Month: September 2020

Advice for My Younger Self

Reaching your mid-30’s, you think about all the successes and failures from your 20’s. What seemed a roller coaster ride filled with uncertainty is now a recent memory with an obvious path. When my younger brother graduated high school, I gave him some life advice from my own experience. To be honest, I don’t remember what it was, but I don’t think it was very clear in my own mind yet, nor actionable for him.

Now with younger cousins graduating high school, I have a much clearer recommendation that would have answered, for me at least, the age-old question of…

“What do I want to be when I grow up?”

Like most, I couldn’t afford college without taking on debt from day one, and my parents had no financial ability to help. Sure, I would have worked a part-time job, but it wouldn’t have come anywhere near close to covering tuition after paying to live a bare-bones “lifestyle”. And since I didn’t know what I wanted to do, spending $60k or more on a 4-yr degree had an unknown ROI.

Instead… I spent ~6 years, with a young family, working near the poverty line in call centers and odd-n-end jobs before eventually becoming low-to-middle class. In what became a career path you couldn’t have made up, I started at a machine shop part-time that my buddy worked at, then moved to a full-time calibration job another friend was at (even working months worth of extra hours in overtime, we still did not surpass a $40k income; I even slept in my car one night because I worked a 16 hr day followed by a 14), then I interviewed and landed another calibration job making ~40% more (~$42k/yr thanks to learning everything I could at the previous job for 3 years), and have now moved internally in that company switching to improving business systems and processes. While at this company, I completed my Bachelors with them paying for most of it. I need another bump or two in title and several big bumps in pay to get where I need to be, but I’m so blessed just to be where I am at given my starting point.

So, what am I encouraging my own flesh-and-blood high school graduates to do?

Unless you have the financial means and interest to attend college right off the bat for an engineering, medical, business, etc degree that has a real Return on Investment (ROI)…

Find a Trade or associate-level Profession that has a decent barrier to entry, takes two years or less to get started, pays decent during summer internships or on-the-job training, and has a higher pay in years 2-5+.

In the medical world, this could be a Tech (radiology, ultrasound/sonographer, etc), a RN, a Dental Hygienist, or even a EMT/Paramedic + FireFighter. As long as you keep your certifications/licenses current, often you can even jump in and out of the workforce, or work part-time, depending on other family or life responsibilities.

For Trades/Apprenticeships… electrician, HVAC, machine operator, etc + even the legal and financial occupations.

Sales… As a 18-22 yr old, an inconsistent income doesn’t hurt like it does when you have a family and mortgage. Couch surf if you have to, but Real Estate, among others, requires just a few years of learning the ropes, getting certifications, working under a Realtor, etc before you start making good money. Do it while you’re young, energetic, and have nothing to lose.

Here’s Why… A barrier-to-entry means not everyone can apply to the current job postings and the pay will be higher. 1-2 years of training means you will have marketable and transferable skills, even before your first job. And, the training will often introduce you to paid internships or first jobs. Don’t worry that this isn’t your dream job or not what you want to do in your 40’s. It may open your eyes to a career you hadn’t thought about, give you hands-on experience for a future job, or just be a source of interesting small talk when you’re older. Today, employers and society are all but expecting you to have several careers during your life and many in the workforce change jobs every 2-3 years. Regardless, this starter career will finance the training for your “real” career!

After 3-5 years when you are making a decent middle class wage, and have a better idea of what you’ll see as meaningful work, fund your “next” career. Still work at your current job, but attend college or additional classes. Some examples… An electrician but want more, get an Electrical Engineering degree (or work-to-own the company you are currently employed at from the aging owner). A RN and like it, go for a BSN then a specialty to make six figures. Or switch completely, but use the current income to fund the training and then even be a part-time extra job going forward. A FireFighter/Paramedic can be a Real Estate agent or electrician too. A Dental Hygienist will often work only 3-4 days a week, during the day, so the off days, evenings, and weekends are free for other endeavors.

Save and invest 25% of that income + train for your next “real” career with College and/or more industry training and certifications

You’re young and being cheap is ok. At this point, $10 is a lot of money and can even be two whole meals from Taco Bell or McDonald’s. $100 means you can buy just about anything you want, or only have to save for a few months maximum. Having a thousand dollars in your bank account basically means you are rich! KEEP THAT MINDSET. Treat yourself to a little bit, but do not increase your lifestyle dramatically. Save a ton and invest now in a passive S&P 500 or Total Stock Market index fund. Work and study 60+ hours a week; you have the energy and them some. By 25 yrs old, you will have made $150k+ combined, have almost $50k in savings/invested, and be ready for your next career.

[Link to] Need vs Comfort vs Luxury

Don’t let lifestyle inflation get you until you are in your 30’s with a Net Worth of $500k, with much of that invested.

If I would have done this, we would be 5 or more years further ahead of where we are now…

Which level of Financial Independence are you at?

This article glosses over the initial struggle to get even to a zero Net Worth. Many go further into a negative Net Worth each and every month as they spend more than they earn. This article assumes you are on the right path already, but if you aren’t, use this as a goal of what is possible. Maybe reaching a zero Net Worth will take years, but at least start turning the ship around instead of digging a deeper hole. Spend less than you earn, even if only by $20 a month, to build up an emergency fund.

