021R - May Case Study

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Time Speaker Text Tags
0 - 8 Jonathan Mendonsa Is anybody else excited that it's Friday. I know I am. Welcome to the show guys. Brad's here today and we are going be talking about financial independence. How you doing Brad.
8 - 9 Brad Barrett I'm doing well Jonathan what's going on.
9 - 13 Jonathan Mendonsa Not much man just loving that funky music.
13 - 14 Brad Barrett I know you do.
14 - 44 Jonathan Mendonsa You know guys is going to continue to grow on you I promise. Alright so today we're going to be talking about the show's past Monday we had really probably what we should make officially our Episode 1 the pillars of FI a high level picture of the levers that we rely on over the course of many many decades to achieve financial independence. The 10 items that we talked about they may not be perfect they may be flawed there may have been some omissions. There could be some competition but I think it was reasonable to talk about those as the pillars of FI. And I think we did a good job doing it.
44 - 108 Brad Barrett Yeah I agree. I thought the episode came out better honestly than I even had expected. You know it's funny when we record these episodes sometimes you just don't know how they're going to come out until you actually hear them. But I thought we I thought we covered it really well and I still have this nagging thought in my head that have that we've left something important out. I think one area we may have missed or not focused on strongly enough was savings rate and we certainly talked about many items that go into a large savings rate but we didn't explicitly state that one of the key aspects of Fi is having a huge savings rate. You know many people in the community are 50 percent or more and even if even if you can't reach those lofty numbers you know 30 to 50 percent is certainly a very reasonable number for many people in the community. So I think we could have been slightly more explicit about that. But otherwise I think we covered many of the things you know again definitely throw it out to the audience. If we miss something. Just shoot us an e-mail. As always feedback a Choose FI. And we'd love to hear it. So Jonathan what other takeaways did you have from the episode.
108 - 151 Jonathan Mendonsa Well let me comment on that first. I think how important is that. You know we're essentially changing the target and how valuable is that that now we're moving the target from a savings rate of like 4 percent where you got your match or maybe it was 10 percent you know that those are what your financial advisers are telling you. And we just moved the bar up to 75 percent and said you know what if you hit 50 or 30 that's good too. How cool is that. We've just changed the metric. We changed the norm. And if you do anything in that range on that spectrum you know you get 30 to 40 you do 70 anything on that spectrum. The power of that compound over decades is incredible. And just by changing who you're trying to model just by changing that entire reference you are going to retire decades in front of your peers. It's just a function of the math.
151 - 205 Brad Barrett Yeah I totally agree. And you know it's funny you mentioned about the five people who you spend the most time with. And I actually I was having another FI conversation in my real life this time with one of my good friends Michael and he loves the show. He listens to every episode. And we spent probably a good two hours on Saturday talking about FI. So this is like two weekends in a row essentially that I that I've done this and he thought that that was a really astute observation by you Jonathan that that we really are. You know he said one of the five people he counted us as one. But but still the point is the same that when people are listening to Choose FI every single week for two plus hours a week. We are part of their lives. And you know hopefully us talking just like regular guys and just showing that we can a talk about this and b we're just normal people not doing anything crazy. I think that does I think that makes a difference. I really legitimately do.
205 - 210 Jonathan Mendonsa I'll take that. I'm willing to be half a person if that helps you guys. I'll do that for you. That's cool.
210 - 311 Brad Barrett And another thing just real quick I wanted to touch on was actually about the the hundred dollars per month and how much that amounts to at the end of some investing time period. And Jonathan said in the episode that that $100 per month. So basically when you lower your cell phone bill. Right. We mention Well that is kind of small fries in the grand FI scheme of things it still moves the needle. Because even if it's only $100 per month if you invested that hundred and put it into an index fund and hypothetically it grew at a compounded rate of of 8 percent annually that's going to be about $60000. After 20 years. OK. Well that's I mean that's a big number but what about after 40 years because that's really an investing lifetime. Well using the same calculator that is 335000. So you save $100 extra month after 40 years compounded. That's 335000. So that is just a mind blowing number to me. And I mean realistically most people when they let's say they started their career at 22 and at 62 most people don't have 335000. Period. That means they literally weren't able to save one hundred dollars a month. So that again is how powerful what we're talking about here when we're not talking about savings this you know minuscule amount of money in the grand scheme of things we're talking about saving potentially thousands of dollars a month. I mean that's why people in the FI community when we get decades into this. We're going to be sitting on millions if not tens of millions of dollars and that's just kind of a cool illustration. So keep in mind that $100 a month does make a difference it really does.
