HOW WE GOT HERE... FINANCIALLY

May 12, 2018

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"I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too." 

-Steve Martin

 

The moral of this post, in case you decide not to finish it, is that we found a way to leave our careers at the age of 31 without winning the lottery, inheriting a massive windfall, or working six-figure income jobs. We did it by doing things that just about anyone is capable of doing, and to be honest... We weren't even that disciplined a lot of the time.

 

The other extremely important thing to remember is that we are not retired, nor are we financially independent. We are taking this time to recalibrate and find ways to make a living that we are passionate about. It should also be mentioned that we are not suggesting that everyone should live this type of lifestyle. However, if you are interested... Here's how we did it. Individually results may vary.

The College Years

 

We both came from middle-class families and as such we did not get much in the way of grants or scholarships. This is not a complaint, merely a fact to illustrate that most of our college tuition and living expenses were paid for out of pocket. Each of us had college funds from when we were born, our parents took out some loans and chipped in for groceries to

help (thanks mom and dad, we'll be changing your diapers soon as repayment!), and the rest was covered by us working or taking out student loans. On graduation day when they handed us our engineering degrees we had about $53,000 in student loans combined. I also had about $4,000 in credit card debt that came from buying things I "needed" to move out for my first job as well as that three week road trip we took before I started my job... Totally worth it!

Eliminating Debt

 

After graduating I moved to Washington DC for an engineering job and Kim spent the summer volunteering and doing research in Africa before coming back to live in DC with me. It took her about four months to find a job (assuming you don't count the month she spent selling life insurance and Medicare supplements earning a whopping total of $20). Living on a single income in one of the most expensive cities in the country was a bit tight for the first few months. Once she landed an engineering job and we had a few dollars in the bank we went to work on the debt. Actually, I think I paid off the credit card before she moved back from Africa. Paying 29% interest is not something I enjoyed very much and I basically used every spare penny of each paycheck to erase it as fast as possible. 

 

With the credit card paid off we saved up a small emergency fund and zeroed in on the student loans. Over the next 38 months we paid our loans off by being frugal, working multiple jobs, and keeping things as simple as possible.

 

Again, neither of us has ever earned a six-figure income so the main strategy that took us from college debt to full-time world travel revolved around what Jason Kelly refers to as the three C's - Credit cards, Cars, and Castles.

Credit Cards

 

I'm not going to spend a lot of time on this one. The other two C's are far more interesting. I already mentioned that I paid off my credit card as fast I possibly could. Once I did, I vowed to never carry a credit card balance again. Does this mean we don't use credit cards? Of course not! Credit card hacking can be extremely powerful and the benefits to using credit cards over cash or debit cards are vast if you can avoid the trap of carrying a balance. The solution here is again simple, and I don't mean to be condescending, but don't spend money you don't have. For us this came down to focusing on the other two C's. By keeping these costs down, we freed up money so we have not had to pay a penny of interest to a credit card company in eight years. Better yet, they pay us to take trips every year with their rewards points. We're what they affectionately refer to as "deadbeats." Cool!

Cars

 

My mother passed away just before I graduated high school in 2005 and since I wasn't 18 yet I got some of her social security. Since I was going to college where the annual snowfall is over 200 inches, my dad suggested we use the money to buy a car that was better in the snow than my 1993 reddish-blue Toyota Celica... Enter the $9,000, 2000 Nissan Maxima with 85k miles! I drove it all through college, took it on countless road trips, and finally sold it for $300 in 2014 with lots of rust and over 200k miles when the idle air control valve failed and fried the engine control board. It was still drivable but if you let off the gas it would stall. At stoplights you had to lightly rev the engine, which wasn't hard to do but since the muffler had mostly rusted off it was kind of loud. I sold it to a coworker who drove it for over a year on his 100 mile round-trip highway commute (no idling necessary) before selling it to a guy who turned it into a race car. 

 

Kim had an even sweeter deal. In 1999 her grandma bought the official car of grandmas... The Toyota Camry, gray. Four years and 20k miles later she was too old to drive and Kim was about to turn 16. A deal was struck that Kim would get the car if she agreed to take her grandma anywhere she needed to go and would come garden with her. Effective cost of acquisition: Love. We are in no way sponsored by Toyota, but that is the most boring and yet amazing car on the planet. That car has been in places no car should ever have gone. We rarely had to do any maintenance on it and only sold it in 2016 because I got a work car and we didn't need two vehicles. We sold it with 215k miles on it to my best friend's sister who named it Phyllis after Kim's grandma and still drives it today. Long live Phyllis!

