Our inbox is overflowing with reader cases so time to pick another one!
Dear Ms.FIRECracker and Mr.Wanderer,
First of all I would like to thank you both for giving my life a sense of purpose and direction and why not.. HOPE!… After reading “Quit Like a Millionaire” 3 years ago my life really completely changed for the better I must say and for that I will be forever grateful… more than that you have a full time preacher of the FIRE movement now… I have “converted” 3 of my friends and counting.. if only more people will know about these financial tools, man oh man…
Anyways first to tell you a little about me I am a single guy and part of a family who is a first generation of immigrants to the US and because of that (and also because of being part of a Latino Cuban family) I still live with my parents (on my mid 30’s :() and support them housing wise with the help of another family member who also lives under the same roof.
So every time I try to “math shit up” the numbers are disheartening to say the least, especially lately with all the shit that is going on in the world and also living in Miami, FL, has not been easy at all… I would LOVE to rent a place for myself to finally have some “social life” (if you know what I mean) but at the same time rents in MIAMI, FL are about $2200 monthly (usually without services) for a 1/1 which is a number that I could probably do but will destroy my FI dreams.
Is it worth the trade-off of social life to achieve FI? …. been pondering that for the last year… starting to believe it is not worth it…
Is it possible to have the BEST OF BOTH WORLDS? My own place and my FI dreams intact? please help me “math shit up” properly
Here are my numbers:
-Gross/net annual income:
yearly gross: 88k
yearly net: 47k
housing/rent $1200 (including services)
car insurance $100
car tolls $20
home food/groceries $450
roth savings $500
Total $2390 expenses – $3920 net monthly income: $1530
the rest = fun/travel/clothes/dineout money = $1530
Toyota Corolla 2019 fully paid
-Investments or savings:
employee 401k: 71.4K (also they match 4% when I put 6% towards it… nevertheless I am currently putting the maximum allowed in my 401k.. lastly my job by the start of each year adds 4% of your gross salary to your 401k as a yearly bonus)
vanguard brokerage: 49.6K
vanguard rollover IRA brokerage: 17.8K
vanguard roth IRA brokerage: 23.5K
So.. what do you guys think? Is there any light at the end of the tunnel for this first gen immigrant or I am doomed to work until my back breaks?
My greatest wish is to achieve FI before turning 50 but also have some kind of social life and perhaps form a family? Who knows !
Thank you !
The Cuban Missile
Okay, first of all, how can I possibly resist this reader with the alias “Cuban Missile” and the adorable icon. You’re just too interesting to ignore. Well played, my friend, well played.
But beside that, this reader case also grabbed my attention because it spotlights a troubling trend of people needlessly sacrificing and following the “death march towards FIRE” path which never ends well. I said this before, and I’ll say it again. Do not do this. You have to ENJOY the journey to FI. Otherwise, it’s not sustainable.
It’s a lot like dieting. You can starve yourself, cut out all sweets, ban yourself from eating anything you love, and sure, that might help you get to your goal weight quickly, but a year later, you’ll rebound to your previous weight or worse. That’s why a healthy lifestyle is more sustainable and better for weight loss than an extreme diet. Ditto with FIRE. You need to become financially fit sustainably. Not starve yourself to “get FI” instantly.
I’m curious as to why Cuban Missile feels he needs to sacrifice towards FI since on first glance, he has a nice gross income and his expenses don’t look too bad, so without farther ado, let’s MATH THAT SHIT UP!
|Income:||Gross: $88k; Net: $47k|
|Spending:||$1200 + $100 + $80 + $20 + $40 +$450 + $1530 = $3420|
|Investible Assets:||$71,400 + $49,600 + $17,800 + $23,500 = $162,300|
Ok, two line items immediate screamed at me. One: why is gross salary $88K and net salary only $47K? Clearly this guy doesn’t live in Denmark, so what the hell is going on?
Since he mentioned he lives in Florida, I put his gross salary into a tax calculator and if he maxed out 401K and Roth IRA, it should be $73,431 ($20,500 of which are retirement contributions).