Negative Net Worth

Most of us start here. Between the cost of college, a first beater car, rental deposit, part-time jobs, and more, it’s hard not to start here. BUT, don’t stay here long!

Zero NW

Yay, you are debt free outside of your mortgage!!! You technically could still have auto loans, but we highly recommend not using vehicle equity towards your positive net worth.

$50k NW

It’s important to celebrate the early victories. It takes consistent effort to reach $50k. A higher income makes it easier, but the savings habits needed to hit this milestone are the same habits needed to reach a million dollar net worth. Just add in low-cost index investing and increase your savings rate over time.

$100k

The first $100k is a b*tch, said Charlie Munger (Warren Buffet’s partner) during a Berkshire Hathaway shareholder meeting in the 90’s. One hundred grand isn’t what it used to be (in fact, inflation since just 1990 has caused the US Dollar to lose near half its value where $50k in 1990 had the same purchasing power as nearly $100k in 2020). But it still is a huge milestone! Your effort and struggles have been validated. The second hundred thousand will come a little faster, and the third a little faster than that… until the compounding returns just take off.

The next levels or stages make more sense after reading FIRE Options. The RE or Retire Early part isn’t as important as the FI or Financial Independence part, in our opinion.

$250k

This is a start to solid Net Worth and the compounding returns will really start adding up. If you are in your 30’s, just this amount invested for another 30 years at 7% would compound to $1.9m without saving another cent (CoastFIRE). Sadly, a $250k NW also makes you wealthier than 67% of other Americans including many in their 60’s in or near retirement. Don’t stop here! Use the same habits to hit the next level. Your Net Worth will start growing rapidly compared to what you are used to.

Quarter FI

You might reach 25% of your FIRE goal at or before you reach $250k NW, but it’s a milestone none-the-less. Going out to eat is a rarity for us, but we are starting the tradition that for every +$100k we accumulate, we will take a date night, going out for a nice ($50-100) dinner with drinks + a fun activity. We just passed $300k NW and will hit 25% FIRE by the end of the year.

$500k

Our next major milestone (as of this writing) and one we should hit by our 35th birthday if we push. It means continuing to work 80-hour weeks between two technical jobs and saving $50k+ a year. Even if we stop saving once we hit this goal, and just make enough to live for the next 25 years until we are 60 yrs old, we would end up in FatFIRE territory with $2.7m. There are few certainties in life, so we are saving as much as we can while we know we can.

Half FI

Half-way there!!!

75% FI

Likely at LeanFI right now, where if you had to, the passive income your portfolio generates would cover basic living expenses and a treat here or there. But why stop here?! …unless you absolutely have to. It might only be 2-3 years before you are full FI.

“One million dollars!!” -Dr Evil

$1 mil

You are a millionaire! Depending on your investable assets vs money tied up into your primary home’s equity, the passive income alone would keep you above the poverty line for a family of six.

100% FI

For many, this is somewhere between $1.2 and $2 million. Congrats, you can keep living your current lifestyle without any further work. Don’t go out and buy fancy new cars or luxurious vacations, but keep your existing hobbies and find some new inexpensive ones. Stay in your budget, not withdrawing more than 3.5-4% of your invested balance each year, and you are set for the rest of your life. A really great feeling and for many, why work full-time any longer?

FatFI

You don’t have to stop working when you reach Financial Independence. Maybe you enjoy your work or have transitioned to a less stressful role (or being FI means you are less stressed because your boss needs you instead of the other way around). Maybe you are finishing up a project and want to stick it out. Maybe you want to serve your community or work with missions. Just because you are Financially Independent doesn’t mean you sit and blankly stare at a TV or get sunburn on a beach. Maybe you have kids who still need raising; a full-time job in of itself.

In our case, we are purposefully working towards a full-time job with medical and travel benefits as our kids leave for college. By our mid-40’s, we will be empty-nesters and reached FI. We could have left with LeanFI, but don’t feel comfortable with that number. And our slower path to FI is because we are raising a family and enjoying each and every year with them. It isn’t what everyone has to do, but these are our stages:

  • No Money, Low Net Worth = WORK + Save + Invest + repeat
  • Some Lifestyle, Lower Net Worth = Us right now. Keep the same habits, but actually living more than barebones. Besides a hobby or two, our “splurges” are family road trips and visiting family on a lake.
  • More Lifestyle, Medium Net Worth = When our oldest is 13, we should have a net worth above $500k. We won’t live high on the hog, but we will consider buying a boat (probably just rent though) plus lots more outdoor adventure and travel.
  • More Lifestyle, Millionaires = Kids will be in high school (and we will be ~40 yrs old). The goal is to have a manager/director job allowing more travel across the US and even internationally. There will be stress, but the higher income will lock in some FatFIRE and my wife and kids will sometimes come with, for a vacation on the front or back-end of the work trip. After working 80+ hrs per week between 2 jobs for more than 5 years, even working just 40-60 hrs a week at one job will be relaxing in its own way.
  • Great Lifestyle, Multi-Millionaires – After reaching $2.5m net worth, double our FI number, we will likely step into a consultant role and/or work with a non-profit in our early 50’s. We want to travel internationally, and may even partially retire outside the US. But we don’t ever see ourselves doing nothing for more a few days off here and there. But maybe our goals will change. We know we want awesome trips for our grandchild and adult children, so we can spend a lot of time with them, and to be active well into our later years.