Happy Memorial Day to our friends in the U.S. We’re taking some time today to send out gratitude to all of those who’ve served (if that’s you, THANK YOU!) and remember those who’ve died in service. Also sending out a big thanks to those who’ve served the country in non-military ways: through Americorps, Teach for America, the Peace Corps and countless other good deeds that help level the playing field and bring us all closer together.
Today is a “clip show” of sorts, putting together for the first time all of our money beliefs and actions that have gotten us where we are today. We spend a lot of time looking forward, and projecting future health care needs, where our income could come from and of course all the feelings. Today we’re sharing the master list, the grand compendium of everything that’s helped us get this far in our journey to early retirement.
There are really no secrets here, no magic razzle dazzle. Everything is total common sense, though some of it runs counter to the conventional wisdom of budgeting (we can’t help it — we’re anti-budget). This is the formula that was worked for us:
We have a tracker going back to 2006, the year we moved in together, before we had combined our finances. We can tell you our year-end net worth for any year since then, how much mortgage debt we had in any year after we got our first mortgage in 2009, and how our retirement and taxable accounts have fared over time. For us, keeping track is hugely motivating — we never want to see those numbers move in the wrong direction (which could make it hard once we have to start living off those investments). And when I was paying off my debt, a tracker is definitely what helped me shave almost a year off my payback plan.
Making Specific, Time-Bound Plans — A big part of keeping track has been tracking progress toward plans, from the first which was debt payoff, to the second which was buying our first place, to our ultimate and soon-to-be-achieved goal of early retirement. We’ve never said, “Here’s our goal. Now let’s work toward it.” Instead we’ve always said, “Here’s our goal, which we will achieve on X date. This is exactly how we will reach it.” Not quite sure where that wisdom came from — probably just that we’re both detail people — but putting time boundaries on goals has never led us astray, and we’ve often ended up beating the deadline because keeping track is so motivating.
A Mindset of Saving
There’s a false dichotomy out there that says people are either savers or spenders. In truth, a person can be both, especially if you have the means to do so. And even though we’ve written quite a bit about our former baller days, the truth is that we also saved money during that time. Saving money is something we’ve always done, from that $250 per paycheck I’ve had HR put in my savings account for 11 years and counting, to the automated investing we now do religiously.
Save Before We Could Afford It — Back when we both had credit card debt (Mr. ONL) and credit card debt plus student loans and a car payment (me), we both still saved. Mr. ONL invested in an IRA and emergency fund, and I did automated monthly mutual fund investments, along with that paycheck split to savings. Sure, you could argue that we’d have gotten a better return by paying off the debt as fast as possible, but I’m convinced this time taught us to save no matter what, which is a habit that has stuck.
Max the 401K — Mr. ONL gets all the gold stars for this one. He was maxing his 401k way before he hit an income level you’d think he’d need to be to do so. That’s part of why we’re already golden once we hit age 60. But we’ve both always prioritized 401k savings, and we’re even still maxing now, despite being good to go on our tax-deferred funds. It helps reduce our taxes now, while we’re in a high bracket, but it also just feels like, “Why not keep saving that money?” Future us should be pretty stoked.
Hide Money from Ourselves, Live on the Difference — This is probably our single most important strategy for saving a high percentage of our income for years now, especially because we have never been able to stick to a conventional budget. Instead, we try to engineer it so that as little of our paychecks as possible ends up in our checking accounts, and then we force ourselves to live on the difference. We’re not perfect on this count, and sometimes end up dipping into the “life happens” fund when, well, life happens. But for the most part, this has become a completely ingrained habit, and is why we’re confident we can live within our drastically reduced means in retirement. We wrote a big post on all the ways we hide money from ourselves last year.
Deflating Our Lifestyle
Avoiding lifestyle inflation is a huge way to get ahead financially, and we’ve definitely done that — always increasing our investments to consume any pay raises or new sources of revenue. But we’ve gone a step further and actively worked to deflate our lifestyle. This year, as part of upping our game, we increased our monthly investments by more than our annual pay raises, and we’ve done this same thing for the past several years. Meaning: We’re now living on less than half of what we lived on five years ago, despite earning significantly more. The secret here: make changes gradually. We never cut our spending by 50 percent — that would have felt jarring and have triggered our inner rebels. Instead, we’ve just shaved a little off each year, or increased investments a little each year, forcing only a very slow belt tightening. But just like any compound interest, we’ve seen enormous results over time.
Consciously Choosing Where to Live
We, especially I, have lived a lot of places. And despite regional differences, one thing I’ve for sure learned is that the vibe of the place greatly impacts how much we spend, not to mention the real estate market.
