25 on: January 10, 2013, 12:19:04 PM »
Yeah, your investments better rise with inflation as well, and provide income to live on.

This is typical in both a total returns plan, a dividends plan (in which both share price and dividends typically rise as your expenses do, due to inflation), rental income (where rents rise with inflation), etc.

So to be financially independent, yes, I think your plan better have inflation taken into account.

Otherwise it may just be some nice F You money, but not fully FI.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Herbert Derp

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Re: Financial Independence at 27
« Reply #26 on: January 21, 2013, 01:55:07 AM »
Total spending so far for the month of December is $1,633. Subtract the $210 I am getting from selling my old phone and that brings me to $1,423. I may also receive a check for around $80 to reimburse some other expenses. Eleven days to go and no significant expenses left for the month, I think I can do this!

Herbert Derp

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Re: Financial Independence at 27
« Reply #27 on: February 02, 2013, 02:30:19 AM »
It looks like I did meet my budget for December. Total spending after deducting the sale of my old phone was $1484, although I know for a fact Mint.com duplicated at least one of my transactions so it is probably a tiny bit lower. Starting this month I am reducing my monthly budget to $1350 in order to compensate for the drop in my earnings due to the payroll tax increase. I think I will be able to manage.

Also starting this month I am going to cook my lunches in the office. This should cut my work lunch cost from $7-$10 to around $1. I am already cooking all of my dinners at home so I anticipate that I can get to around $2-$3/day total cost for food.
« Last Edit: February 02, 2013, 05:09:00 AM by Herbert Derp »

kudy

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Re: Financial Independence at 27
« Reply #28 on: February 20, 2013, 09:17:04 PM »
Just curious, what are you cooking for lunch/dinner that costs $1-2? I love budget recipes!

Herbert Derp

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Re: Financial Independence at 27
« Reply #29 on: February 20, 2013, 11:39:29 PM »
My diet currently consists of the following. For lunch I usually eat pasta, vegetables, and oatmeal or a potato. For dinner I eat chicken, potatoes, and vegetables. I use different seasonings every day to try and add some variety. I don't eat breakfast, unless you count coffee with a lot of sugar.

Frozen chicken breast: ~$1.00 / serving
Frozen broccoli / corn: ~$0.20 / serving
Pasta: ~$0.12 / serving
Pasta sauce: ~$0.17 / serving
Instant oatmeal: ~$0.17 / serving
Russet potatoes: ~$0.06 / serving
Cereal bars: ~$0.13 / serving
Granola bars: ~$0.10 / serving
Soymilk: ~$0.25 / serving
Tang:  ~$0.11 / serving

I'm going to add rice pretty soon, once I figure out how to cook it.
« Last Edit: February 20, 2013, 11:51:52 PM by Herbert Derp »

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Re: Financial Independence at 27
« Reply #30 on: February 21, 2013, 05:35:11 AM »
My diet currently consists of the following. For lunch I usually eat pasta, vegetables, and oatmeal or a potato. For dinner I eat chicken, potatoes, and vegetables. I use different seasonings every day to try and add some variety. I don't eat breakfast, unless you count coffee with a lot of sugar.

Frozen chicken breast: ~$1.00 / serving
Frozen broccoli / corn: ~$0.20 / serving
Pasta: ~$0.12 / serving
Pasta sauce: ~$0.17 / serving
Instant oatmeal: ~$0.17 / serving
Russet potatoes: ~$0.06 / serving
Cereal bars: ~$0.13 / serving
Granola bars: ~$0.10 / serving
Soymilk: ~$0.25 / serving
Tang:  ~$0.11 / serving

I'm going to add rice pretty soon, once I figure out how to cook it.

I'm not here to debate diets, but I thought it was pretty funny reading your menu items as they as so very different from mine.  I don't eat any grains, and I typically keep things fairly lowish carb, which pretty much eliminates everything on your list except chicken :)

Kriegsspiel

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Re: Financial Independence at 27
« Reply #31 on: February 21, 2013, 11:30:44 AM »
Rice is really easy with a pressure cooker.  Just put rice and water in it, lock the lid down, turn on the heat.  Then turn the heat off when it reaches 15psi.  Then wait until it depressurizes itself.  It's ready.

galaxie

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Re: Financial Independence at 27
« Reply #32 on: February 21, 2013, 12:09:47 PM »
Rice cookers are great, too.  Put in rice and water, push the button.  I don't have a ton of use for specific kitchen gadgets, but this one is awesome.  (Also, you can totally cook other grains in a rice cooker.)