indexfunds, savings
311 - 434 Jonathan Mendonsa That's cool. Jason e-mailed me on our Facebook page the other day. He had a different way of looking at which is it's still using the same math but math in the FI community is a lot of fun. You know you get to add time you have compound interest. Be able to use savings rate you can use the safe withdrawal rate. I mean math gets really really cool. And dare I say sexy in the FI community but Jason said you know Jonathan enjoyed the last episode at the end where you were talking about exactly what you were just talking about this the impact of saving a hundred dollars a month. He ran it through a slightly different calculation. He used a 5 percent growth rate and he focused on 25 years and so he said you know that would be essentially saving 60 K. But then when he added that on to what you would not have to save using 4 percent withdrawal rate he estimated that it would actually bring your hundred thousand dollars close to your goal so the $60000 saved plus the 35000 less that you need to get your FI number. So I just a different way of doing it you can frame these math equations in a lot different ways but that's one that we are going to address in a future show called The Double or triple value of income. And again just focusing on the fact that yes the money that you set aside to invest it's going to grow and it's going to hit that target for you. But on the flip side of that just by cutting and slashing that expense it is a significant amount of money that you now don't need to have it in a retirement account because your lifestyle is now less expensive. You know Brad we went through a lot of that material very in-depth. So I don't feel the need to go back and just restate everything we said but one thing I should probably take a second to talk about is my bold and audacious claim that I could do 50 pull ups and that we recorded that several weeks back. And I think just in behind the scenes I should let you know you could hear how incredulous Brad was when I told him that. Well as soon as we stop recording he demanded that I take a video. He absolutely wanted proof and he was thoroughly unimpressed with the quality of my pull ups he said that that was not the intent. They needed to be perfect form and all the kicking and the swinging and everything else so there will be no tutorial video coming in on how to do 50 pull ups. It did not meet the Bradd test but I just thought for the sake of clarity I could go ahead and put that out there for you guys.
myfinumber, savings
434 - 454 Brad Barrett That's absolutely hilarious. Thank you for mentioning publicly but you did tell me this morning that you were able to do 15 true full pull ups so I mean that that is impressive nonetheless. Nobody can do 50 actual dead hang pull ups but so we'll put that aside. But 15 is fantastic. I mean that's my goal for the year and I'm in pretty good shape. So yeah kudos to you and.
454 - 520 Jonathan Mendonsa Well what's I can actually get to 50 for real. I'll start working on the beach body video and we'll just we'll just set up with premium subscription you know follow your FI plan. I'm on it. You've got to set a goal and aim high shoot high. All right guys we've got a couple comments. Charlotte she checked in with us and she said Hi Jonathan and Brad I've enjoyed your podcast on the pillars of FI episode. I think you may have forgotten an important pillar that many in the fi space used in this is geographic arbitrage. This can be used in the U.S. or abroad. Many of your guests use this to find low cost living areas and sometimes no state income tax she says. Personally I am looking for the perfect location that I would enjoy living in with no state income tax. Thanks for your addition to the community I have benefited from this already. That is super cool and I think thats great feedback. I'm just trying to decide is it a pilla I love it. I absolutely love it. I think that it is something that really the FI community is able to use more than any other community just because of the way that we strategize our taxes we get to pick our tax bracket and we arrange our finances in a way to do it. I think if it's not an absolute pillar it's got to be right there right there at the door of being a pillar of FI.
geoarbitrage, globalgeoarbitrage, tax
520 - 578 Brad Barrett Yeah I think that is very much on the short list. You know these are a moving target here these pillars right. I mean we included both cutting your cable and your phone so I mean you know there are things to kind of nitpick about. But yeah this isn't in the top 10 it's pretty darn close. You know I know many of as Charlene said many of our guests have done this. Millionaire educator Jeremy from go curry cracker. And you know honestly I do this to some degree. I moved from a very high cost of living area in the suburbs of New York City and moved down to Richmond Virginia basically almost solely because the cost of living was so much lower. I mean essentially our house price was about half of what we would have spent on Long Island and our taxes are about a sixth of what they would have been. So I mean huge huge savings that really set us up for a very successful financial life that would have been impossible where we lived previously. So you know I know personally how how crucial and valuable this can be. So I'm in the big thanks to Charlotte for this comment.
