Words to Live By in the FIRE Movement

In the famous, life-changing book, Rich Dad Poor Dad, author Robert Kiyosaki shared in Chapter 2 that financial literacy is what sets the rich apart from the middle class and the poor. I agree completely, but there’s A LOT to learn. In my previous article, Day 18 of Financial Freedom in 2021, I defined a list of terms to get acquainted with when developing your personal finance vocabulary. Understanding different retirement investment vehicles, tax terms, and the basic steps of financial independence is important, but there are additional terms that many people in the FIRE community use quite often.

I repeatedly hear the following words or phrases from individuals who have reached financial independence, and while technical vocabulary is important, these seem to be the ones to truly live by.

“Simple Life”

Many FI families emphasize living life to the full but in a more simplistic way. It’s not necessary to fill your home with excess material goods, travel to the hottest tourist locations, stay in 5-star hotels, live in the biggest house in the neighborhood, or drive the newest luxury SUV to have an abundant life. The happiness factor on all of these things fades.

What makes life full is the people in it and the experiences you have. Think of someone you look up to, maybe a grandparent or neighbor or civil rights leader. What do you admire about that person? Is it their stuff or what they did/do with the life they were given?

I admired my aunt who lived in Michigan. She was a devout woman who worked as a special education teacher and served her church community multiple days per week, including bringing communion to elderly residents in a nursing home. My aunt didn’t travel much except to visit our family occasionally, and she lived in the same house for nearly 40 years. She raised two boys on her own and lived with a debilitating kidney disease for many years before she passed. Despite all of that, she was able to retire early and paid off her house. I don’t remember much of what she had in that house other than several crosses and religious paintings, but I remember fondly how much joy I felt while staying there. My aunt was always happy. Every day in her simple life seemed joyful, and it was contagious. Her frugal life had a greater impact than the life of luxury and debt that I see many people living today.

“Community”

Relying on a community of like-minded individuals is a common thread in the FI culture. I often hear FI folks speak of how much they rely on their neighbors and close friends for help with babysitting or carpool, to participate in clothing and toy swaps, to agree to share meals in each other’s homes rather than going out to a popular restaurants, and for support on common goals.

If financial independence is a goal of yours, then a community of Joneses, and those chasing after them, won’t do you much good. You need to find a community of Frugalwoods, Money Mustaches, Rich Dads, and Mad Fientists, along with some kind and like-minded neighbors. There are Facebook groups and meetups related to the topics of minimalism, frugal living, financial independence, swapping, and cheap travel that can be great places to start when looking for the type of community mentioned above.

“Lucky” or “Blessed”

Gratitude is one of the biggest mindset shifts necessary to achieve financial independence. Being grateful for and recognizing the blessed life you already have is the first step in financial freedom, in my opinion. I practice daily gratitude in prayer, and if you listen to podcasts or read blogs from people who have already reached FI, most of them write down what they’re grateful for at least once per day. They also mention often how lucky they are for buying real estate when they did, investing early, having college paid for by their parents, finding an influential book during a turning point in their lives, for meeting the man or woman who gladly walks this FI journey alongside them, and so on. In the FI community, I hear very little bragging yet a whole lot of thankfulness.

Photo by Gabby K on Pexels.com

“No Regret”

Mistakes are only failures if you don’t learn from them. A common thread in the FI community is that people are willing to share their mistakes and what they learned with anyone willing to listen. They don’t dwell on or regret their errors in judgment but rather celebrate them for helping to move them along on a better path toward financial freedom.

Welby Accely openly shares how he was scammed multiple times and cheated out of hundreds of thousands of dollars before he became a successful real estate investor. He doesn’t regret these poor decisions. They made him stronger and taught him what NOT to do. He attributes his current success to learning from those mistakes.

What I love so much about the FI movement is not just the freedom that financial independence offers but the positive mindset and meaningful lifestyle it encourages. While developing the strategies of living on less money than you make, investing the difference, and making your money work for you are essential to financial independence, the phrases mentioned in this post (and the attitudes they represent) are what truly make this movement worthwhile.