And on a less off-topic note, your plan is kind of what I've been doing, OP.  After 15 years of work I'll have about $2 million saved, and plenty of passive income to retire on.  My expenses are higher than yours, though (I'm paying off a house).  I'm about 3 years in, and expect to be over $300k in another 2ish years.  Just an example to support that your math sounds about right to me -- you have the same numbers I got.
« Last Edit: February 21, 2013, 12:14:44 PM by galaxie »

Matte

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Re: Financial Independence at 27
« Reply #33 on: February 28, 2013, 02:10:20 PM »
I thought I would be in a similar situation flying out the gates, a little thing called a relationship got in the way.  It threw me off for a few years but now we are on track.  Don't forget that you will probably want more space down the road and room rents will keep going up with inflation, so does all rent.  Might be worth it to buy a place then pay it off asap. 

Herbert Derp

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Re: Financial Independence at 27
« Reply #34 on: March 01, 2013, 04:15:19 AM »
Just under three months to go until I can move out. I've been checking Craigslist and it looks like I should be able to get a room for around $450/month, and it might even include utilities! If I can get that good a deal then I will be able to save over $500/month over what I am currently paying for my studio apartment. The biggest problem is that it looks like my commute could increase from 5 to around 50 minutes. But if it means saving over $500/month then it's definitely worth it to me.

In other news my landlord gave me an offer for renewing my lease; he wants to raise my rent by 10%. Maybe I'll consider that after hell freezes over. In any case I am still on track to meet my goal--in February my net savings rate was 76.79% and I was able to invest $4,450.
« Last Edit: March 01, 2013, 04:51:09 AM by Herbert Derp »

canga

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Re: Financial Independence at 27
« Reply #35 on: March 13, 2013, 07:04:52 AM »
A 45 minute increase in commute to save $500/mo?  Is that one way or round trip?  IRS estimates car driving at 56.5 cents per mile, but let's say you drive an older, more fuel efficient car than average and manage to get 30 cents per mile.  At 40 mile increase per day, 5 days per week, and 50 weeks per year, I get a monthly cost of $250 over your current commute.  Not sure if the extra 187.5 hours road time a year is worth a savings of $250/mo, although it does come out to $16 savings per hour driven.  Now if we're talking an extra 45 minutes each way, it's probably not saving any money.  I've always had a short commute and could not imagine it any other way.

Self-employed-swami

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Re: Financial Independence at 27
« Reply #36 on: March 13, 2013, 08:07:34 AM »
I dont think he is driving to work...

Dee18

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Re: Financial Independence at 27
« Reply #37 on: March 13, 2013, 09:27:39 AM »
check your local thrift store for a rice cooker or electric steamer.  I saw several for about $3 on my last visit (when I bought a bread machine for $3 that looked brand new.)  I actually went ahead and bought a steamer just like the one I have at home.  I'll give it to someone.  It was this model:
http://www.ecrater.com/p/9185139/black-decker-cooking-steamer-hs3000-220?gps=1
Makes perfect rice every time.

Herbert Derp

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Re: Financial Independence at 27
« Reply #38 on: March 13, 2013, 12:14:56 PM »
A 45 minute increase in commute to save $500/mo?  Is that one way or round trip?  IRS estimates car driving at 56.5 cents per mile, but let's say you drive an older, more fuel efficient car than average and manage to get 30 cents per mile.  At 40 mile increase per day, 5 days per week, and 50 weeks per year, I get a monthly cost of $250 over your current commute.  Not sure if the extra 187.5 hours road time a year is worth a savings of $250/mo, although it does come out to $16 savings per hour driven.  Now if we're talking an extra 45 minutes each way, it's probably not saving any money.  I've always had a short commute and could not imagine it any other way.

I don't plan to drive a car. I can ride the bus for free and I also have a kick scooter, so my transportation costs are zero. I may buy a bike in the future if that works for me, but my apartment is currently too small for a bike.

check your local thrift store for a rice cooker or electric steamer.  I saw several for about $3 on my last visit (when I bought a bread machine for $3 that looked brand new.)  I actually went ahead and bought a steamer just like the one I have at home.  I'll give it to someone.  It was this model:
http://www.ecrater.com/p/9185139/black-decker-cooking-steamer-hs3000-220?gps=1
Makes perfect rice every time.

Cool! I'll definitely check out a few Goodwills and see what they have!
« Last Edit: March 13, 2013, 12:20:16 PM by Herbert Derp »

Herbert Derp

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Re: Financial Independence at 27
« Reply #39 on: April 01, 2013, 03:34:37 AM »
March was much the same as February, except that I got to invest $2.4k extra from my federal tax refund. I am still plodding along steadily, and I think I am on track to meet my goals. At the end of April I am going to hand my landlord a 30-day notice to vacate, which means if I can't find a new place before or during those 30 days I am going to end up homeless... At least it will give me a strong incentive to look hard for a new apartment.