cordcutting, savings
578 - 640 Jonathan Mendonsa And I wanted to flush that out just a little bit more I think we should actually have a whole episode on it. It's just it is that powerful of a tool. But you know when you really dig into what does it mean to line up your taxes in a way and then pick a state that fits the model that you want to live. You know think about it this way some states have really high income tax but you get to a point where you're living off of capital gains. So maybe you'd want to pick a state that doesn't tax capital gains and which I checked there's actually nine of those and maybe one that doesn't have an income tax I mean immediately right off the gate. Your money's worth an extra 8 percent or maybe you just make the choice that you want to rent instead of buy. Maybe you pick a state that has a very high property tax but taxes low or otherwise. So when you decide that you are able to move the framework just a little bit your money can go so much farther and when you're not tied down by a job and have let's say you work in oil so you have to be in oil country. But now you're financially independent. You have the ability to just pick whatever location you want. And part of that could certainly be a move to optimize your taxes and there's very few other communities that can have this conversation because they're tied down by all these other things. The FI community is not.
640 - 668 Brad Barrett Yeah that is very true. I don't want everybody to get caught up solely on the tax because a lot of it is it's just the straight up other costs of living items what food costs there what housing costs I mean housing is humongous. So it's all of these things. But I would say definitely focus on the housing costs and the tax as well. Because as Jonathan said that can be 8 percent so I don't want to minimize it by any means but it's part and parcel of this entire concept of just moving to a lower cost area.
housing, tax
668 - 692 Jonathan Mendonsa All right. Mary on this episode went ahead and said to us Hey guys the biggest line item in your budget is not housing it is taxes. Yeah I think that's totally fair. And we definitely mentioned taxes as one of the pillars of FI. But I think we did say that one of the biggest expenses. Your budget is housing. And she's absolutely right. Taxes are the biggest thing and then the community. We already set everything up to optimize our taxes by at the very simplest level just saving half.
housing, savings, tax
692 - 745 Brad Barrett Yeah I think clearly savings rate is absolutely crucial. We control what we can control and that is really one of the main underpinnings of what we're doing here. And tax optimization we have talked about in the show Mary certainly knows that that is an essential point for us for many people making under $100000. I think it probably is neck and neck on whether they pay more in combined taxes or housing honestly. So I think it's I think it is very very close. But you know we're splitting hairs here. I mean Mary clearly is right that that taxes is if not the number one line item. Then it's number two. But we did mention tax optimization being a crucial aspect. So I don't think that we neglected that by any means. And you just you control what you can control and you try to maximize and optimize the best you can. So yeah I think it's a it's a very valid comment for sure.
Brad_Catchphrases, housing, savings, tax
745 - 794 Jonathan Mendonsa We got a comment from Frank and this one was more on the Friday roundup last week but he said you know you could probably do a whole show just on raising kids not to want things as with the gym rhône observation it generally starts with you and your spouse being two of those people that you would want your children to emulate in basic everyday habits. And he said as an example and this is a contrast the one would be the parents to take the entire family shopping together as entertainment. And then the second one would be parents who make list and show their kids how to be smart about it and they get in and out of the store as quickly. The stores as quickly and efficiently as possible and he actually had an article that he linked to which will put in the show notes but it was posted on money confident kids dotcom and it basically reemphasizes that point that your kids emulate you. You know you are two of the people in your kids lives and that's extremely powerful especially as we start thinking about second generation fire.
2ndgenfi, families
794 - 856 Brad Barrett Yeah I really enjoyed this comment from Frank. You know what is funny is that as I mentioned on previous episodes my wife Laura listens to all of our shows and she came to me after this last one and she's like oh you got to stop talking about our kids like they're so fantastic or just normal normal little kids. But I think that's true and they are not special I don't mean to make them out to be these little mutant you know FI second generation fires. But we must have done something right. And I think it's just like Frank talked about parents who make these lists and show their kids how to be smart about it. I mean that's it that's about shopping and certainly my wife Laura does that all the time. And it's also it's modeling this behavior that we're not shoving this down their throats at all. I mean the kids would recoil in horror if we did that but we're just modeling this by not buying stuff not wanting things so I think there is there's some learning through osmosis maybe there because we have not been very overt or diligent about it honestly. So yeah just I just wanted to mention that so Laura is not mad at me the next time she hears me going on and on about how great our kids are.
856 - 858 Jonathan Mendonsa I'm excited for you about how awesome your kids are.