Fuel your FIRE: Your Why for Financial Freedom

Financial Freedom in 2021! Take Action: Day 30

Wow! We made it to Day 30! I calculated that I’ve written (and you’ve read) over 25,000 words in the last month. That’s enough words to fill 1/3 of a novel, and all of them were about saving money and investing for the purposes of financial freedom.

But why?

In my post titled, What Does Financial Freedom Mean to You?, I summarized what motivated me to jump on board with the FIRE movement:

“Financial freedom allows the ability to let go…

of maintaining a specific image; of an addiction to other people’s lives; of the shackles of material goods; of the restrictions placed on me by others; of saying ‘yes’ when I want to say ‘no’; of saying ‘no’ when I want to say ‘yes’; of negative relationships; of working to achieve someone else’s dream.

It provides the option to linger…

with a baby in my arms; in bed all morning with my husband; on the floor in my kids’ playroom as they set up a tea party; at church after service or maybe on a Wednesday; on a restaurant patio with a friend; at a beautiful beach all day; in my sister’s living room catching up on a favorite TV show; at my mom’s house sipping coffee; at my children’s favorite museum; on the hiking trail or in the river at a state park.

It affords the privilege of indecisiveness…

on whether to build a forever home, buy an investment property… or both; on whether to volunteer in local church ministries, start the business I’ve always dreamed of… or both; on whether to do travel homeschooling, keep my kids in public school… or both; on learning to play golf, participating in an over-40 soccer league… or both; on whether to write a book, start or podcast… or both.

It commands the responsibility to give…

financial literacy lessons to my children; personal finance advice to the young and old; donations to charitable organizations; more time to important projects; opportunities to the underprivileged so that they can break the cycle of poverty; gifts to my church; more of me to those I love.”

It’s this final paragraph that makes the FIRE movement especially appealing, not just for myself, but for the entire community too. I recently heard that while others might see an individual’s push toward financial independence and early retirement as a selfish, greedy move, the truth is that most people in the community want to use their freedom for greater good.

Those who’ve reached FIRE write blogs to help others improve their money situations. They host podcasts and share the best tips available. They write books to make investing easier. They teach classes for free to the under-privileged, under-educated, and under-represented. They run fix-it clinics, start buy-nothing sites, and inspire minimalist movements. FIRE people don’t keep this to themselves; they share what they know and encourage others to make the best use of their money as well.

Consider the type of people who truly subscribe to the Financial Independence Retire Early life. These people are often intelligent, motivated, educated, persistent, goal-driven, risk-tolerant, and innovative. When people with these qualities are freed from the daily grind, their talents can then be put toward philanthropy and changing the world we live in.

Take action today on Day 30 by determining what fuels your FIRE and decide what good you could do in the world if earning a regular paycheck was no longer a top priority.

Thank you so much for going on this 30-day journey of action steps toward financial freedom with me! I truly hope it’s been helpful and that you’d be willing to share these tips with others.

I invite you to subscribe to this blog and follow Frugal_with_Four on Instagram. I’m looking forward to sharing so much more on living this frugal yet wonderful life with you.

Thanks for reading!!

Know Your FI Number

Financial Freedom in 2021! Take Action: Day 19

Whether you plan to retire early or work until the Lord takes you home, it’s helpful to know the magic number you’re aiming toward to no longer be dependent on a regular paycheck to pay your bills and live a full life. Your FI (Financial Independence) number is the amount of net worth you need to support you for the rest of your life moving forward.

The breakthrough Trinity Study published by three professors from Trinity University in 1998 determined a safe withdrawal rate* from stock portfolios despite the fluctuations of the market, and the conclusions they made have had a huge impact on retirement planning. Their research produced the “4% Rule” mentioned in yesterday’s post. What this means is that if you can estimate your annual expenses for when you plan to retire (or when you’re hoping to reach that state of financial freedom), you can multiply that yearly amount by 25. This is a simple way to calculate your FI number.