Living in a Non-Status Place — Before we moved to the mountains, we lived in a big city where there was a lot to do, and where the culture was to go out to new bars and restaurants. Even entry level workers would regularly drop $200 at dinner. Crazy stuff. But because that’s what we were surrounded by, we didn’t think that much about it, and we did the same. At a certain point, though, we realized we didn’t want to blow through all our money that way (the money we weren’t saving, anyway), and we started to crave a less money- and status-obsessed place. The result: we now reside happily in a mountain town where there’s plenty of wealth (that would be the second homeowners, not the full-timers), but there’s not that same money-obsessed culture. In fact, most people don’t even know what their friends do beyond basic professions, no one talks about work or money, and the activities people suggest are always free or cheap (bowling would be a big night out, and virtually all parties are potluck — but most get-togethers are focused around the free outdoors).
Minimizing Housing Costs — If hiding money from ourselves has been the secret to our saving, minimizing housing costs has been the secret of our not spending. We were scarred big time by the 2008 economic crisis, and decided we never wanted to take on more debt than we could comfortably pay back on a single income, without dipping into our emergency savings. This was totally driven by fear, not rational thinking, but we’re pretty happy that that fear led us where it did, because both of the homes we bought were well below what the banks would have said we could afford. That means our house will be paid off next year, only six years after we bought it, and we’ve invested a lot of dollars over the years instead of paying them to some bank.
We both have had debt. I had $30,000 of non-mortgage debt at one point, when I was earning $32,000 a year, and that was a pretty daunting thought. Eventually I paid it off, just as Mr. ONL paid off his credit cards, and ever since then we’ve been staunchly anti-debt. We still use credit cards for the travel points (though we don’t get into all that travel hacking and manufactured spending), but we always pay them off in full each month. We’re paying off our mortgage as fast as possible to get out of that debt. And while professional landlords would tell us that this is bad for cashflow, we financed our rental property with a 15-year loan instead of a 30, because we want that sucker paid off faster. It probably goes without saying, but we would never take out a HELOC or second mortgage unless it was literally our only option left in the world. Some people are comfortable with leverage, and would have no problem sleeping at night with added debt, but that’s not us.
Giving a S%!# at Work
Recently I tweeted that I’d gotten some bad news at work — nothing horrible, I just didn’t get a project I really wanted. And a few people tweeted back that it was either admirable or weird that I let work stuff affect me, given how close I am to retiring early. But the fact is, I do let it affect me, because I give a s%!#. Mr. ONL is the same way. We still care just as much about doing a good job as we did when we thought we’d do these jobs for much longer. We’ve been with our companies a long time, and we’ll care about how they’re faring even after we’ve retired. We care about our clients, we know they pay a lot for our services, and we want to be sure they feel well taken care of.
We’ve never viewed work as just a paycheck, or something that ends at 5 pm. And while that mindset means that we sometimes work harder than we absolutely must, it’s also certainly a big part of why we’ve advanced quickly in our careers and why we’re well compensated. And we plan to keep caring about work until our last day there. Caring is underrated.
Changing Our View on Stuff
Not to sound all high and mighty on any of this stuff (because we are faaaaaar from perfect), but here’s one where you can totally make fun of us. We used to be people who would go to Target for one thing and leave with $100 of stuff, none of which we needed. Most of it was just clutter that would later end up in the the trash or at Goodwill. We realized at a certain point that we needed to change our views on stuff, and we’re happy to report that we’ve mostly reformed our ways.
Decluttering Often — I’m a huge believer in continually decluttering. I keep a “donate” box going at all times. You can also do a massive, all-at-once, KonMari-style declutter, but I’ve never had time to do that to our whole house. But however you declutter, doing it often or in a big dose is a pretty harsh reality check. Coming face to face with all the stuff you’ve bought but never used or bought frivlously is a stark reminder that we can probably all make do or even thrive with much less. Anytime I now feel an urge to shop, I try to do some decluttering, and that usually stops me in my tracks.
Experience Stuff Vs. Stuff Stuff — Unlike a lot of personal finance bloggers, we still buy things. Sometimes a good number of things. But we have made the distinction between stuff that lets us have experiences and stuff that’s just stuff. In other words, we’re spending according to our values, one of the most important of which is to spend lots of time adventuring outdoors. That means we sometimes need new skis (or, let’s be honest — sometimes we just want new skis). We don’t make those purchases lightly, we shop around, we try to buy used and we read all the reviews beforehand. But we still buy them. But things that are just home decor, or kitchen gadgets, or electronics that will quickly be obsolete, or non-essential clothing items — we now pass on all that stuff.
What Would You Add?
Which of our secrets do you also use? What else would you add that’s made a big difference for your finances? Any random Memorial Day reflections? ;-) Share away!