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Case Study - how soon can I FIRE? -UPDATE
Lady Stash:
Case Study -
Life Situation: Single, 44 with no dependents. I've worked in tech for many years. I love hands on tech work and managing teams but I want to quit working for someone else and try to start my own company. I'd rather create a product than do consulting so I won't have an immediate (or perhaps ever) income.
Here are my numbers:
Total net worth: 1,260,000 (650K house, 610K investments)
Current salary: 160K
Pre-tax deductions: 401K - 18,500. HSA 3,000
Bi-weekly paycheck after taxes, health insurance, deductions etc: $3,150.
Monthly Expenses:
Property Tax: $290
Home Insurance: $80
Gas/Electricity- 80
Water/Sewer- 100
Internet - 40
Phone - 70
House Projects - 100
Car Insurance - 160 *
Gas - 200 *
Car Maintenance - 50
Health Insurance - 200 **
Medical - 100
Dog- 40
Food- 600 *
Clothes - 100
Hobbies - 50
Travel - 50
Gifts - 50
=2360/month,
2360*12=28,320 yearly.
*I expect these three to drop by about $350 when I stop commuting 40 miles each day and have more time to cook. That brings monthly expenses to around 2K, which I could cover with a 4% withdrawal rate.
**This assumes a lower income and ACA health coverage. Without that, this increases to $700/month
Assets:
House (HCOL): 650K with new roof on it.
Non-retirement: 53K
Roth IRA: 86K
IRA: 460K
401K: 6K
HSA: 7K
Total. 612K
Paid for car with 13K miles on it.
Liabilities:
None.
More details
My home has 4 bedrooms and I only use 2 of them (for a bedroom and study). In the past I've rented the other rooms out. I just moved back in and listed them on Craigslist but haven't found anyone I'd enjoy living with yet. It appears I'd get about $1800/month for both rooms or $1100 for just the larger. I can't count on this consistently since I'm pretty picky about who I live with but it could be a nice cushion. Or I could downsize the house a bit to free up more cash.
My budget is tight, especially when I eventually need a new car/roof in 15 years or if ACA goes away. I've lived on less for a couple years but long term I will need income from somewhere to give me breathing room. If my business makes an income that would be great. A couple roommates would help. I may eventually inherit a few hundred thousand dollars, though again I can't count on that.
I have a tight budget and a few *maybe* ways to give me more breathing room. It would be safer to stay at my current job a few more years but emotionally I am done. I'd rather live on a very tight budget than continue to work this job and that's not like me. I usually enjoy my work. It's a decent company so I don't think finding another job is the right answer.
The hardest part of this decision is that once I leave this job it's a one way door. I likely won't be able to come back.
I can't imagine not finding some kind of profitable enterprise which I enjoy in the next few years but the unknown of it is a bit scary.
What would you do?
ysette9:
We have been talking a lot about being dissatisfied with our current situation and wanting to make a change, while also having good jobs for good companies. We are a little further away from our FI number than you. We discuss all sorts of ideas like sabbatical, moving to another place, but the easiest thing now is to just cut back on the hours in an attempt to find some balance. Can you go part-time and use your new free time to think harder about what you really want out of life? Do some traveling to check out lower COL areas and mentally try on the idea of moving? Spend more time with hobbies or friends or family?
Laura33:
So, basically, what I see:
1. You have the ability to live on a tight budget, and you have sufficient money to sustain that tight budget (and then some) for many years. Congratulations -- you clearly have fuck-you money. That means this is not really a financial decision.
2. You (reasonably) don't want to live on a tight budget for the rest of your life. That makes this a lifestyle/priorities decision. So the real question is how do you shift those future dreams into some sort of reality that can provide you the extra income you want to fund your preferred lifestyle?
IOW, you need a plan. You'd like to start your own company. Great! Do you have a product, a prototype, a business plan, possible financing down the road, etc.? You can rent rooms, but you are picky -- so how much time should you anticipate between roommates, and how much money can you actually count on coming in per year?
If I were you, I would spend the next few months converting your good ideas into an actual business in your free time. Most people don't quit to start a business -- they run their business in their free time, and then quit when it is generating enough income to support them. You do not need the business to fully support you, so you don't need to wait that long -- but you should at least have an actual business before you jump. So tie your decision to bail to reaching specific milestones -- e.g., I can give notice when I have two stable roommates who are covering my expenses; I can give notice when my product sales cover my manufacturing costs; etc.
In addition, spend some time looking at your cash flow. You have a significant chunk of money, but much of it is tied up in retirement accounts that you cannot access until @59. So look at how much of your Roth is contributions that you can access; consider a Roth ladder for your IRA; look at what 72(t) distributions might generate; etc. Figure out a plan that will provide access to a sufficient amount of money each year to cover your basic needs, because you don't want to have to wind up paying penalties for early withdrawals and such just because you didn't plan or got impatient.
Lady Stash:
Yesette9, I like your ideas.
I took a job in another city a couple years ago and it was eye opening how much a change of routine mixes things up. I totally recommend it!
Originally, I thought I wanted to be able to spend a year driving across the US but after that job I took a couple months off to travel the US. It was amazing for about 5 weeks but then I was anxious to be home and back with friends and family.
What I learned is that right now, I want to be a bit more settled and also I want to be within driving distance of friends and family.
I visited several cities on that road trip I might consider living in for the future but right now, my heart wants to be closer to the people I love. So I can downsize my house a bit, but moving somewhere with a super low cost of living probably won't happen for the next few years.
My last job was about 70hrs/week and this job I'm down to about 40 hours a week, so tons more free time. But my new commute is sucking up some of that time. I've picked up a tiny bit of basketball. Just bought a guitar. I'm seeing family & friends much more often.
Lady Stash:
Laura,
I agree with you that this is more of a lifestyle/priorities decision.
I hear you on needing a more concrete plan. I have a couple business ideas I like but not sure either will generate much income. I'm making progress on a prototype for one of them. I have a meeting set up with a CPA to go over some of the tax questions.
I saw a bunch of Lego sets for sale at Costco today for $30. They are selling on Amazon for $50 (full price is $60) so I could make about $5-$10 each after fees. Legos tend to appreciate too. Its not worth fooling with while I have a full time job but it might be interesting if I wasn't employed.
The open enrollment for ACA closes soon and I'm not sure it's possible to enroll midyear so I need to figure that out too.
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