In other news I have decided to change my investment strategy. I realized that putting everything into taxable accounts was not a very good idea, so I moved $10.5k into a Roth IRA (this covers my 2012/2013 contributions). I also decided to take advantage of my 401k and max it out completely rather than just max out the employer contribution as I have done before. As a result I now have my paycheck Roth 401k contribution set to 82% so that I can channel all of my savings into the 401k and max it out as soon as possible. I figure the sooner money goes in there the better, since gains from the Roth 401k are not taxed, and otherwise the money would end up in my taxable accounts.

Under this system, I estimate that the first four months of savings for the year will go towards 401k contributions, and the next eight months will go towards taxable accounts and my IRA. I am not really sure how this impacts my goal of FI by 27 years old, but I know it should mean more money in the long run. Any thoughts?
« Last Edit: April 01, 2013, 03:38:51 AM by Herbert Derp »

ghaynes

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Re: Financial Independence at 27
« Reply #40 on: April 01, 2013, 05:37:42 AM »
You might want to check with your employer but I believe maxing out your 401K early like this makes them no longer able to match their contributions throughout the year.

Herbert Derp

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Re: Financial Independence at 27
« Reply #41 on: April 01, 2013, 02:56:06 PM »
You might want to check with your employer but I believe maxing out your 401K early like this makes them no longer able to match their contributions throughout the year.

I'm glad you brought that up. I talked to Vanguard on the phone today and they told me my 401k has a provision where if I max it out early, I will continue to receive employer contributions. Also it turned out that the tax is deducted from the part of the paycheck that ISN'T the Roth contribution, so it means I can only deduct 56% instead of 82% for the Roth contribution (I thought it came out of the Roth part, hence my inflated percentage). But even with 56%, it will still take around 4.2 months to max out my 401k so the end result is almost the same as what I had expected.

Dianas Report

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Re: Financial Independence at 27
« Reply #42 on: April 02, 2013, 12:55:28 AM »
Herbert Derp, great plan here.

Try to get a place closer to your work to reduce your time traveling. The most precious thing you have is your time (great philosophic teachers noted that & investment guru Brian Tracy & real-estate guru Robert Kyosaki).  Ask co-workers if they happen to know a place or refer you to someone they know that has a space. Place a craigslist ad and ask for a room or basement for rent for $450. Renew that every few days to be at the top of the list so that more people would be able to read your post. You could also try to rent a 2 bd apartment and get a roommate closer to your work.


Side note, please make sure that you are still happy. You never know what can happen tomorrow and I wouldn't want you to look back and regret your choices. Being extremely frugal is a good thing but being mindful of what you spend your money on is better!

SunshineGirl

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Re: Financial Independence at 27
« Reply #43 on: April 02, 2013, 11:52:44 AM »
I echo the advice about finding a place close to where you work. I've found it to be a huge quality of life issue. My entire life can be maintained in about two square miles, with the newish exception of my kids' middle school drive, which is a four-mile round-trip -- too much!

SunshineGirl

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Re: Financial Independence at 27
« Reply #44 on: April 02, 2013, 11:55:30 AM »
Also, I'll add that the where-you-live and what-you-pay-for-it is one of the biggest determinants as to whether/when you will achieve FI. Perhaps in a year or two or three, you might want to find a good duplex/triplex/fourplex in a decent neighborhood, life in one unit and lets your tenants pay the mortgage. Then you live free and have other people building your wealth.

Herbert Derp

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Re: Financial Independence at 27
« Reply #45 on: April 05, 2013, 07:27:08 PM »
I just figured out how to declare half my phone bill as a business expense. With this, my phone cost is down to only $15/month! I am beginning to realize that I should be able to reduce my monthly expenses to significantly below what I outlined in the first post.
« Last Edit: July 03, 2013, 01:46:02 AM by Herbert Derp »

Herbert Derp

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Re: Financial Independence at 27
« Reply #46 on: April 27, 2013, 08:26:08 PM »
At $1,410 spent so far this month, I'm $90 over budget... At least it's because I bought tickets for my vacation.

earlyFI

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Re: Financial Independence at 27
« Reply #47 on: May 09, 2013, 10:14:01 PM »
At $1,410 spent so far this month, I'm $90 over budget... At least it's because I bought tickets for my vacation.

I like that you are reporting back on your progress! Congrats on your goal! It is fun to see your progress!

oldtoyota

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Re: Financial Independence at 27
« Reply #48 on: May 10, 2013, 07:56:35 AM »
Very cool!

How can one save 100% of a paycheck if you're paying taxes?

seanquixote

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Re: Financial Independence at 27
« Reply #49 on: May 13, 2013, 04:07:46 AM »
At $1,410 spent so far this month, I'm $90 over budget... At least it's because I bought tickets for my vacation.

I like that you are reporting back on your progress! Congrats on your goal! It is fun to see your progress!

I totally agree.  It is nice to have you "report" your progress.  I find this forum awesome because in addition to the occasional much needed face-punching...there is a "rally the troops" aspect that is super encouraging, too.  Keep it going HD!!