Ep 11. Financial Freedom in Less Than 5 Years w Joel from FI180

21 Replies

Joel and his wife were barreling down the wrong financial path—saving nothing and spending more than $100,000 every year.

A freak car accident changed the direction of their lives by causing them to re-evaluate what was truly important to them. In five short years, they went from a negative savings rate to saving 85 percent of their income, allowing Joel to quit a job that was making him miserable.

They did this by making regular changes to their spending and cutting out the things that weren’t actually making them happy— alongside shedding poor investments they had previously accumulated and sticking to a strategy of simple, long-term index-fund investing.

This episode is for anyone who earns an upper-median income yet feels stuck and unable to get ahead. Joel will show you how to make the tough changes that will ultimately lead to more happiness, more freedom, and a stronger financial position.

Listen/watch here or on your favorite podcast app!

Just listened to this - Awesome show! 

Great insight Joel - the fact that you guys were at one point achieving an 85% savings rate is insane! Congrats on the success and achieving early Financial Freedom. Big example for the rest of us to follow. Let's get you back on the real estate train soon though :) 

This was an excellent episode Joel seems like a cool dude!

A question I have or one I think would be interesting to hear addressed because I wrestle with it is where biggerpockets meets FI.  It is hard to come up with a hard rule like the 4% rule for RE investing.  Using myself for example I have a hard time setting goals to get to FI because I am not sure where that is for me as a small time real estate investor.  That being said Joel’s point about of the risk of working too long is a real one (kids are only kids for so long).  Does anyone have a good rule of thumb for people who are not high income people (one paycheck households, with kids like myself).  My lower saving rate has caused me to invest in real estate and to go for the bigger returns (with some success) then what I believe the stock market will do but it has also made me much less liquid and gives me a lot more anxiety about quitting or slowing down work.  Just having all of the debt many buy and hold investors have makes it uncomfortable to not work your tail off.   Do most folks agree that 4k in real estate cashflow is much less safe then say the same 4k using the 4% rule with index funds?  Would love to hear anyone sound off this!

Great episode. Midway through a book was mentioned "Design your life" by Dominic Cartuci? Can you send details, I cannot find a book with this name, by this author. 

Loving the BP Money podcast, so big thank you to @Mindy Jensen and @Scott Trench !  I've been listening intently since day one and you finally spoke the words I wanted to hear at the end of this episode - who is living the FI life or pursuing it successfully with children and two full time working parents?  Our household is completely on board with initiating changes towards a frugal lifestyle and pursuing a path of early retirement, but find so many roadblocks in relation to housing, transportation, childcare costs, etc. and without a "boost" or "break" from some exception to the rule that I've heard from many of your guests, i.e. we moved in with a family member to house hack or luckily I could stay home with my kids for a few years because my spouse made enough for that to happen and we got rid of a car.  I would be extremely curious if anyone fits this profile.  We've read the books, listened to the podcasts, we've cut expenses, increased our savings, etc., but when you both have to work to pay for the household and pay for childcare so you can work, where does the cycle end?  When our children are old enough to stay at home by themselves?  That's a long way in the future and it's hard to stay motivated for the long term.  On a different note, we have just managed to purchase our 2nd "live-in flip", so @Mindy Jensen I will try not to fan girl freak out on you, but I love hearing about your family's experiences with live-in flips, so thank you again for all the fantastic info you put on BP!

@Julie Rhodes   We're working on it and I just met someone that might be a perfect fit for this!

One of the tough realities is that there MUST be progress in one of four areas (or luck, like an inheritance) for ANYONE to move towards FIRE, and those realities do not change depending on whether you are single, married, and/or have children. Those four areas are - spending less money, earning more money, achieving higher investment returns on accumulated assets, or creating an asset (starting, building, or buying a business or income stream of some sort). So I doubt we will ever hear the story of someone that just FIREs without making the hard choices or taking advantage of something unique. Every single story will involve above-average efforts and results (and a bit of luck) in one or several of those areas.

The fact of the matter is that it is just tougher for folks that have children and are unwilling to make major lifestyle changes. There are mental/emotional barriers to lifestyle changes that would save money, few opportunities mid-career to make drastic income changes, no significant assets to invest, and little time to start a business with one's best efforts. This, paradoxically, is what actually makes FIRE so special. In my experience, a significant majority in the FIRE community seem to make far above and beyond choices when it comes to spending, puts themselves in position to earn a six-figure salary at some point in their career, invests aggressively (at the very least, mostly in index funds, at most in businesses and aggressively leveraged real estate), and many pick up side hustles. 