Here’s an analysis of how I’ve calculated my family’s FI number:

• Anticipated Retire Early Date: January 1, 2030
• Family Status (at that time): 2 children graduated from high school, 2 still in grade school
• Potential Side Income: Real estate investing (monthly cash flow)
• Estimated Annual Expenses: $70,000
• Expenses Remaining after Side Income: $70,000 – (10 homes * $3600 cash flow) = $34,000
• Required Net Worth: $34,000 * 25 = $850,000
• FI Number (with RE investing): $850,000 … almost there!
• FI Number (without RE investing): $1.75 million … NOT almost there!

There are so many variables, right? But that’s ok. The analysis is the the fun part. It’s a game to see how low you can get your expenses by paying off debts and cutting unnecessary spending. There are also so many ways to earn a passive income to offset your anticipated annual expenses and decrease your FI number; real estate is just one of them. What’s important is that you continue to keep track of your expenses and net worth with intentionality. If you do that, chances are that you’ll reach FI much sooner than planned.

In the example above, I conservatively estimated owning 10 doors in our real estate portfolio at $300/month cash flow, but our goal is to own 20, and maybe our average cash flow will be even higher than that. If so, we may be able to cover ALL of our anticipated expenses through those investments. We may also downsize our home with fewer children living with us or we may decide to do traveling homeschool, which will decrease our living expenses, and therefore, our overall annual expenses.

The point is that things will change; the future is unknown. The good news is that you now have a framework and an easy way to calculate your FI number even as income, expenses, and investments change.

Another aspect to consider is that many believe that the safe withdrawal rate is now higher than 4% and closer to 7%. This would significantly reduce how much you’d need in your nest egg. At a safe withdrawal rate of 7%, our FI Number (without real estate investing) drops to $994,000!

Today’s action step is to calculate your FI number. It’s ok if you have a few different scenarios with a few different outcomes. Just doing the calculation will give you a ballpark to aim for and get you in the habit of doing the math as things change. There are FIRE calculators online that you can use to find your FI number while taking into consideration your side hustles, higher or lower withdrawal and return rates, as well as anticipated expenses. So… what’s your number?

*The safe withdrawal rate (SWR) method calculates how much a retiree can draw annually from their accumulated assets without running out of money prior to death.

Our First Rental Property Deal: The Challenges and Rewards

Just over two months ago, my husband and I bought our first rental property! Adding real estate investing to our portfolio is step #9 in our plan to reach FIRE by 50, so we are stoked that we were able to get started in the infamous year of 2020. I turned 41 this year; my husband turned 40. We still haven’t decided if our age deadline of 50 refers to his milestone birthday or mine, but we figure we have about 10 years to develop a strong real estate portfolio.

At my 40th Bday party…
let the FIRE countdown begin!

It all started with a little podcast called Bigger Pockets Money, which introduced me to several personal finance strategies and books to read, while also making real estate investing sound very appealing. I quickly decided that it had to be a part of our early retirement plan, but the extent of my knowledge only came from buying and selling a few primary residences in my life. So, I had to dive in! Thankfully, the free resources available are endless. About 50 podcast episodes and a dozen books later, I felt like we were ready. I started analyzing deals daily, constantly texted my realtor with questions about available properties, and talked my husband’s ear off about the next best Texas town in which to invest.

After months of research, analysis, and attending random open houses in the cities and towns we heard were the fastest growing, it hit us that we were out of our league. There are a lot of big dogs out there in the investing world, and the competition is fierce. Houses sold sight unseen, and several deals went into bidding wars. Out. Of. Our. League.

So, we finally decided to check out a sleepier town we’ve traveled to a few times on family road trips. I started looking up houses for sale and made a list of about a dozen I was interested in. Problem: Our realtor didn’t have access to the MLS there, and I wasn’t ready to involve a new realtor because we were still in the exploring phase. So, I took matters into my own hands. I spent an entire afternoon while one of my kids napped and the others played legos to call or email the listing agent on every single property. I politely asked if they’d be willing to show us their listing in a couple days. Most obliged despite my unconventional method, and we had 8 showings for that one Saturday.