858 - 862 Brad Barrett Well thanks. And I'm sure we'll be talking about your little guy in the same way and in a couple of years.
862 - 884 Jonathan Mendonsa Now he is going to be a mutant second generation fire guy. He has no choice. He has a choice but he only has one choice. Right. Alright then Matt he sent us this and I'll be honest this is really cool man because you beat Brad to it. He sent us a message. Guys this is huge pay attention VTSAX. It's now down to point 0 4 percent. How cool is that just happened. I think it happened like two two or three days ago now right.
2ndgenfi, indexfunds
884 - 905 Brad Barrett Yeah it was a little too late so thanks Matt for sending that in. But yeah this is this is good news of course as Jonathan said in our little notes here that's capitalism at its finest. And you saw Charles Schwab lower their fees and Vanguard and responds in kind and lowers their so this is obviously all the good for us as investors and long term investors certainly.
905 - 959 Jonathan Mendonsa Alright you guys of this segment we're in a call a fire in the news I guess. And actually Isaac pointed this out to us Isaac said. Guys I'm really feeling that sense of community developing between us listeners you might need to plan a meet up or two in the future. He said Hello frugal fest. Not like this disaster which is the most and frugal thing ever and he is referencing this crazy ridiculous fire festival disaster that's been all over the news and we will link to it on the show. I don't know if you heard about it but these kids and I'm going to say quote unquote rich kids basically paid anywhere from four hundred fifty dollars thousand dollars to go hang out with jaw rule blink 182 and a bunch of models in the Bahamas and they got there and there was just nothing there. It was a ghost town and the whole thing basically turned into Hunger Games. And Isaac I did take a look at that. That is crazy. I think the real problem is that they misspelled fire. They spell it wrong way. And then to keeping up the JONES Is Gone Wrong Man gone absolutely wrong. Brad did you get a chance to take a look at that.
959 - 968 Brad Barrett You know I did glance at it very quickly and yet I will not be the frugal fest that it would be run by any means. It sounded like a complete debacle.
968 - 1103 Jonathan Mendonsa We this is fun because this is you know just just fire in the news if you have a new news article that you read anywhere fervidly not fake news but if you have you know something that's fire related. We know we are interested in it and we're going to maybe start carving out a little segment of the show just to talk about fire in the news so this one just opened that up and Isaac thanks for sharing that was hilarious. You know if you were in it horrible. If you're looking at it from the outside in. Just ridiculous. So there's that simple little plug. You know while we're just talking about fi in the news we actually got mentioned the other day by financial Panther just want to give you a shout out. And he said that this is actually his favorite podcast of 2007. And he said if you can only listen to one podcast on this and he had a list of like nine different ones he said he probably go for this on Brad. So he says you know these guys they focus on financial independence or related FI topics. And the thing that he really likes is how deep we get into the topics and he say a lot of podcasts skim through things in order to keep the episodes short. And we don't do that. And you're right and you can blame us for many things you can blame us for being cheesy. You can blame us for being long winded but you can certainly not blame us for cutting that thing short. You know Brad we take exactly the amount of time that it takes to get through an episode and I think we demonstrated that when we took an hour and a half to get through the index series with Jim Collins which I loved every second of it. But we definitely take the time to do it as best we possibly can. And and he specifically said his favorite episode by far is probably episode 9 which is our travel rewards episode and I'm quoting he said that episode is an amazing deep dive into the world of travel hacking a must listen to for anyone who's trying to figure out how to get into that world. And I love that. That's exactly the way that I feel about it. It can seem very complicated sometimes it's difficult to figure out how to fit it into your own personal framework but honestly travel rewards is what introduced me to Brad and there's very few things in this world that are just so obvious that you're winning especially while being frugal a lot of it is behind the scenes. It's this. Down the road we're going to win because we're not spending the money now but down the road we're going to be able to retire early. But this is one of those immediate wins where you can do something that nobody else in your neighborhood is able to do. And you can do it for free. It's powerful. It's instant gratification and you can do it without spending anything extra. And when you build it into an overarching picture like financial independence and the FI community it just fits. It fits as one of these segments. I think it's really cool.
