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- The Cheat Code to Financial Independence - August 16, 2021
It’s Friday again and guess what that means? Reader Case time! This one really caught my eye because it’s from a reader who’s not your typical FIRE enthusiast:
Really dug your book and online resources and I was encouraged to do this since my fiancé (45) and I (39) are at a crossroads of burnout and don’t fit the typical profile of people we see on the site. A reader had mentioned wanting to see more non-typical FIRE examples.
We are two of your favorite professions in burnout–a plumber (awesome POT) and an acupuncturist/musician (horrible POT- luckily I had full scholarships to music school at least. Acupuncture not so much).
My fiancé was earning $60-70k/yr as a plumber and quit his job right before the pandemic- whoops? He got through the year without having to dip into savings by working as a delivery driver. He went back to work as a plumber but soon found himself again in unsafe situations, and not being paid in full, and left.
He is open to working again but wants to change career and needs time to figure this out. His ideal situation would be to not work again at all but have time to travel and camp (he owns an 18’ tow camper) and do some sort of volunteering. He also wants to buy a new $40k tow vehicle (may eventually replace his daily driver, which is 17 years old) since he plans to be camping for many years- his current tow is unreliable, keeps breaking down.
Last year he earned $22k between being a delivery driver (~$17k) and working 2 months at initial job + 3 weeks vacation he had to cash in ($5k). This year he has again worked for ~1 month, earned ~$4000.
His net worth:
- Taxable: $289,950 + $10k in cash settlement
- 401k: $15,840
- Roth: $4400
- Checking/savings $14k (includes 10k emergency fund)
- Residence: $20,600 principal remaining at 3.125%. Taxes are $4500 a year. Value is $130k and he’s open to selling at some point and living in the camper only for a time, but does want to have a physical residence for when we are old.
- Vehicles: camper- conservative estimate $15k value, 2004 Toyota hatchback
- Mortgage payment $592
- Taxes (PIF yearly/12) $375
- Electric/gas/water/internet $130 (might be able to lower internet, found a new deal)
- Cell phone $25
- Car insurances (car/SUV tow for camper/camper) $130
- Gas $40 (maybe less now, isn’t driving much)
- Food/household stuff like toilet paper, cleaner $400 (he is unsure this #, he said he’s been buying much less food since I buy and make most of dinners. This is what he budgets for)
- Health/dental insurance $60 (Marketplace)
- Super basic monthly COL: $1752
I am a self-employed acupuncturist and musician, with other side hustles. I also have one W2 job, started in Oct 2020, the pay is compensation-based, and I got very burnt out by working through the whole pandemic (we never shut down/I was the only worker for a while). My music is dependent on gigs. I switched careers a few years ago from performing music and teaching lessons full time.
I currently have $204k of student debt from my acupuncture degree (no debt from my music degrees at least). I am on PAYE plan and with putting most of my income in pretax retirement accounts, my monthly payment is $0. It’s expected I will have to pay about $50k in taxes when it is forgiven in 2035.
I also have an EIDL loan of $14800, it’s a 30 year fixed at 3.75%. I have this in high interest savings accounts (4-6% interest) – took it because of confusion about grant (sure I’ll take $10k for free? Though only $1000 was a grant since 1 employee). Also it took forever to get unemployment and I barely made any income from mid March to August 2020. I’ve tried to not touch the EIDL for now. I was targeted for the 2nd round supplemental targeted EIDL advance and it says I qualify for another $5k grant (unclear if they just forgive $5k of what they gave me or they give me another $5k), I haven’t heard back yet though.
- W2 job: $18k
- Self employed acupuncture: $25k? Hard to tell- it’s growing and I just picked up another day, and soon will pick up another. It definitely could be more.
- Music: $5k or so as a musician. Unsure about this year but it will be more than last year where I made $900.