This particular Saturday was during the dead heat of summer… in Texas … during a pandemic. So, we had no choice but to load all 4 of our kids into the minivan with the temperature gauge already reading 100 degrees by mid-morning. We promised them a fun day trip with just a few stops to look at houses. Thankfully, they bought into it, and we took off for the 2 hour trip. We had packed lunch boxes full of favorite snacks and plenty of treats, and we planned a stop at a super cool playground with a nearby hiking trail along a river.

By the time we made it to the first showing appointment, the car was a disaster, covered in snack wrappers, small toys, and countless coloring pages. Plus, our 3-year-old was fast asleep. My husband and I saw the first few houses in shifts. One of us had to stay in the car with the little guy. And of course, all three of the other children insisted on getting out, donned their masks, paraded through each home, and offered their unsolicited opinions. Our 4-year-old kept pointing out which room would be hers, no matter how many times we explained that we wouldn’t be living in these homes.

After hours of foundation issues, bad neighborhoods, major fixer-uppers, and an historic home with a busted lockbox, we made a quick kid-friendly pit stop for ice cream. At this point, the temp had reached 110 degrees outside, and our A/C was struggling to keep up. Everyone was exhausted. We debated whether it was worth it to see the last two houses. It felt like we had struck out in yet another Texas town.

Maybe it was the sugar high from the root beer floats or the sheer determination within, but we decided to forge ahead and see the last two houses. For our second to last appointment, we arrived to an obviously occupied home but no sign of a realtor anywhere. Soon after pulling up, a woman walked out onto the porch and gestured for us to come on in. The realtor was a man, so we knew this had to be someone living in the home. We double-checked the address, and it was correct. My eldest and I put our masks on and slowly approached the door. The house was beautiful, well-kept, and only a couple years old. It was even better on the inside, and the tour of the home was given to us by the current tenant who had just brought her first baby home from the NICU. We kept our distance, did a quick tour, and chatted outside a bit. My husband took his turn walking through the house, and as soon as he exited, we both gave each other THE look. This was it. We knew it.

Just at that moment, the listing agent arrived and gave us the whole story. We were questioning him about why this wonderful house with kind, paying tenants had been sitting on the market for 30 days, especially since the almost identical house next door sold in less than a week for full asking price.

It turns out that because the tenants in this home had a baby in the NICU for the whole month, no showings were being allowed… until that afternoon when we walked in! We asked the realtor several questions about how much rent the house was getting, why it was being sold, and whether the current tenants planned to stay. The answers couldn’t have been better, and we quickly realized that if another person were to walk through this house, we might lose our chance.

We called our realtor; she recommended a great local realtor in the area, and we put in an offer right away. The realtor she recommended specializes in rental properties, so as an added service, he also agreed to write up a new lease when we closed and to do all the negotiations/signing with the tenants, who did agree to stay.

We couldn’t believe it! After months and months of striking out, we finally hit a home run. We felt like this deal was the best scenario we could’ve imagined for our first rental property.

Here are all the numbers for those interested in deal analysis:

• Purchase Price: $175,000 (25% down, 3.65% APR)
• Monthly P&I: $598
• Taxes and Insurance: ~$420/month
• Additional expense: $50/month landscaping
• Rental Rate: $1510 monthly (including pet fees)

So far, everything has been great! We communicate with our tenants a few times per month, sometimes about the house, sometimes about our families. My husband has visited the house for a walk-through once since closing and asked the tenants if there are any concerns or any ideas for future improvements. This relationship has helped with on-time payments and upfront communication. We even get a picture of the check each month before it’s sent in the mail and sometimes a picture of their baby to accompany it.

Now, we’re ready to find the next one! We know not every deal will go this smoothly, and we anticipate that problems will come at some point, which is why we have 6 months of expenses in a separate bank account for this property alone. However, the momentum has started, and we don’t want to slow down. With a goal of 2 properties per year, we are constantly on the hunt.