Two: “roth savings = 500” does not belong in the “spending” category. That’s savings, which is literally the opposite of spending. This makes me more suspicious that the $47K/year after tax salary isn’t including Roth IRA and 401k contributions. They don’t just disappear, these are your retirement contributions and needs to be accounted for when you calculate your yearly savings.
The fun/travel/clothes/dining out money = $1530 is several categories all jammed into one. CM is spending more in this category than his rent! It’s probably a good idea to break this category down into subcategories and figure out where the money is going. Is there a way to optimize and get the same level of enjoyment by travel hacking to get this expense down? Right now, we don’t know because it’s too opaque. Start tracking this more carefully at least for a few months to see where the money is going and whether it’s optimizable. I used to spend $500-600/month on vacations and never felt guilty about it because it aligns with my values, but we were intentional about it. Don’t just throw money blindly at vacation packages if there’s a better way to get the same enjoyment for less.
Given that CM’s yearly spending is $3420 x 12 = $41,040, per the 4% rule his FI number is $41,040 x 25 = $1,025,000.
Here’s where that part about putting Roth savings into the wrong category hurt him unnecessarily. If he were to calculate his savings rate using his methodology, it would’ve looked like only an 8% savings rate to him.
In actuality, with his net salary of $73,431, that means he saves $73,431 – $41,040 = $32,391, and his savings rate is $32,391 / $73,431 = 44%, which is pretty amazing considering he lives in Miami. Clearly he’s not a Brickell-ista. Miami reference five! *holds out hand for high five* Anyone? Anyone? No? Just me? Ok, then, moving on.
Using the correct savings rate, his estimated time to FI should be:
(Note: These tables assume your salary keeps up with inflation. See Appendix D (page 303-308) of our book for more details)
Less than 14 years!
This means he can become FI before the age of 50! Not only that, I feel like he could easily bring up his savings rate to 50%, just by making some simple optimizations to his expenses, particularly the fun/travel/clothes/dining out money category without decreasing his level of happiness. The first step is tracking and being aware of what’s being spend in these sub-categories so he can be intentional about it.
By increasing his yearly savings from $32,391 to $36,715.5, to get a 50% savings rate, he would need to save an extra $4,324.50/year or $360.38/month.
What happens if he can find some spending optimizations and decrease his “fun/travel/clothes/dining out money = $1530” by $360.38. This would increase the money he’d be able to put towards FI as well as decrease the amount he needs to become FI.
If he does that, his new FI number would become $917,887.50, which he would reach in:
Less than 12 years!
This shortens his time to FI by 2 years! But also, keep in mind, no one says you have to become fully FI.
The closer you get to FI, the less pressure you have. Even making it to partial FI in 6 years is a huge win! You’ve just bought back half your working hours! At this point, he could downshift at work, switch careers, or find a remote job and travel. There are lots of options when you reduce the pressure and only have to earn half the salary you do now. Remember, when it comes to FIRE, the RE part is optional. You can continue to choose to work, doing something you love.
CM also mentions that he wants to get a rental of his own and maybe start a family one day. None of these things are mutually exclusive of financial independence.
He could work towards a promotion at work, upgrade his skills for a higher paying job, eliminate rent by considering a tiny house, reduce rent by moving to a place with a lower cost of living, live nomadically, join the world-schooling community once he has a family, etc. The options are endless. Especially given that remote work is more mainstream now after the pandemic. When we first started travelling in 2015, digital nomadism was a fringe lifestyle, but now with 25 new digital nomad visas created by countries all over the world because of the pandemic, it’s gaining wider acceptance.
If his expenses increase as a result of moving out on his own or starts a family, he can redo the calculations with updated numbers and see where he ends up. If he gets a promotion or raise, that can also offset the cost of getting his own place.
So no, CM, don’t give your social life or happiness to relentlessly pursue FI. You have to enjoy the journey. You also don’t have to retire—it’s optional. You can reduce your work hours, switch to a lower paying but more fulfilling career, or start even your own online business/freelance consulting.
Your future is bright, so fire up that rocket and blast your way to FI! Just make sure you’re enjoying the views along the way!
What do you think? What advice do you have for CM?
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