- Side hustles: ~$8000/year (bank bonus sign ups: $4k/year, selling tradelines: $2500/year, delibery: $1500/year)
- Total: ~56,000/year
My net worth:
- Solo401k: $35970
- SEP IRA: $8649
- Roth: $1914
- Trad IRA: $13770
- HSA: $6354
- Taxable brokerage: $4418
- Crypto: $2440
- Checking/savings $17k (including EIDL)
- Car: 2014 Mitsubishi mirage worth ~$4500
- Rent: $360 (my portion of rent/utilities/household stuff
- Cell phone $25
- Health/dental insurance $35 (needs to be adjusted down, since my AGI went down due to PUA not being taxed in 2020)
- Food $250 (mostly organic/non processed)
- EIDL loan payment $73
- Suggested savings in brokerage for tax bomb from loan consultant $400 (I think this is high but happy to save? Need to have $50k in brokerage by 2035))
- Car insurance: $61
- Gas $40
- Tolls (have to work in the city, public transit not an option here) $120 (ugh)
- Amazon prime $6 (we share this account, locked into old price)
- Therapy/acupuncture/yoga/etc $200 (New recent expense as of last couple months since my job has been so stressful, I alternate between these. If I was working less wouldn’t need as much)
- My basic monthly COL $1570
My finance and I keep finances separate at this point (though share deets with each other) and plan to going into the marriage. We have $13k saved in a separate account towards our upcoming wedding. This should easily cover the wedding, rings, and even honeymoon (which we are taking this summer before the wedding since we are so stressed) with a couple thousand left over. We are doing heavy DIY for it.
In terms of our future, we are both interested in working in national or other parks as a seasonal job, though it’s not something we want to rely on at this point. We are also both ok with individually “retiring” on our own schedule, since our finances are so different. We do NOT want kids so don’t have to plan for that.
- How much does buying the $40k tow vehicle now (out of brokerage/savings) slow things down for my fiance?
- How close is he to FIRE?
- How close am I to baristaFIRE, making conservative estimate of $12k a year (easy to do with combo of bank bonuses, music gigs, and occasional acupuncture/etc work). I plan to work in that manner indefinitely since I like it. Biggest reason for me not to work a “job” is schedule flexibility.
Thank you so much for your resources!
A plumber and an acupuncturist/musician! There you go, readers, as non-typical a FIRE couple as you can get. Nice. First of all, congrats on NTF’s fiance’s excellent POT score. As we like to say in Quit Like a Millionaire, “don’t follow your passion (yet). Follow the POT.” and it looks like it’s paid off for him.
Before we jump into NTF’s questions, there are several alarming things that jump out at me.
Acupuncture Student Loan
They charged you HOW MUCH for your acupuncture certification? $204K is insane—I know dentists with lower student loans!
I don’t even know where to begin, but this just represents everything that’s wrong with the “for profit” college system. If that college actually had some skin the game (like Wanderer suggested) and was responsible for you actually finding a well-paying job or having to forgive the loan, you bet your ass they wouldn’t have been blindly making up numbers like that.
I feel for you, I really do. Because at this point, there is no way you’ll be able to pay back that loan with your salary. Using PAYE to reduce your payments down to $0 and having the loan forgiven is the only way.
EIDL (Economic Injury Disaster Loan)
For those of you who don’t know what the EIDL is, it’s a government loan program that helps people survive natural disasters—covid-19, in this case—and sole proprietors like NTF can apply. For loans received in 2021, payments are deferred for 18 months.
Now, I know this FEELs like free money, but it’s a LOAN, not a grant. So NTF still has to pay it back with interest. NTF says she has a high interest savings account paying 4-6%, which is very surprising, since banks like Ally are paying 0.5% right now. Or maybe the 4-5% interest in the HISA is a limited time offer, at which point, it’ll drop, and she’ll be losing money from the loan interest of 3.75%.
So this loan is a debt in her net worth calculation, not “checkings/savings”.
Upcoming Wedding costs
NTF mentions setting aside $13,000 for wedding costs. Good for them for saving this big chunk of money, but here’s the thing. Your fiancé is planning to switch careers. I get that it’s not safe and he wants to switch based on that, but with any career change, not only will you lose earning potential when you’re training for the new career, you’ll also be starting at the bottom of a new career ladder and earn far less money for a while. Not only that, but a new career may also not be safe. I thought being an engineer was super safe—until I saw my co-worker collapse and almost die at his desk from the stress of working 14 hour days for 3 years straight. Every career has its pros and cons.
I’m not saying he shouldn’t switch careers, but it’s not something to be done on a whim, and if you’re going to do that, you need to set money aside.
Also, with the pandemic shutting big venues down, this is the perfect opportunity to have a low-key wedding and put that money towards your portfolio or training for a new career (assuming you calculated the POT score and it makes sense).
If you’re stressed, think about ways to do “staycations” for your honeymoon instead with a small splurge for the weekend at a cabin.
