Financially Independent, Retire Early (FI/RE) for the Rest of Us
We’ve heard the personal stories and read the financial posts where someone cuts their spending by $60,000 or gets out of $100,000 of debt in just a year. It captures our attention and makes us wonder, how in the world did they do this and how can we do the same?!
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When we see these stories the protagonist(s) is usually introduced as an average American who overcame debt, reached financial independence and retired early (FI/RE). So, it seems like if they can overcome huge financial challenges, then so can anyone else. And who wouldn’t want to get out of debt incredibly fast, cut their spending by large sums each month, and/or save a million dollars and retire in five to seven years? So, when these articles come across our feeds, we pay close attention.
The heroes of the story must be average middle class Americans (income-wise) in order for the typical person to be able to replicate the incredible financial feats they’ve had. But low and behold, while they claim to be ‘average’, their ~$150-200,000+ yearly combined income begs to differ. Especially when you realize the average American household income is just under $60,000, and that’s combined for an entire household! Of course, the numbers vary by +/- $5-10,000 depending on the source.
The Average American
Now to be fair, what we’ve realized is that more often than not, this person (or couple) is living a life they imagine to be ‘average’. They look around and since they’re likely surrounded by their peers the amount they spend, the car they drive, the house they live in, etc. is all average compared to their neighbors, coworkers, and friends. Therefore, it’s easy for them to come to the conclusion that they’re part of the average American middle class.
Before we move on, we should mention Parkinson’s Principle. The principle states, that no matter how many resources are given, all will be used.
Applying this principle to income, whether you make $60,000 a year or $200,000, the theory is that your living expenses will take up nearly all or more of what you earn. With that said, some would argue that income is then irrelevant, because cutting spending, paying off debt, and saving money is just as challenging at any level.
Nevertheless, let’s not use this as a justification. Here’s why…
Parkinson’s Principle certainly has some truth to it, but there are basic standards of living and costs that must be met.
Everyone needs a roof over their head, but no one needs a huge home (huge is of course subjective). Meaning, someone could easily reduce their lodging expense each month by simply downsizing the size of their home or renting a smaller apartment. However, someone already renting a 200 square foot studio apartment is going to have a hard time finding something smaller or less expensive.
Likewise, someone who eats out two meals a day every day can change their habits and dramatically save money by preparing all of their meals at home. However, someone who already skips eating out and foregoes expensive foods, like gourmet food and meat, won’t be able to save nearly as dramatic of a sum on their food expenses.
Keep in mind, a diet of only Ramen will probably haunt you in the long run!
Take our aforementioned protagonist who has cut their spending by $60,000 a year, has paid of $100,000 debt in a year, and in a short time has reached FI/RE and compare them to the average American who wants to replicate the same…
Not raking in a six figure income and only grossing $60,000 a year (remember, this is the approximate average American’s combined household income) certainly makes it more challenging to cut expenses by $60,000 a year!
Cutting expenses by $60,000 would leave the average American with a grand total of $0.00 (minus federal and state income taxes) to live off of for a year. So, $100,000 in debt can’t be paid-off and there’s certainly nothing going into savings, let alone putting a roof over their head or food in their mouths.
Clearly the protagonist isn’t average!
Options to Achieve FI/RE
At this point it’s easy to feel deflated and hopeless. We wanted badly to replicate the incredible financial achievements of the people we’ve read about. How amazing would it be to cut our expenses, pay off our debt, and save enough to reach FI/RE?!
Once you’ve realized that there’s just no means for the average American to replicate what the protagonist has done with their numbers and percentages, it’s time to look at possible options.
Close the FI/RE article or turn off the podcast and forget about it. ‘We can’t do it, we’re not them, this doesn’t apply to us.’ Along with a whole litany of other justifications to never even start.
Wait for a windfall of an inheritance, insurance settlement, or lottery winnings.
Read/listen between the lines, take in the lessons, and be more intentional and driven with your finances.
Surely, you can see where we’re going with this.
Option one, while the easiest option to undertake, isn’t going to get us anywhere.
Option two is the one we all dream of. But if you’re like us, you don’t have wealthy family members and even more importantly, we don’t wish them dead. Not to mention, in no uncertain terms is serious physical injury worth the gain of money. Lastly, while sometimes you do need to spend money to make money, we don’t believe in wasting money to make money (if you enjoy playing the lottery or gambling, that’s your choice).
Plain and simple, there’s no way to cut a middle class salary by such large percentages. So, those attention grabbing headlines of cutting your Amazon spending by $40,000 a year or downsizing your mortgage from $5,000 a month to $1,000 a month just aren’t going to get ‘middle classers’ anywhere.
Starting out with a hefty income isn’t only fortunate, but often means they probably put in a lot of effort and made some wise decisions along the way. After all, lazy or ‘dumb’ people don’t earn six figure salaries (… generally speaking)!
It’s important to know that more often than not and particularly in our case, pursuing FI/RE is based on a series of thousands of small decisions made over a long period of time. For most of us, FI/RE isn’t usually dependent on a single life changing event.
Don’t be disappointed though, there’s still major changes that can get you to FI/RE faster than you might imagine.
So, we implore you to choose option three and get what you can out of each and every FI/RE headlining article you read.
To get you started and maybe put a little pep in your step towards FI/RE, here’s our not so headlining personal journey towards FI/RE.
Our FI/RE Journey
When we met, we agreed on a few very key lifestyle goals.
Neither one of us was willing to work 40-60+ hours a week until we retired at the ripe age of 67.
We didn’t want to work eight or more hours a day and raise kids that we felt were closer to their childcare provider than us.
