My wife and I need your help creating a blueprint for early retirement on a meager income. A blueprint that allows for travel, good living, and a future down payment on a house, future kids (lets say two) all while retiring at age 45. I am just about to graduate with a Masters Degree and my wife and I are both 25 - we are ready to start our long road to being mild mustachians. At this point we are debt free and have $25,000.00 in a savings account. Starting July 1st we are expecting to have a combined income of $58,000.00 a year before taxes ( lets assume this dose not change much). Our conservative anticipated expenses are:
Rent: $1,100 a month
Utilities: $250 a month
Insurance: $350 a month
Gas: $230 a month
Food/toiletries: $600 a month
Cell Phone Plans: $50.00 a month
Entertainment: $50.00 a month
Miscellaneous: $90.00 a month
Car Insurance (2 cars): $90.00 a month
401k automatic contribution: $300 a month
Car repair/ maintenance fund: $800 for the year
Medical Fund: $2,000 for the year
Travel: $7,000 for the year ( we really like to travel)
Total: About $47,120
Please share your ideas on how to save, invest, and use this money to complete our goals! Thank You!
OK, so you want to be FI in 20 years. I ran the calculator at
http://lab.madfientist.com/calculators/time_to_fi with the following numbers:
Current net worth: 25000
Monthly expenses: (47120-3600)/12=3626
Monthly savings: 300
W/D rate: 4% (a bit high: this should be closer to 3%)
Investment returns: 6% (achievably conservative; I wouldn't bank on more than this for planning purposes)
...and got as a result that you would be FI in
more than 43 years. So something has to give.
So what has to give? Well, the savings rate has to come up, for a start. Taking monthly savings to $1426 and expenses to $2500 gets you to FI in just over 20 years (i.e. by the time you are 45). So we need to get savings up and costs down by $1100.
Now, is there any space in your budget besides the spending above?
A really, really rough estimate for taxes gives about $4850 for federal. Let's say you pay half of that for state (this is the approx figure for me, and I'm in a low tax state but with a slightly higher income and single). This means you have $7275 in taxes to pay on top of your $47120: a total of 54395. Then you have FICA, for you that would be $4437. This gives a total of 58832, so all the extra space is probably taxes. Have you run the numbers on your actual paycheck figures?
This means that the only other way to get yourself to FI is to cut expenses.
First, we have a housing/car costs issue. Your apartment is expensive: are you in a big city/NorthEast/Cali? Where are you living vis a vis your work? Could you find alternative transportation, or bike/walk? You are being killed on gas, and even halving your usage would significantly increase your chances of FI.
What's "insurance": is that medical?
Utilities are a bit high, especially for living in an apartment and not including phone. How does that break down? Could you take $100 off this by setting the temp lower, unplugging standby applicances, etc?
Food is also high. You should be able to chop a hunk off the food bill by planning more carefully, using loss leaders, switching to generic brands and stopping eating out. There are several helpful threads on doing this if you do a search.
Travel: where are you going, and what are you doing there? At 25 you are still in a position to rough it a bit, and so if you want to FI
and travel, you should probably learn to do this. No fancy hotels until you're 40. ;)
Also, watch the "misc" category. This isn't too bad, but it's a danger zone.