1103 - 1196 Brad Barrett Yeah I agree. I think travel towards is really a crucial part of an overall FI strategy and it fits in perfectly to what to what we're all about right which is learning the rules and maximizing them as best as we possibly can. So I think what we've done is really distill the concept down as much as possible and just make it very very simple to get into. So if you guys want to check out all our resources on traveler rewards you just go to choose FI dot com forward slash travel and you'll see the podcasts up there that Jonathan mentioned a bunch of articles and our recommended card list. So if you're looking for a way to get started there's no easier way than that. And you know this whole concept is really infectious. I know like I mentioned earlier I was actually at a party at my friend Michael's house on Saturday and him and his wife were actually going to Hawaii using travel rewards so they're flying first class from Washington D.C. all the way out to Hawaii. They're staying for I think. I'm not sure the exact number of days but seven to 10 days and the entire trip is free. And you know we're sitting there talking about it and all these other people around the table where we're incredibly interested because because it's cool and because honestly it's pretty easy to do especially when as you know Jonathan would say you've seen people model it. Right. You've seen people who while it sounds crazy when you've never heard of this before when you actually know people who have taken free trips like guys like Jonathan and I. It's real and it's very very simple to get into. So yeah check it out. Choose FIdot com forward slash travel.
travel, travelrewards
1196 - 1215 Jonathan Mendonsa And financial panther. Just thanks for the shout out. And we're glad you're getting benefit from the show. Thanks so much. All right guys so on our Facebook page we put a call out you wanted to know your frugal wins of the week. And you came through for us and you just you came up with a lot of great ideas and we just wanted to share a few of them. So Brad did you want to share the one that came through from Andrew.
1215 - 1290 Brad Barrett And yeah I did want to mention real quick that Jonathan is doing a great job over at the Facebook page so if you want to join the community a little more in-depth just choose FI dot Com forward slash Facebook. The easiest way to do it is to just like us there and follow along. It's really growing we're having tons of comments on every post so it's yeah it's really neat to see. And yeah as Jonathan mentioned Andrew has been e-mailing with me and he had a really cool win of the week and he's was actually in response to what I had mentioned about the Gracie jujitsu that I'm doing and he said so cool to hear that you're getting into Gracie jujitsu. My wife daughters and I started last year and had to stop due to schedules. Then after hearing Choose FI I started to scale back on the extras and decided the money was a bit too much. But I had totally forgotten about the Graci garages which you mentioned. And just as an aside that's that's how I go to this completely for free. So he said so thank you for bringing that up. I've since reach out to some of the students in class and I am going to start a garage of my own soon. Bam. Choose F I win. That's awesome. How amazing is that he said for his family. He was spending over $200 a month. So that's down to zero now. So that's amazing that he gets to do this with his wife and daughters. And now he's doing it for free. So very very cool.
1290 - 1341 Jonathan Mendonsa Sounds like a win for sure. Very cool. Thanks for sharing that with us. We are excited for you. All right. This one was really cool. As a frugal win of the week and it came through on our feedback line and this is from Tom and he says Hi Brad and Jonathan I've been a weekly listener to your podcast since the beginning of 2017. And he says I have only become hungrier for more I credit my financial lifestyle makeover to the fire world. To you both. Thank you. I want to share with you my frugal wins of this past week. Monday I transferred all my retirement funds from Edward Jones to Vanguard. On Tuesday I asked my local library to order Jim Collins book the simple path to wealth. On Thursday I sold all the hi fee mutual funds I had from my time working with Edward Jones and finally to cap the week on Friday. I bought into the VTSAX. Please keep up the great work Tom. That's so cool man I'm excited for you. That is a hell of a week and thank you so much for sharing that little piece of your world with us. We're just excited to be a part of it.
FWOTW, indexfunds, library
1341 - 1380 Brad Barrett Yeah Cassie said. My home and car insurance is up for renewal next month. I shopped around and will be saving seventy dollars a month which is getting added to our debt snowball. Every time you save money on our fixed expenses I track in a spreadsheet an up our debt repayment to make sure it doesn't get lost to lifestyle inflation. So far this year we have added one hundred ninety nine dollars and sixty eight cents as an automatic debt payment on top of what we are already paying. Making an automatic means I don't waste mental energy thinking about whether I should do it. It just happens. So yeah Cassey that is an awesome win we're all about just automating this and taking your brain out of it. So I love everything about you or your comment.
debt, insurance, savings
1380 - 1420 Jonathan Mendonsa Cassie I also love that your comment was so astute that you're not losing your savings to lifestyle inflation you're being intentional with that savings and a lot of people are going to grab the first half but then they're not going to take that second step which is so critical actually using that money to buy your freedom. So Neal he tracked down all these gift cards that were lying around the house and basically maximized their use. So you know over a I think they estimated the $750 million in gift cards was unused last year. It's got of. Yeah. It's horrible that you get them and then they sit around. I know for a fact that my wife has 100 percent execution rate and Brad gave me a chipotle gift card last week as a congratulations. And Brad that sucker is going to get is this week so thank you for that.
