I love to read early retirement blogs, and dream about financial independence, but ERE is where I feel I fit in the most philosophically, or at least admire the most philosophically. I feel like Jacob has truly nailed it, and I'd been searching for someone with a similar bent for a while before stumbling across the blog. Before that, reading Walden was my big aha moment, and it's still my favorite book of all time. I like to think in terms of trades, you can trade time, effort, money, etc for the things you want. The thing that struck me the most in Walden was when Thoreau compared the different amounts of effort different peoples put into acquiring a place to live. The natives spent 2 weeks to erect a long house, Thoreau spent a few months and roughly 1 years wages to build his cottage, meanwhile most people today (and back then) seem to think it's okay to spend 30+ years to achieve the same thing. I value plumbing, electricity, and environment controls enough that I think spending a couple years is a reasonable trade, but trading 30 years for a place to live is like trading a year of back breaking labor for an ice cream cone. It's a horrible trade and you could do it yourself in less time. This line of thinking applies very well to housing, you should be able to build a house that is better than ones that are mass produced with far less than 30 years of labor, so why on earth would anyone be excited about doing just that? This is not to say that I intend to build my own house, but that my efforts should be proportional. A person should live in a house that they can afford with a few years wages, that is a sensible compromise. Trading more than a few years of labor defeats the purpose of working for a living. You aren't spending much time living if all you do is work.
I'm a computer programmer. I was laid off in 2009, and as I had always wanted to start a business, I decided to start a small IT contracting firm because the job market was no good at the time. It has had it's ups and downs emotionally and physically (I started getting white hairs, gained 50 lbs, and for a brief period had high blood pressure), but financially it has exceeded my expectations. If I was single, I'd be retired now.
Fast forward 6 years and I have shed 30 lbs from my peak (stubbornly working on the last 20), still have white hairs but much less stressed, had a horrible business partner that ended in legal turmoil which is now finished, had an office and employees, got rid of office and employees because I didn't like the pressure of having to manage them and always be coming up with income to cover the overhead (> 15k/mo), am now a one man band again and very happy this way, got married, moved out of southern california because living expenses were ridiculous, and had a baby in 2015.
- Bought a house for 210k and paid it off, supposedly it is worth 280k, but I only count it as an asset in that it means I pay $200/mo to live here in taxes and insurance, which means it's generating roughly 1000-1200 per month in savings versus something nearby that we would feel comfortable living in, more if I wanted to live in a place of equal size.
- 4k - 1 2005 economy car I am contemplating selling when I become truly FI, right now it gets light use for business and a few errands, under 300 miles per month
- 15k - 1 2012 subaru because I fear for my wife's safety in anything else when it's snowing (4 mos per year)
- 90k in equity in a rental property, generating a 5.3% return after expenses
- 40k in IRAs (vanguard 500 index)
- 10k in taxable vanguard funds
- 46k in cash accounts
435k (I am ignoring market price of the home, but counting the improvements in infrastructure and some small remodeling we did, the place was a repo and kind of a mess)
- 100k mortgage on rental property
- 200 - home ins/taxes
- 400 - my food/gas/misc
- 150 - baby food, clothes, diapers, etc
- 60 - family cell phones
- 100 - gas (mostly during winter heating, and something I want to optimize with more insulation)
- 80 - electricity (also needs optimization)
- 110 - water,sewage,etc - flat rate lowest tier from the city
- 80 - business class internet, when I work less I'll scale back to a $40/mo plan
- 55 - car ins
- 700 - health insurance (thanks obamacare, it was 200/mo 4 years ago pre baby)
- 2500 - nanny
- 100 - misc
- 50 - drs, baby has to go a lot
- 200 - entertainment - movies/dining/museums/family day trips/etc
Childcare is far and away our biggest expense, and one that I'm reducing. I work from home, and I really value having someone one on one with my daughter at my house. Baby didn't sleep well for a long time (up every 2-3 hours for the first 10 months, still reverts ocassionally), so we have someone who comes a few nights a week so that I can get a good nights sleep. It's a luxury, and also kind of a business expense, I can't think straight without a good nights sleep and my job is purely intellectual, I was literally running into things like doors and desks after we first had her, apparently my collision detection shuts off if I'm sleep deprived. Baby is now sleeping pretty well, so that's the first thing that goes. Lowering that cost to around 1300/mo. I am putting this into place this month, so if I can handle it then total expenses become $3485. When I quit working so much (ideally next year), I aim to reduce that to a baby sitter once or twice a week, reducing the child care costs to 360/mo, and my total expenses to $2645.