 

 

After my Maxima died we tried to get by with just the Camry. I only worked six miles from home and could bike if the weather was nice (I hate being cold). Unfortunately, right about this time Kim's dad had his stroke and so we were making multiple trips each week to and from the hospital which was over an hour away. It became difficult to juggle everything with only one car and we convinced ourselves that we needed a Toyota 4Runner because it fit our outdoor lifestyle. So, we bought a 2003 SR5 Sport Edition with 85k miles on it for about $12,000. We loved it and owned it for less than a year before selling it for $10,500... We never wanted to drive it on camping trips or to do all of the things we bought it for because it sucked gas. So, more often than not we just took the Camry and the 4Runner just sat there looking like a bad-ass in the parking lot. Coincidentally, it was like a week after we bought the 4Runner that I discovered Mr. Money Mustache and in particular this article. So, one week into owning the 4Runner I was already asking Kim when we could sell it. She was none too pleased! 

 

I mentioned briefly that we sold the Camry in 2016 because I got a car for work. There isn't a whole lot to say on this topic other than having a car for work is amazing. The way that my company had it set up was that we got a gas card and could use the vehicle for personal use as well. It's a little complicated on the tax side so I won't dig into it here but the bottom line is that it cost us about $750 per year for a 2017 Ford Fusion, including gas. It was an amazingly sweet deal and I am in no way suggesting that this is an option or strategy for everyone but, if you do have the option... Drive that baby like it's a Camry and drive it everywhere!

 

 

Castles

 

I understand this a vigorous debate and that many people think renting is wasting money. I have my own thoughts on the matter but would rather share with you why renting made sense for us and how it helped us get here. I'll let Paula Pant take you deep into the debate since she is smarter than us.

 

 

 

Here are the two key reasons why renting was the best option for us:

 

1. Flexibility

When we moved to DC we knew it wasn't permanent and would probably only be a few years before we moved. Beyond that, DC wasn't really hit with the recession and housing prices were astronomical even in 2010 and 2011. When we came back to Michigan, housing prices were about 25% of what they are in DC and we almost bought a house. In 2012, we had an offer accepted on a house for $93k but when they found mold in the attic we walked away. The price-to-rent ratios in our area indicated that buying was the clear choice, but again, we knew we did not want to be in southeast Michigan for the long term. 

 

We didn't know if it was going to be a year or five years, but having the knowledge that all we had to do if we decided to move was give them 30 days notice and pay one month rent to cancel the lease was comforting. To be honest, even if we hadn't had the idea in the back of our minds that we wanted to go travel, I think this is one of the strongest arguments for renting. We were never going to be "underwater" on our apartment. We could relocate to anywhere in the world on short notice - whether it was for a job, family, or leisure - without having to worry if we could sell a house and not lose money. 

 

Beyond the flexibility to relocate as needed, we have the freedom to use our time to do the things we want to do. I haven't mowed a lawn or shoveled a driveway in almost a decade. After work and on the weekends we can do whatever we want and to be honest, it's pretty sweet! If we decide on Friday morning that we want to take off for the weekend and go camping we can. For us, the flexibility is amazing.

 

2. Consistency/Reliability/Peace of Mind

Because our goal was to save as much money as we could, consistency in expenses was important. Our rent increased a few percent every year. Heat, water, and gas were included in our rent. We had to pay for internet which was basically a fixed and known cost and our electrical bill fluctuated between $30-40 each month. Everything was predictable within a few hundred dollars per year.

 

Most importantly we never had surprise repair expenses... In the six years we've lived here our dishwasher died, our fridge died, our kitchen cabinet fell off the wall because we had too many pint glasses in it, our shower leaked and flooded the wall in our closet, and we had an ice dam which caused water to flow down from the 3rd floor and flood our living room ceiling... All 100% zero cost and zero stress for us.

 

The power of these two benefits was crystalized this winter when the living room ceiling flooded. We had come home late on a Sunday night from a long weekend away (flexibility) and while we were unloading the car we realized the ceiling was all wet above our corner bookshelf. So, we emptied the bookshelf in case the water broke through, left a voicemail for the emergency maintenance hotline, and then crawled into bed and went to sleep (peace of mind).  

I realize this post neglects to cover all of the little things we have done over the years to save money, cut costs, and find extra sources of income. Things like not having cable TV, only having to pay for one cell phone because of a work phone, limiting how often we eat at restaurants, and picking up side-hustles to earn a few extra bucks are all part of the equation and helped move the ball forward. However, we feel that focusing on the three C's is a great place to start and is often times where you will see the biggest impact. 

 

The other very important thing we did was to track our expenses, net worth, and projections into the future obsessively. We did this using a combination of our own spreadsheets and an amazing website called Personal Capital. It let's us see a big picture snapshot of our finances in one place very quickly so we know where we are and can see how we got there. We (I) literally check it daily, but I am seeking treatment to get this down to once per week.

 

We have spent the last eight years finding ways to keep our key living expenses low and predictable. This has allowed us to consistently save somewhere between 50-60% of our incoming (depending on how you calculate it). On this trajectory we would probably have reached financial independence in a few more years but as we talked about earlier and in our background post, it was not essential for us. Instead, all we needed to do was save up enough F-you money that we could allow ourselves the time and space to create or find the jobs we wanted in life. 

 

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