Okay, now on to their net worth summary:
|Gross Income:||$70,000 (previously), $22,000 (now)|
|Expenses:||$1752/month or $21,024/year|
|Investible Assets:||$299,950 (taxable brokerage) + $15,840 (401K) + $4400 (Roth) + $14,000 (checking/savings) = $334,190|
|Property:||$130,000 (0.95 re-estate agent fee) – $20,600 (remaining mortgage) = $102,900|
|Expenses:||$1570/month or $18,840/year, $1497 (without EIDL loan) or $17,964/year|
|Debt:||$204,000 (student loan) + $14,800 (EIDL) = $218,800|
|Investible Assets:||$35,970 (Solo401k) + $8,649 (SEP IRA) + $1914 (Roth) + $13,770 (Trad IRA) + $6354 (HSA) + $4418 (taxable brokerage) + $2440 (Crypto) + ($17,000-14,800) (checking/savings – EIDL)= $75,715|
How Close is He to FIRE?
Based on his current yearly expense of $21,024/year, he’ll need a portfolio size of $525,600 to generate that passive income.
Currently, he has investible assets of $334,190. At his old salary of $70,000/year, since they live in the state of Pennsylvania, his net salary would be an estimated $51,287, this means his savings rate would be $30,263/year or 59%.
This means, to get to FI, it would take:
Slightly less than 4 years, assuming his salary keeps up with inflation.
BUT, that was at the old salary. With the new salary, the number changes significantly.
With the $22,000/year salary, he won’t be able to put any money into the portfolio so at this new salary he can’t afford to retire.
So, what if he bought a $40K tow and sold his property to live in it, Nomadland style ? How would that change the numbers?
Buying and Living in the Camper
Buying the camper would immediately eat up $40,000 of his portfolio, but if he sells his house, that can free up $967/month that no longer has to go towards mortgage and taxes. AND on top of that, he can free up $102,900 of equity that’s locked up in the house.
This would bring his cost of living from $1752/month or $21,024/year down to $785/month or $9,420/year. And his portfolio would go up from $334,190 to $334,190 + $102,900 – $40,000 = $397,090. He would only need a portfolio size of $9420 *25 = $235,500.
Which means he would be FI right now!
That would be super helpful in giving him the ability switch careers by having the portfolio cover his expenses while he lives in the van and saves money on mortgage and taxes.
That being said, he also mentioned he doesn’t want to live in a camper van forever, so he would need to continue working, at least seasonal jobs, to earn enough money to buy a house again in the future.
Okay, so that’s him. What about her?
How Close is She to BaristaFIRE?
Given that she needs $1497/month (after subtracting the monthly EIDL loan payment) or $17,964/year to live on, that means she will need a portfolio size of $17,964 *25 = $449,100.
With an estimated after-tax salary of $42,417, that means her saving rate is around $24,453/year or 58%. That’ll likely vary since her side gigs and self-employed income fluctuates so she will need to update this calculation yearly.
With a starting portfolio size of $75,715 (assuming she uses PAYE for her $204K student loan and pays back the EIDL), it would take her:
Less than 10 years (assuming her salary grows yearly to offset inflation).
But, since she has that giant student loan hanging over her head (and who knows what will happen to student loans in the next 30 years), and she’s willing to continue working side hustles or seasonal jobs, earning an estimated $12K/year indefinitely, it’s better to look at BaristaFIRE (the idea of continuing to work “Barista”-like jobs instead of fulling retiring) to have some extra cushioning.
With a yearly earnings of $12K/year, her take home pay would be $10,243, which would cover 54% of her living expenses.
That means she would need the portfolio to cover the remaining $17,964 – $10,243 = $7721/year which would require a portfolio size of $193,025.
Which means she would be “BaristaFIRE in”:
Less than 4 years!
So there you have it, NTF. If your fiance went back to his plumber job and continues earning $60-70K a year, he would be FI in 4 years at his current spending level. If he buys a camper and actually LIVES in it (not just for fun) and sells the house, he would be FI right the hell now! But, he would eventually need to go back to work if he wants to buy a house again in the future. Do he want to stop working or own a house? Pick one, not both.
And you would become BaristaFIRE in 4 years if you can continue to earn at least $42,400/year after taxes, and if your salary increases with inflation and you keep your expenses the same.
Be careful about your spending though, because when I hear things like “$13K for a wedding” and “$40K for a camper” (that you may not actually live in) and “$204K of debt”, I get pretty skeptical about whether you can continue to maintain your current standard of living. Don’t just give in to impulse decisions like quitting a job or buying a camper (unless you actually plan to live in it and sell the house) without MATHING THAT SHIT UP first!
What do you guys think? Should Mr. NTF buy the camper and sell the house? Should Mrs.NTF work towards BaristaFIRE? What would you do?
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