The good news is that some people are working towards FIRE from much tougher positions -- for example, I just met a fellow in his 50s, who lost everything in a divorce and spiraled into debt. If he is working towards FIRE, and stuck in his career, location, and lifestyle (to be near his kids), then perhaps others can too.

I suspect that we will hear from folks who have made this transition with children, in mid-career, but I will be surprised if I ever hear about a repeatable story of rapid acceleration towards FIRE that does not involve a drastic effort to move the needle on one or more of those four fronts. 

Looking forward to hearing some of these types of stories - thanks for digging deeper! It’s definitely not easy or quick to make some of these changes, but we know it’s worth it in the long run

@Julie Rhodes , thank you for your kind words. 

We were able to reach FI through a combination of extreme fortune on the income side and natural and partnered frugality. 

My husband was a contractor working for the VA Hospitals with a unique combination of skills that earned him a fairly high salary. We're naturally frugal, and together agree that we don't need to spend a lot of money.

I was determined to stay at home with my kids, so we planned our family and chose our housing based on one salary. I worked for 401k money, basically.

How many children do you have at what are their ages? 

The first step I always recommend is tracking your spending for a couple of months. See where your money is going, and make sure that's where you want it to go.

The first time I did this, I was shocked to discover I went to the grocery store every single day! There is no need to go that frequently, and it wasn't a hardship to cut out. But I had to see it in writing in order to realize it was an issue.

Tracking your spending doesn't have to be a big deal. Grab a notebook or a piece of paper and leave it next to the door you enter most frequently. Set up columns. Date, Where Spent,  Amount, Brief Description, Running Total.

Every single transaction you make, write it down. Even better, Mr. WoW from Waffles on Wednesday has an article detailing how he created his own online spending tracker. Check it out here: http://wafflesonwednesday.com/make-your-own-mobile-expense-tracking-app-in-30-minutes/

Track your spending for the next couple of months to get a feel for where your money  is going.

@Mindy Jensen @Scott Trench this podcast is fantastic! You are able to talk about finances with your guests in a way that makes so much cents, and every episode bellows the FIRE in me to pursue financial freedom, not just in the distant future but NOW!

Keep the inspiration and quality information coming!

Great episode @Mindy Jensen and @Scott Trench . I feel like my family is the combination of the last few episodes. I am active duty Air Force, my wife has been staying at home for the past 8 years and has recently started a MLM business to add extra income to the household, we started to shop at Aldi (although my kids hate the ketchup) and we closed on our first SFR investment property (currently under renovation but listed available Apr 1).

Everything seems to be firing on all cylinders except for the spending. While Joel's example started out with a six figure outflow, in 2017 our six figure number started with a 2. Granted we paid off all our debts except for a car and the mortgage, we still burn through a lot of cash. Three kids in elementary school have a lot of activities, the dance company was by far the most. Fortunately, my oldest decided she wanted to try something new this year.

Scott, you are absolutely correct about the four areas of change. My wife and I aren't following anyones' plan, be it Dave R. or Rich Dad, but "make more, spend less" is the key. She is aggressively growing her business and I intend to acquire 1 buy and hold property per year until I retire in 2024, with a few flips in the middle.

Keep up the great podcasts

Dave

“The fact of the matter is that it is just tougher for folks that have children and are unwilling to make major lifestyle changes.”

That is a depressing reality for many people who are interested etc in FI.  Many of the people that I know whom have kids, college debt, etc don’t have all this low hanging fruit to cut since they couldn’t afford it to begin with.  It would be interesting to hear from a family that house hacked.  Would they recommend it to other family’s etc.  

Thanks and keep it up,

Loved the episode. I have to say, what an amazing effort to get to that savings rate. High income helps but regardless huge respect. My thought would be moderation in all things. Roth Ira , Real Estate, and Vanguard Index Funds are all great places to invest. Why not work on all areas with advisors, professionals, and mentors along the way. Oh yeah, don't forget your trusty CAP and attorney either. Now, on to FI

This was an interesting episode. Looking at his numbers (https://fi180.com/2018/03/09/are-we-fi-yet/) , I'm concerned they have seriously underestimated health insurance (he's got it at $2400/year). His numbers are low because they are young. As you get older, it could easily go over $1000/month, not accounting for inflation. And that's with a *very* high deductible.  

