I was always super inspired by Jacob doing the posts on how to retire on Minimum wage or at least low wage jobs. But I kinda wanted to take it to the extreme and see what I could do. So I literally went and tried to find a scenario, as a barista, where you could retire as soon as possible. I'm thinking of this sort of as a story in a sense.
Anyway, let's get started. Let's say someone is 18 (obviously this is extreme, and not many 18 year olds will do it, but it's great that it's possible). They have no money currently and need to leave their house in a few months after graduating high school. The other assumption is that they are going to get a job as a Barista at Starbucks and work full time, and will make $9 an hour. I've talked to a few Starbucks workers and they generally say full time is doable, though you may have to grab shifts where ever they can. Certainly Starbucks employees can make more than this but we're going to pick a relatively low paying state.
Location: Crossville, TN
I'm picking this state because there is no state income tax, but it also has a lower cost of living. It's mostly random, I have never been to this town. But it's got some good points to it. There are 2 starbucks in town, so between the two, if you are a hard worker then full time work seems possible.
Pay: $9 an hour, 40 hours a week, 50 weeks a year = $18,000
After tax that is about $16,000 a year or $1,333 a month. So that's what we are working with.
Lets look at some realistic expenses.
It's pretty easy to find rooms for rent for $400 or so. Sometimes less. In fact I found a room for rent there for $100 a month, and it was pretty nice actually. It's small and you are in a trailer but it really was pretty nice.
Next is food. So lets say $100 a month for that. You have to just stick to eating staples like rice, beans, etc. But part of the reason you work at Starbucks is that they give you 1lb of coffee free each week if you work there. Many also give you 1 free food item per shift. So you will get a lot of food for free and be able to add things to your diet. If you are doing ERE on a low budget job your best bet is working at a food place. Even at SB it's possible when the food gets thrown away you'll at least know where to dumpster dive if you really need to get some extra nourishment.
Well we all know how this is gonna go. No car, just a bike, or walking. Costs are relatively negligible. He can walk until he can afford a bike, then when he gets one he can ride it around. Crossville is a small town, he can definitely rent a place that's 5 to 8 miles (MAX) from Starbucks. Probably a lot closer. Very easy on a bike.
- Health Insurance: 100 (He's young and can afford a catastrophic plan, I think SB offers a health plan so if that's cheaper he can run with that but for now lets go with this one).
- Cell Phone: $50 a month. He could go cheaper but a cell phone is basically a requirement these days, plus it'll give him good internet access. There are a lot of providers who give decent packages for this amount of money. Likely most of the time he can life off of wifi where he's renting and wifi at starbucks obviously.
- Clothes: $50 a month. Kinda explains itself. I don't personally spend that but lets say for work clothes and personal clothes he spends about that much.
- Random: $125 a month. This is for the random drs visit, or money spent eating out, whatever comes up.
Awesome. Obviously we aren't close to our goal yet, but lets get our expenses down. First things first though, let's take the first 6 months savings and leave it as a rainy day fund. Now is when the table is going to turn dramatically. Lets buy a house!!!
Lets buy this one:
https://www.trulia.com/p/tn/crossville/ ... 2041612352
It's a 3 bedroom, 1 bath. It's a whole lot of house for 70k! It's also only 4.5 miles from starbucks. Very bike/walkable. We're going to violate Jacob's rule and get a mortgage. Even worse we're going to only put down 3%! That's 2100, but 1k for closing. So by the end of our first year we're going to own this house (possibly sooner if the person doesn't mind not having a big rainy day fund).
Now his new monthly cost is going to be
$485 (Principal & Interest: $332 + Property Taxes: $23 + Home Insurance: $75 + Mortgage ins. & other: $55)
Plus lets say 250 for utils. Total $735. He could do less but here's why it's so high: He's going to rent 2 of the rooms out for $400 a month himself.
$800 in income - $735 in costs = +65. So he's turned his costs from 400 a month in expenses to 65 in profit.
Cool lets now recalc his monthly rate
Total Burn: $360, Total Savings: $990, yearly $11,880
That's a pretty huge turn around. He now has his expenses ultra low. Yes he does have room mates, but so do most younger people. In this case he could maybe rent 1 room to a family member and 1 to a co worker.
Now at his current savings and burn rate he needs to save about 100k to be able to pull out the 4% a year he needs to live. That will take about 6.5 years, and, well he's the impatient type. So what does he do... he pays his mortgage down instead. Every year he's paying off 12k of it. Which in 5 years would be 60k. Now we're 10k short! BUT! when you factor in he's paying down the mortgage every single month, so he's going to be paying less in principle each month and therefore will have extra money to pay towards the mortgage.
Once the mortgage is paid off, you don't pay that or the mortgage insurance. So that will be a savings of $387.
Summary after owning the house
Total Burn: $-27, Total Savings: $1,377, yearly $16,524
So assuming he continued to work, all his expenses would be paid and he'd be saving free and clear 16.5k a year. In the years he worked there he could have gotten a free degree from Starbucks, since they pay for it. Or lets say he wanted to start a lawn mowing business. He could work a few months, buy a cheapo truck, a mower and go mow some lawns. His expenses are so low he really can't fail. Literally he could cut lawns for 10 a pop and come out far ahead of what he was making at starbucks.
Sure life comes up and he maybe had other expenses he didn't count on, but even if that pushed him back a few months that would have been super quick. And if he preferred to go the save up the money and invest rather than pay off his house then it would have probably taken him about 7 years, But then he'd have 100k in capital he'd have access to.
More interestingly a Triplex sold there for 130k he could have bought.
https://www.realtor.com/realestateandho ... 75?view=qv
Now if he's 24 and he wants to get married and his new wife to be doesn't want to live in the house with others, no big deal. Build a tiny house out back or buy a RV like Jacob and rent out the other room. Extra 400 a month in income.
So yeah, this is my motivation. I think it's so cool that a person could be this frugal and retire so early. When kids are just getting out of college in a lot of debt and stressed over their future this guy has it pretty well under control and can do what he wants with his time.
Write the great american novel, start his own business, whatever he wants.