Revisiting Financial Planning in 2019

Let’s get these thoughts down on paper. Paper… Bytes.

In reviewing my expenses to date, I’m averaging a solid $5,700/mo in expenses (after deducting work travel, retirement contributions beyond paycheck deductions, and student loan payoff). Dang! That puts my annual spending at $68,400. Keep in mind that this is for both Nicole and I, apart from her ‘personal spending’ of around $250/mo.

What would that look like for FIRE if I only had the income of my Cox Auto job? At $69k after-tax earnings, nearly breaking even! Ouch. Spending everything that comes in is the opposite of where I want to be. Not even going to bother doing the calculations.

Fortunately, I have some supplemental consulting income that is costing me more hours of my life but allowing me to be firmly in the black every month. That isn’t good enough, though. For the remainder of the year, I’ll be working on keeping the income high while getting expenses down to a reasonable number.

Logging my routine expenses shows that my baseline, current lifestyle monthly spending is $3,330.93. This includes $800 for rent, $700 for food, insurance(s) for both Nicole and I, and all of Goose’s food and annual vet costs (plus dining out money, etc). Still a lot of money. The Sprinter runs about $1k/mo. Without Skeet, we’d be within the $2,400/mo goal that we set at the end of 2018 (albeit car-less).

So, what’s our goal? Let’s work backward.

First, going solely off of my income. I’d like to be FIREd by 45 years old. I wouldn’t mind doing so by 40, but kids will push it back if their costs outweigh increases in financial earnings. Nicole may want to work a bit more (at least as a business owner). Let’s assume monthly expenses of $6k for our family at this point. That puts us at needing to bring in $72k per year in returns to be FI. Following the 4% return rule… We’ll need $1.8M in the bank ($72k / 0.04). If we were living on $50k annually, it’d be $1.25M.

My currents assets are about $100k flat, not considering the value of the Sprinter or outstanding loan amount on it (the loan is at 2.9% — not in a rush to get it paid off). That means I have $1.7M to go. At 28 years old, I’d need to do $141k in savings annually to meet my goal of FIRE by 40. It’d be $100k/yr to make it by 45.

Yeah that’s pretty fucked. I’ll say it. Those are some insane savings goals to achieve. In fact, they aren’t at all possible without banking on a windfall inheritance, promotion to VP+ level position at a big company, or the successful launch of a startup. A good incentive for going back to school.

Now that’s run through this with Nicole. Looks like the stay at home mom gig won’t be for her. Running the calculations with her in the mix has the added financial baggage of including her student loans (don’t go to PT school, kids).

The same target of $1.8M. But now, our combined net worth is -$120k. Yes, that’s negative. Let’s then change the target savings number to $1.9M. Tempted to round up to the big 2-ser but won’t make it harder on myself.

How much needs to be saved to hit FI by 40 now? Ah, a casual $158,333 annually. And if we do 45 years old (my age, not hers)… $111,764/yr. OK — bottom of the projections. Let’s do $1.25M by 45. That’d be $79,411/yr ($1.35M / 17 years). Crazy that it’s almost half of the $1.9M at 40 trajectory. Math, man.

You know what? $80k is palatable. Let’s talk about income.

How much can I reasonably save annually, assuming only one job at my current pay grade? If we go down to $4k in monthly expenses, I’m looking at $48k/yr in spending. Guess what my monthly take-home pay is after maxing 401k and Roth IRA? Almost exactly $4k. That means my current savings amount per year is $25k. The max for both of those accounts and nothing more. After the matching contributions from my employer (3%) and modest market returns, let’s call it $30k.

So… $30k. But wait! Nicole works too. While traveling, she’s bringing in ~$84k after taxes. Settled down at a ‘normal’ setting she’d be doing $45k. How does the picture change? With her $84k contribution, we’re up to $114k. Ahead of our $1.8M by 45 goal by a few thousand. If she’s back making a normal PT wage, the combined contribution becomes $75k. Just shy of the amount needed for $1.25M by 45 yo.

What other factors can be changed? There are two. I can make more money, as I am now. Or we can reduce expenses to free up some of that monthly $4k. Not having Skeet would be an extra $12k/yr. The same could be said of not paying rent.

This is getting long-winded. What have I learned? We should immediately get our monthly expenses down to $4k/mo. This means not buying shiny things or much in the way of clothing. That’s fine. Goose’s pet insurance will save us from any account-emptying vet bills as well. Additionally, I need to maximize my consulting earnings. I can pull in an extra $4k/mo after taxes without much difficulty in my current situation. That’s pretty dang sweet, at $48k more to contribute to retirement annually. This won’t last forever. Capitalize while it lasts. Lastly, Nicole is right about keeping traveling. It’s guaranteed high-income work. While she could make more working cash, doing so would be dependent on settling down in one location and taking the hit of waiting for the business to grow (all the meanwhile paying interest on her student loan balance).

TL;DR for when I revisit this later…

  1. Maximize consulting earnings for as long as this situation exists. Only entertain new offers of at least $140k/yr before taxes.
  2. Drop spending to $4k/mo. That should be around $500/mo in fun money (travel, bikes, etc). Have fun with less.
  3. Support Nicole making the big bucks. Again, do this while it lasts.
  4. Work harder. Be smart. You’ll have the opportunity for adventures.

 

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