I exclude my wifes expenses because we set it up so that she contributes 60% of her take home pay to our joint account for expenses, and keeps the rest to spend however she wants provided that it covers her food and gas. She isn't a true believer of ERE yet, and may never be, and seems to find her identity in having a job and spending money. Her contributions roughly balance out to 0 if you factor in vacations we take and luxury items that she likes to purchase. I'm fine with this if she wants to keep working and those are the things she finds satisfaction in.
When I finally hit FI, I will cut further, I can easily shave off another few hundred and bring expenses down to around 2000/mo, when I have more time to cook and less dependent on eating on the go and expensive transportation.
Because I'm self employed my income is irregular, last year was a huge windfall, and I do not expect it to happen again. It coincided with having the baby and a huge increase in monthly expenses, as well as purchasing a rental property with 90k cash. I really hit my stride with savings in 2010, before then I was a spendthrift. Never going in debt, but never saving. Since then I have had roughly a 50% savings rate of after tax dollars, sometimes more, sometimes less.
2009 - 100k
2010 - 100k
2011 - 170k
2012 - 170k
2013 - 200k
2014 - 200k
2015 - 300k
2016 - 200k (projected, could vary wildly)
2017 - < 100k (planned)
I plan to take a phased approach to retirement. In 2015 I eliminated most of my clients, and focused only on the big ones. Counter intuitively this increased my income by a lot because I was wasting far less time chasing small fish and only pulling in big ones, and every hour was paid instead of unpaid work marketing and looking for new projects. I was working waaay too much though and it was too stressful. I lost a big client at the beginning of this year, and I'm happy with my current workload. I plan to not look for any more clients and coast for a while. Eventually I expect that I'll lose my other big clients, and at that point I aim to work 1 big project a year for a few months and then stop once I hit a savings quota. I am aiming at 80k per year with this approach, assuming I can make 10k per month on a project (which I have been for the last 3 years), I should only need to work 8 mos a year or less and still be able to save around 50k per year.
After 4 years of this I should have 2000/mo in passive income from 2 fully paid off rental properties with a 5.5% return after expenses, and I intend to work even less, maybe a month or two a year. At that point I will consider myself FI, if I want to quit completely I can do some cutting in expenses.
I estimate that I am between 5 and 6 years away from being FI, depending on how things shake out. I wouldn't actually mind if it took me 10 or 20 more years if I only worked 3 months a year, that would be good enough for me.
I know I don't fit the mold for ERE, I am not nearly extreme enough MMM is probably a better match as far as financials go, but in my opinion he lacks the interesting philosophical aspects that Jacob has covered so well and that I wholeheartedly believe in. After reading the ERE book I've begun cutting my own hair (for some reason I always thought you needed an expert to do that) and looking more into bicycle maintenance. Once I have more free time, hopefully next year or the year after, I'll start gaining moderate expertise in many more areas, such as home repair and remodeling. Overall, the generalist approach and reducing reliance in "stores" and "experts" really speaks to me. I am in awe at how deeply advertising and my peers have instilled in me the idea that I can only do what I'm an expert at and nothing else, thus making me have to work the rest of my life because I rely on other experts to do everything else. It's kind of funny when you think about it, because computer programming, my expertise, is not something I even need in my daily life, so I'm an expert in something I don't use, while needing other experts to do everything that I'm helpless with such as food, shelter, electricity, etc.
I'll try to post my findings and overall progress every month or two. I think of myself as a fairly good cook, and I'm always looking for ways to cut costs without sacrificing quality, or at least not too much quality My haircut for example is good enough, I wouldn't say I'm an expert, but I realized that most mens hair cuts do not require expertise at all.