When a person becomes FI is dependent on so many factors, it's hard to have a one-size-fits-all rule about how to make it work. If you don't have kids, and if you don't live in an expensive area (I'm in the SF Bay Area), then your numbers can be much lower... but imho he doesn't have enough to truly be FI.

@Monika P. You are certainly right on there. The amount of planning involved and factors at play is pretty amazing when it comes to retirement or FI planning. Really you have to plan as best you can and adapt along the way. Then adapt again. Especially if you are FI very young and have 40+ years of "Who knows what can happen" in front of you. For me, I'd use a main number to tell yourself you reached FI, then continue to plan, save, work, and invest. I mean really, what would I do for the next 40, 50, 60 years of my life? Maybe I'll just hit FI and invest enough so my work can be REI and managing a surf shop on Maui.

Awesome episode, I'm loving this podcast keep it up! As a family pursuing FI we are really looking forward to that $12k/year "pay raise" when our kiddo gets old enough to go to public school (she's in day care now, which is a great choice for our family but it's expensive!). 

@Scott Trench I love the idea of the four 'areas' of FI and I feel like the 'creating assets' area is underutilized in the FI Community. I know that, for me, putting money into my own business has had exponential returns, nothing that an Index Fund could touch (although we do that too). I can take $1,000, put it into marketing my business and easily make $10,000. The market has been on a tear recently but it's nothing close to investing in yourself!

Originally posted by @Eric Bilderback :

This was an excellent episode Joel seems like a cool dude!

A question I have or one I think would be interesting to hear addressed because I wrestle with it is where biggerpockets meets FI.  It is hard to come up with a hard rule like the 4% rule for RE investing.  Using myself for example I have a hard time setting goals to get to FI because I am not sure where that is for me as a small time real estate investor.  That being said Joel’s point about of the risk of working too long is a real one (kids are only kids for so long).  Does anyone have a good rule of thumb for people who are not high income people (one paycheck households, with kids like myself).  My lower saving rate has caused me to invest in real estate and to go for the bigger returns (with some success) then what I believe the stock market will do but it has also made me much less liquid and gives me a lot more anxiety about quitting or slowing down work.  Just having all of the debt many buy and hold investors have makes it uncomfortable to not work your tail off.   Do most folks agree that 4k in real estate cashflow is much less safe then say the same 4k using the 4% rule with index funds?  Would love to hear anyone sound off this!

Eric, 4K using the 4% rule would be completely passive and wouldn't depend on tenants, maintenance, etc. However., you'd have to invest more than $1,000,000 of your own cash to achieve that 4K. In real estate you could get $4k/month in rental income by buying, for example, 14 houses that each cash flow $300/mo. For easy math let's say you put down 20% on each and each house was purchased for $100k. Your total cash out of pocket would "only" be $260k as opposed to 1 million. You would also have ~ 1.1 million in debt (which could be good or bad depending on your personal goals and risk tolerance). The whole point of REI is getting higher returns and one of the huge benefits is leverage. I think how safe REI is depends on the deals you get and how "good" of an investor you are. Getting the same returns with a quarter of the money seems safer and better to me (that's not even taking into account debt pay down, appreciation, and depreciation)

@Mindy Jensen we have 2 kids, ages 3 & 5. We do track our spending, meal plan, grocery shop frugally, cut cable, reduced our expenses, educated ourselves with books & podcasts, have 2 used cars (1 is already paid off), no student loan debt, use the snowball debt reduction plan for our consumer debt, use free and cheap resources for entertainment for our family, live close to work, have an HSA for medical costs, actively contribute automatically to our savings & my employer 401K plan (up to 15% match!!!), have reduced our housing cost recently, and have an emergency fund, but childcare still accounts for 25-30% of our budget. And sadly this is the case for most modern families. I’ve heard many people say that FI is achievable for everyone, so I was curious if anyone was in the same boat as us and how they are doing it. Thanks!

@Julie Rhodes , this is  a really interesting point. The 5-year-old will go to school next year, presumably. So that expense is down, but the 3 year old has potentially another 3 years in daycare before school, depending on birthdate. I was a stay at home mom, so we didn't have this expense and I don't know how to cut it. I'm going to pose this question to some FI friends, and see if anyone has a good solution.

@Eric Bilderback  

Im House Hacking with my wife and 3 kids.  When you look at the books its really the only way in my opinion,  also depends on your market. Its not for everyone though, the space issue is big,feel like I'm always running into someone! All is forgotten though when I get the rent checks on the first! Some markets you can live for free,not in NYC but its still worth it cost wise. My plan was to  keep house hacking till we have enough income to buy a single family house and the mortgage payment covered by the RE investments. Depends on the market like I said ,but there is no free lunch,house hacking with a big family will save you stress about money ,but you'll get it back dealing with tenants and space issues,etc,no free lunch! 

