Month: October 2020

Living On 22K A Year, How Feasible Is This?

I’m 28 years old, have no children, although I plan on having two someday. THE GOAL: Become financially independent and retire in 10 years. That retirement will look like me living off of $40,000 a year with a $1,320,000 nest egg, but I’ll have to live off of 22K a year now to get there

My current debt

My total debt ($681,805.45): $4,000 left to pay on my car, $23,319.33 in student loans, and $654,213 in mortgages. Although my mortgages are considered assets, they aren’t paid off yet so they are still considered debt.

Where did this 22K a year living expense come from?

According to the trinity study, if you plan on retiring early and living off of your passive income from your retirement funds, you first should take the amount you plan on spending each year and multiply that by 33 to get your retirement number: (40,000 * 33) = $1,320,000.

I make around 120K a year. For me to get to $1,320,000 in about 10 years, I would need to invest $75,000 a year, while achieving a 8% return. I also would have to only spend $22,000 a year.

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10 year view of if you made 8% on your investments, while continuing to invest 75,000 each year:

Now Is This Actually Doable?

Current monthly expenses ($1414): $325 car payment (10 payments left), $125 monthly utilities, $35 phone bill, $143 cable/internet, $113 car insurance, $120 gas, $250 groceries, $50 gift fund, $253 student loan, $50 travel card. Amount I need to invest ($6250): $1625 401K, $500 IRA, $291.60 HSA, $3833.40 brokerage account. Based on my expenses and monthly income, I should be able to do this and still have ~$590.00 dollars who don’t yet have a job. I’ll call them my spontaneity dollars, but what does a lifestyle like this actually look like.

What does a 22K A Year Lifestyle Look Like?

Being that I have about $590 dollars left to play with on this journey. I can do a mix of a few things each month. I could put this towards additional debt (student loans, car payment), invest more to cut my 10 year goal down further, or enjoy the journey. I’ll focus on some fun things that’d I’d spend my money on:

  • I can afford to eat out about once a week ($50 *4) = $250
  • I can spend $100 on entertainment a month( Netflix, museums, concerts, etc) = $100
  • 2 one hour massages ($60 + $20 tip) = $160
  • Put the rest towards my travel budget / save it for a fancier month next month

Ways I can stretch this $590 — coupons, eating out for lunch vs dinner, splitting/sharing meals while out, thrift shopping, free activities, etc. The goal isn’t to spend the $590 a month but to give myself an idea of the sorts of activities that I can still do while doing this extreme savings plan.

I wrote this post to help anyone else thinking of retiring early. I As with any goal, it will require sacrifices. If you sacrifice for 10 years to enjoy a more flexible lifestyle that gives you the option to retire at least you now have a plan on how to get there.

What appeals to me most is being able to have the option to stop working if I wanted to. I would plan to live off of $40,000 a year. If I wanted to live a more lavish lifestyle I would look for part-time work. Instead of being forced to work I would choose when and if I wanted to work.

If you have any tips, questions or comments feel free to drop them below.

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Life Lessons Learned on My Journey Saving 130K

On my journey into and out of debt, I’ve learned a few life lessons along the way. I graduated college at 22 years old with 70K worth of debt. After 6 years of budgeting and discipline, I saved 130K, and bought two properties. I still have 26K left on my student loans, but I’m on track to pay that off my next year.

Life Lessons 1: Poor Spending Habits = Negative Debt

In 2014 I read Rich Dad, Poor Dad. That book changed my life, but it didn’t change it immediately, because habits are hard to break. The book opened eyes to the idea of a rich life. I just didn’t know how to create that life just yet because I still had a consumer mindset. I grew up in a household where it was normal to carry credit cards balances month to month. My weekly hangouts involved going shopping, nail appointments, buying food daily, etc, the list goes on. I knew I spent a lot of money but I just didn’t know how much I was spending. Rich dad poor dad moved me to make an expense tracker so I knew where the majority of my money was going. If I could figure out where my money was going, I could redirect where it would go.

Braking Habits & Settings Goals to Payoff Debt

I graduated Stevens Institute of Technology in 2015 with a job making 70K a year, and I thought I hit the lottery. Looking at the majority of my family and people my age, I was making more than them, so I thought I hit it big! I financed furniture, I leased a new car, and accumulated more debt. I never thought I was making financially irresponsible choices because people would congratulate me along the way. What changed for me here was I would look at my credit card statements and it would say it’ll take you 23 years to pay for this if you just make the minimum payments. I didn’t want to work for at least 23 years to pay off a couch I barely used, so I knew I had to change what I was doing. Breaking my spending habits and ridding myself of debt would free me from always having to have a job.

Life Lessons 3: If You Cut Your Expenses, Increase Your Income, You Can Easily Eliminate Debt

2016 was the start my debt pay down journey. I found a way to change industries, increase my salary while lower my monthly expenses. I looked at my rent, cell phone bill, grocery budget and was able to pay off all 20K of my credit card debt. The biggest weight had been lifted off of my shoulders! After I took care of my debt, I focused on savings and how I could further lower my expenses again. I had a small emergency fund in place but knew I wanted to start investing.

Preparation is Where Luck & Opportunity Meet

By 2017, I was saving steadily, and I even opened an IRA. Although I didn’t know what to do with it, it was open. Increased my contribution to my 401K accounts and I started thinking more seriously about buying a house. When I would throw the idea around everyone would ask me if I had 20% saved up for a down payment and the answer was no. Initially, I was discouraged by this. I wanted to buy a house in a year but I didn’t have anywhere near 100K+ saved up.

It wasn’t until I met someone who said you know you don’t need 20% for a down payment, you can put 3.5% down as long as you live in one of the units. Hearing this was the best news ever! I knew I would be able to qualify for a loan because I had good credit and a stable income ( even then don’t let this be a deterrent because there are smaller banks who are will to work with you if you’re credit isn’t great or if you’ve just recently been employed). I went through my pre qualification, which helped me know exact how much money I would need to complete the process and how much loan I could afford. Knowing I would have to save up at least 30K by then, I set a goal to purchase a house by next year.

Life Lessons 5: Secure First Real Estate Investment

2018 Once I purchased my house this was the best thing for my journey not just because I had a house but very specifically when I purchased a house. It searched for a home that would allow me to cut my rent to as close to $0 as possible . I was initially paying $500 out of pocket and later refinanced to have my rentals cover the mortgage.

Tax Advantages & Second Real Estate Property

2019 – 2020

I got more involved in learning how to invest by reading more books on rental property investing & learning how to invest in the stock market. I started maxing out all of my tax advantaged accounts (401K, IRA, HSA) and then I contributed to my individual brokerage accounts.

Right as Covid hit, I purchased another house, this time with 3% down. I viewed this house when the market froze because people were uncertain and, saw this as the perfect time to shop because if most people are too afraid to make a decision then there’s less competition. This was one of those preparation meets luck ordeals as the market took after not even a most after I closed as the stimulus packages were released and rates dropped.

It took me about 6 years of consistency and discipline to get where I am today. I’m on a journey to retire in 10 years. I’ll definitely purchase another property but my timeframe will be in another 3-5 years, so I’ll be building the majority of my wealth by paying down my properties and investing in the market. I’ll share progress posts and tips along the way.