I’ve recently adopted a mantra I heard in an interview with Robert Kiyosaki: “4 green houses and a hotel.” Hopefully we can play our own game of real-life monopoly within the next decade. Stay tuned to see if we win or go bankrupt trying! My current goal is to just land on my step-dad’s version of “free parking” a few times, where the player gets to collect a mix of Monopoly money and the real cash my step-dad tossed in to make the game more interesting.

We plan to play often with our kids as well. Now that our children have joined us on this journey, literally and figuratively, we’re hopeful that they’ll learn investment strategies and important aspects of personal finance much earlier than we did. We’ve also told them that these homes are a key factor in their future post-graduation. More details on that to come…

I hope you’ve enjoyed reading the story of the ups and downs of our first rental property investment. I can’t wait to share more with you in the future! Please subscribe for more posts on our FIRE by 50 journey and additional tips on living a frugal yet FULL life.

FIRE By 50… Starting at Age 40

Can it be done?

I had never heard of FI or FIRE until just before I turned 40 years old. At that point, I didn’t consider it a possibility for me and my family. I was turning FORTY. I was a stay-at-home mom. We have 4 children. We love to travel. Plus, my husband and I had recently chosen to move to an area with an esteemed school district and elevated home prices to match.

FIRE was not in our cards.

However, hearing about this movement and the different paths people chose to reach financial independence piqued my interest in a way that money and finances never had in the past. Money was simply a means to gain possessions, feed our family, and to pay for vacations. I had never considered money as a path to freedom….

But once my eyes were awakened to this idea, my brain couldn’t shut off. I made a list of books to read and devoured them quickly, often calling my husband mid-day, excitedly sharing new tidbits or strategies I had learned. I started binging podcast episodes and blogs during every free moment I had. I spent hours and hours learning. There seemed to be no end to the ideas and creative ways to completely change my life through better money management.

When it finally set in that maybe we could forge our own path to financial independence despite the obstacles I saw in our way, I scribbled down a list of requirements to get us to FI(RE) at 50. With that list staring me in the face, I was again inclined to say, “This isn’t in our cards.” But something stronger was tugging hard at me. It was an adorable toddler with bright blue eyes and blonde hair who was born with an innate spirit of adventure and risk-taking. As he tugged on my arm to lift him in my lap, I looked at that list in a whole new light. The fire in my belly surged and the smile on my face widened. I looked my baby boy in the eye and announced, “We’re going for it!”

Goals to reach FI by 50…

1. Track spending every month and maintain an annual and monthly budget.
2. Practice frugality consistently to decrease expenses and increase savings rate to at least 25%.
3. Pay off debt (car loan) and don’t take on any new debt (outside of mortgage).
4. Move savings/emergency fund to high yield savings account.
5. Invest additional savings in Index Funds.
6. Take part-time work for extra cash (me).
7. Sell primary residence for profit and set aside funds for real estate investing.
8. Buy new home with very low interest rate and in low tax rate neighborhood in same school district.
9. Purchase 1-2 cash-flowing rental properties per year for the next ten years.
10. Use equity or do cash-out refi of a few investment properties to fund college, technical education, or business start-up for each child.
11. Continue to decrease expenses as first two children graduate, then sell/downgrade home and purchase one with cash or practice geographic arbitrage.
12. Wes retires, and we live off of rental property income and investment dividends…

FINANCIAL INDEPENDENCE!

As of today, September 11th of 2020, almost two years into our journey, we’ve accomplished the first 8 goals and started on #9. We’re in the process of purchasing our first long-term rental property. I never thought we’d be this far along in such a short time, but I also recognize that the last several goals will be the hardest, especially finding ways to fund multiple rental properties and learning how best to manage them. But we’ve made it this far, so there’s no turning back now. I hope this blog and my readers can help to keep me accountable. Please share what’s worked for you.

Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.

Lao Tzu