We wanted to see the world, and waiting to only travel in retirement wasn’t good enough.
Neither of us looked forward to living pay check to pay check, making minimum payments on credit cards, and buying stuff because we felt we needed to and not because we actually needed it to live.
Neither one of us started off making a six figure income, and honestly neither one of us ever did, even when you adjust for inflation. Although, we have the confidence (and evidence) that we very well could have if we wanted to put in the resources. We decided that for us the time, stress, and reduction in overall health and happiness wasn’t worth it.
Instead, we decided to balance our career ambitions with our life ambitions. We worked to make a little more and spend a lot less, resulting in our personal equation of a happy life.
Thousands of Small Decisions to Get to FI/RE
Here are a few of the decisions we made over the years to make our life the ‘perfect’ (for us) equation:
We rarely eat out. When we do, it’s with a purpose, like a business or professional meeting, celebration of a special occasion, or an important social event. Interestingly, we eat out so rarely that when we do we’re very selective and usually wish we’d just stayed home and cooked.
The highest cost of living is putting a roof over our head. Whether it be an apartment or a home, rents and mortgages usually take up the largest percentage of a budget. While experts recommend home payments not exceed a third of your income, sadly too many Americans push the bounds of this recommended limit.
We on the other hand choose to live in small spaces and with fewer modern conveniences than most people list as must haves.
For example, it took some searching but when we lived and worked in Boise, Idaho we found a wonderful (yet older) apartment in downtown that was about 8% of our monthly income. As you can imagine, we didn’t have a washer and dryer in unit, granite counter tops, or covered parking, but even at 550 square feet we realized that we still had 100 sq feet or more of rarely used space.
In the end, our home was what we made it, and we loved it!
We’re minimalist at heart, so we don’t buy stuff just to have stuff or to fill a space.
Our wardrobe meets our needs and isn’t full of designer labels.
When we owned dishware, we only had what we needed to get through a day or two, instead of weeks.
We didn’t see the purpose of a fully stocked linen closet, expensive furniture (we loved our $20 Craigslist couch that was delivered for free!), or a house full of forgotten gadgets.
When we do purchase items we don’t buy inexpensive stuff if the quality is poor. For us, it’s about the value of an item, it’s the difference between being cheap and frugal! Quality usually means we get more functionality, a better user experience, and have to replace the item less often. We’re willing to pay a bit more in the short run because we save a lot in the long run.
Lastly, we don’t buy something just because it’s a good deal. It’s easy to fall into the trap of making the purchase of something you don’t need because it’s an ‘amazing’ deal or on a huge sale. If we’re tempted by a big sale on an item we don’t really need, we remind ourselves that an even better deal is not spending the money at all.
We were a one car household and in our last year of car ownership (2016) we drove less than 4,000 miles. If we step back further (2009-2016), our yearly average goes up to about 6,000 miles.
You may be asking yourself, how is that even possible?! Or saying, ‘there’s no way I can do that!’ But we assure you, we thought the same thing until we ran the numbers and saw how much car ownership was costing us.
We choose to live close to work and loved it when we lived close enough for Shannon to walk to the office! Prior to living within walking distance of work we found someone who lived nearby and carpooled.
Plus, we plan our errands and trips together, so we do them all in one day, rather than making ‘emergency’ store runs several days out of the week.
Finally, we take public transportation when we can.
We’re conscious of our electricity usage and when we had an apartment we checked out a Kill A Watt meter from the library to test all of our appliances and electronics to see how much electricity they consumed. We replaced our incandescent light bulbs to more efficient ones and when we buy new electronics we take into consideration their electricity consumption.
The biggest impact however, was turning off our water heater when we weren’t using it. On average we saved about 25% on electricity because we weren’t heating our water 24 hours a day. We also insulated our water heater, keeping the heated water warmer longer.
We maxed out our 401K and investment options. How could we not?
We also saved as much as we could early on. It takes just a couple of times playing out scenarios on a compound interest calculator to see how important time is.
With all this being said, we’re not perfect. Mistakes have surely been made!
We’re not the type to say that we have no regrets because our decisions got us to where and who we are today. We have plenty of regrets and a list of things we’d change or avoid if we could go back in time. We’re frank and honest with ourselves and each other. In our personal opinion, this means learning hard lessons from our mistakes and doing our best not to forget them, justify them, or repeat them.
Results: Pursuing FI/RE and Life Today
We continue to pursue financially independent, retire early (FI/RE) and for us it’s about the journey and freedom it offers, not a specific number or destination.
Neither one of us expects to retire anytime soon, since we love what we do. For us, our low living expenses, coupled with our income and investments mean we’re closer to financial independence every day.
While our story and approach may not lend itself to traditional ‘jaw dropping’ headlines you’ll see on the most popular FI/RE blogs, here are a few from our life (past and present) that we hope will inspire you!
Making $75,000 a year and saving 80% of it
Truly debt free (no mortgage, car payments, student loans, or credit card debt)
At times we’re frustrated by the headlines that make FI/RE seem like a far off goal and unattainable if you didn’t invest in crypto currency at the right time, the housing or tech market in the 90’s, or chose a career in software engineering.
However, rather than get upset or be deflated we choose to lead by example. We choose to live the way we do, and we’re incredibly happy.
Whether you’re making $30,000 or $80,000 a year, you can live a life of your choosing. But either way, you have to be intentional! It’s simply a matter of how bad you want it and where you put your priorities. We prefer a trip to Paris rather than owning 100 pairs of sneakers… but there’s nothing wrong with choosing the sneakers, if that’s what makes you happy!