On Track to FI Number? Advice and Recommendations

[Jenna Cheramie]

Hey everyone,

My name is Jenna. I'm relatively new to the BP forums but have been an avid listener of the BP Money Podcast for quite some time.

I'm a 28 yo married female. I've always been pretty financially conscious but didn't really learn about FI until maybe 2 years ago nor did I have a direction/plan before then. I just sort of always did the things I was "supposed to do" like save, invest, etc but didn't really have anything I was working towards.

My wife, on the other hand, didn't grow up with the same financial background. She has some student loans and wasn't very financially-inclined before we started dating. However, we started talking about money very early on in our relationship and although she didn't know much at the time, she was at least open to discussing it and unafraid, which I am grateful for! Not every money conversation has been easy, but the more we talk about it, the more comfortable we both get and finance has now become an integral part of our relationship, so much so that we talk about FI, our net worth, finances, budgeting, etc on a weekly basis.

I feel as though we laid a good foundation, but I'm now at the point of trying to figure out if we are on track to FI and also ways to improve our position even further.

I've started using Monarch Money (thanks for the 50% off one year code from the BP Money Podcast!) so we can track our dual net worth and cash flow in one place. Before this, we each had individual spread sheets and conscious spending plans but nowhere for us to see our combined profile.

My financial outlook -- Across my various accounts, I have about $238K, about 55% of which is savings (actively trying to save for a house and/or other investment) and the remainder in various retirement and/or brokerage accounts (Roth IRA, HSA, 401-Ks, individual stocks, brokerage account, etc). I have no debt.

My wife's financial outlook -- My wife has a little under $24k in assets, 54% in savings and the remainder in various retirement accounts. She also has about $43k in student loans that we've been paying towards every month, but the interest on that varies from 3.4 - 5.3% so it's not too bad, comparatively.

In total our combined net worth is about $212,500. I'm 28 and she's 34. Our combined savings rate is about 40%, although it's a little skewed since I received some inheritance this year. On a normal month, my savings rate ranges from 20-30%. My wife's is lower because she puts a good chunk towards student loans which we don't count as savings.

Based on the 4% rule, I figure we need about $1.5 million to reach our FI number, but I like to be conservative and overestimate so I'm aiming for $2 - 2.5 million.

I feel like we do all of the right things and try to be as frugal as we can be in a high cost of living area (South Florida), but would love some advice on ways to improve our position.

I was toying with the idea of contributing more to my 401-k. Fortunately/Unfortunately I work for a small company that doesn't provide a match yet. However, I still contribute 5% to my 401-k. I consistently have money left over at the end of the month even after accounting for saving, investment in IRA and HSA, so I'm wondering if it makes more sense to allocated those trailing funds to my 401-k rather than putting the extra in savings.

Would absolutely love and appreciate any and all advice, recommendations, and/or reassurance. Thank you all!  


  

[Paul Novak]

Great post! Welcome to the forums. I think you are way ahead of the game. I say that for a few reasons. Yes, your savings rate and current net worth look good for your age but I say it more because of where you are at in life, the metrics you’re already tracking, having regular meetings to discuss finances, and having an end goal you are working towards. When I talk with others who are serious about this the most important thing you can do is pick the right partner. Someone who shares your vision or at least is supportive of the direction you are willing to go. Having your wife on board I think is huge!

My story is similar to yours I just got started a little bit later. I really started tracking everything around 30 and have been pushing ever since. My goal is also to hit about $2.5 million as my FI number. I am 40 now and we just hit $1.85 million for net worth, not all in investable assets but we are getting there. When I started tracking at 30 we were at $200 thousand. I was always someone like you doing the right thing and once I found out about FIRE I was able to leverage those good decisions to get started.

I will provide my perspective not that it’s right or wrong its simply what worked for us and how we are getting ahead.

• Keep tracking your metrics. There are a ton of metrics I track but the two most important ones I feel are net worth and savings rate.
• I also encourage you to set goals and continue regular meetings. I track my metrics weekly but I meet with my wife monthly. We review how our rental business is performing, then our personal finance metrics, then our performance against our retirement calculator.
  1. I built a calculator to track to the month when I will hit FI. Each month I track my performance against that goal to see if we are on track or not.
• I also encourage you to set small goals that you can have wins on this journey. While it’s fun to go after FIRE its also really hard in the middle. You can do all the right things but nothing can replace time. Even if your income doubled you still need time for investing and compounding to take effect. This makes the grind hard. Having wins you can celebrate along the way can keep you going.
• Next I encourage you to focus on creating margin. Margin between what you take home and what you spend. This is 100% a balancing act. I don’t encourage being as frugal as you can to create margin because life will be miserable and then it gets hard to stick to the plan. I like to follow Remit Sethi “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.” I work to cut my grocery costs by shopping at Aldi but I still go on crazy cool vacations. My wife cuts our hair but I still get great seats to sporting events. Don’ t go too frugal.
• Just my perspective which isn’t for everyone but I don’t like holding on to cash. I try to invest my money as soon as I get it so it can start compounding. If you are like us because our savings rate is so high if an emergency comes up I can cover it. I also have sinking funds in a high yield savings account for Christmas, medical bills, vacations, and escrow. I can tap into those funds if need for emergency and then pay it back.
• When it comes to investing I really think each person’s goals are different. How you should invest strongly depends on those goals. For most people looking to retire at 60 I would recommend keeping it simple following this order to take advantage of tax treatment.
  1. 401K company match
• Roth IRA
• HSA if possible
• Back to 401K
• Taxable Brokerage

For me that want’s to retire early I wanted investments that offered more flexibility today. For that reason I pivoted to real estate because I wanted investments that through off cashflow that I could use now. I still reinvest all of the money back into the business so it can grow but for me I needed to look into investments that could provide for me between now and age 60. My wife and I have roughly $700K in retirement accounts. If they double every 10 years it will grow past my goal of $2.5M. For that reason I am no longer investing in retirement accounts. I take all my margin and invest it into my real estate portfolio to pay it off. If I pay off my portfolio it will generate $11K per month in cashflow. The retirement accounts will then be extra when I hit 60.

• As for what we invest in I try to keep it simple. I used to pick stocks and other investments. Now almost everything I have is 100% in and S&P 500 index fund; I prefer VOO. Our 401K's, Roth IRA's, HSA's, and taxable brokerages are all in the same type of investment. For me this keeps it simple.
• As for what I would do next. If you are looking to buy a house and I was in your shoes. I would look to find a duplex. Something you could buy to start building equity but you could also rent out half to lower you housing costs. Lowering your houses expenses is huge towards helping you save. Eventually you could save up enough for another house and then rent out both sides. Once again keeping your housing costs low.

As you can see I also love talking about this stuff. If you ever want to talk further just DM me on BP. I would love to help answer any questions you may have.