Loved this episode, and all the episodes! Once I heard about the BP Money Forum from the end of this episode, I raced to my computer and immediately had to comment! I tend to be a forum lurker, but I'm so inspired to participate into your community!

I'm early in my FI journey and as a lavish spender myself (or was), it was inspiring to hear from Joel and how he was still reach FI in 5 years.  In looking in all the expenses I can cut down, it's too easy to justify why I should keep XYZ cost. I like the idea of just cutting it all out as a test, to give me a more clear idea of what I really NEED or care about.

I'm in my mid/late 20's, and I'm lucky to have come across the concept of FI when there are a lot of expenses that I could cut down on. However, I do want to have kids one day and I'm curious to see that path to FI looks like when you have a family (or are preparing for one). I'm excited to hear from your future guests!

@Mindy Jensen @Scott Trench @Julie Rhodes This is an awesome podcast! Great episode and and very inspiring on our path to FI.

Julie - My wife and I are pursuing FI with kids.  We are not there yet but through our choices over the past years, we are getting close and really moving the needle!  We have 2 kids  ages 3 and 1 and are expecting our third.  My wife stays at home with the kids, have started homeschooling our oldest and plan to homeschool all of them.  I have my mechanical engineering degree and currently work as a sales engineer full time.  We do our best to track our spending ( we always feel like we could be doing a better job at this ) try to live below our means, and tithe, save and invest where we can.  We have one vehicle loan that should be payed off by September, and then we are debt free minus our current mortgage. 

We save money by living in a smaller, affordable home close to work.  We own a 1500 sq ft home 3/2 ranch in a town outside of Indianapolis.  Our home is about 2 miles from my office. 

We have completed 2 live in flips and are currently in our 3rd as well as starting to invest in a non live in flip to generate money for buy and hold multi family units for passive income.  

My wife and I are in our younger 30's. We are high school sweethearts who have been married 10 years this year and together for 18. We did not make great decisions early on and financed many unnecessary items. I joined the Army out of high school and she went to college. She did have some help from her parents but did work the entire way through school paying for a big chunk of it, worked hard for scholarships, and went to the cheapest university in the state. I got out of the Army, she graduated college, and we were married in 2008. I had no secondary education to secure a job and was working construction for $11/hr and she had just been told that her current company couldn't afford to bring her on full time. We have never had 2 full time incomes. In 2009 I went back to school to earn my degree. The Army ( GI Bill ) paid for my degree and gave me a little stipend each month to live off of. I wanted a good ROI so I chose an engineering degree. This gave us great earnings potential without any school debt.

We bought our homes with VA loans ( no money down ) and currently live in a state that will pay all tuition for any state university for all of our kids. I know not everyone can take advantage of all that we have been blessed with but it is possible and we are well on our way. I would like to be completely FI in the next 3-5 years with 3 kids. There is alot more to our journey and story thus far and if interested I can go into greater detail. Just shoot me a message.

Blessings! 

I definitely feel like I am FIRE at the moment. We have two kids, ages 2 and 3 months. 5 weeks ago I quit my high paying job as a structural engineer because it wasn't what I wanted to do with my life, but before that, in the last four years, we had bought two multi-family properties on FHA loans. Check out our blog if you are interested in how we did it. We didn't have any family inheritance or anything like that, we made a lot of dumb spending decisions early in our marriage and we have always been generous with our money. We honestly believe that most people can achieve FIRE if they put their mind to it. The two properties now allow us to live for free and actually make a little something on top of that. My wife still works part time so we can have insurance (she's a nurse). This means that for the two days a week she works, I stay at home with kids. Where you might disagree with me when I say that we are FIRE is that I never planned on not working after retiring. I just planned on working when I wanted and on what I wanted. At the moment I started my own construction company and have a good amount of work. I only take the jobs I want and when I need a break, I take one. I also run a few online stores but they are in their infancy at the moment. The top one is projected to finally break 5 figures this year. 

So is FIRE achievable for a working family with kids? Depends how you define FIRE I guess. To me, FIRE doesn't mean sitting on a beach drinking margaritas all day. If that's what it was, your kids would hate it! FIRE is not worrying about money, living well, able to give to others and able to decide how and what you work on. By my definition, we are FIRE!

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