1421 - 1422 Brad Barrett Nice.
1422 - 1454 Jonathan Mendonsa All. Right. And then we got one from Tanner and Tanner said needed a second high chair for baby number to buy a new one. Nope. He's taking advantage of someone given away one giving away one free at church basically brand new and wanted to get a commuter bike to start saving on transportation buy it new no decided to buy it used and refurbished basically just across the board looking for frugal analogues. Buy a bunch of new baby girl clothes. No let's just reuse all the gender neutral ones from our son. That's hilarious. It's awesome. And you know what those babies they grow out of them so fast I think all the newborn stuff. My little baby is probably just slightly getting too big for them already.
1455 - 1456 Brad Barrett After two weeks.
1456 - 1611 Jonathan Mendonsa Yeah he's a monster. He's a he's a monster. And then Heidi she cut the cable she cut the cable so now she has basic. And she got sling TV saving $75 a month. She found out she was also paying taxes for a landline that was in the bottle and she never used. It's all gone now. So these are just the over last week. These are the frugal wins that you're telling us. And you know what guys. Some of them may sound small but like we say it's the small things that add up over time and it's just using this framework using these the small little decisions have a massive impact when you apply those changes to buy your freedom. All right guys. And so we're always looking for your frugal wins of the week. And so every Sunday night we're going to put the request out basically looking for your win. So if you have something you want to share just go to choose FI dot com slash Facebook that will take you to our Facebook page and just share with us what's working for you. That's what we are guys who as you know choose F-I is crowdsourced personal finance and part of that is building a FI plan for different people in different tax brackets in different situations and bringing in you know what Brian I can bring to the table which is you know a basic level a basic understanding of the principles of financial independence. But then also bringing in real mentors. They're already in our audience that already have vast amounts of experience and then bring in your ideas and then together as a team producing a well-thought out and well-crafted FI plan for these people. And so Paul agreed to be our very first live case study last week which you can listen to on our last Friday round up. You can listen to us introducing his case study and then at the end of that we asked him some questions and then we also start to collect questions from you. So this will be our second week where we address this live case study and we're going to get the responses to his initial questions. And we're also going to talk about some of the ideas that we collected for you guys. Now keep in mind this is our first one. This is going to be a format that we're going to use for the next five years so as you listen to this imagine all the different scenarios that we're going to be out to work through and in our audience are people like wealthy accountant Jim Collins millionaire educator Justin from root of Good. There are some really great minds in the FI space that have already developed their own FI plans and will be able to lend their own expertise to the situation. So we don't know exactly where this is going to go but we're excited to experiment it with you and get a chance to put this information out there for the benefit of us all. All right so let's see let's see what Paul had to say about the questions that we asked him from last week. Alright guys one of our first questions for Paul is how much are your expenses every year. That is the critical baseline question ask when creating a FI plan. How much do your expenses cost.
cordcutting, savings
1611 - 1632 Paul We've used quicken for the past several years and I've been pretty diligent on Saturday mornings to enter in our expenses and track those. And I would say that the best estimate I can give is that our annual expenses are approximately $60000. We're debt free. Everything's paid for including the cars including the House. And so we do quite a bit of travel.
debt, travel
1632 - 1675 Jonathan Mendonsa One other thing is really important to note here is Paul is debt free so including his mortage. So he has a lot of flexibility his life does not cost much to begin with he probably has one of the things you probably want to figure out is how much are your fixed expenses and how much are your discretionary expenses. Paul is essentially going to be living this life of leisure his fixed expenses I would imagine if he has no mortgage or probably and he has no car payments or anything else he is probably in that mustache camp of you know less than $20000 a year fixed expenses. But he has a lot of margin there to do these other things so he's going to be out to live this. You know Justin root of good life of leisure for a fraction of the cost because there's no debt involved. The next question we asked Paul was do you want to quit your job is this something that you're enjoying or are you ready to move on.
1676 - 1718 Paul I really do. I feel like that I've reached this point in life and I think everybody does. You start to realize that the time is more valuable than the money and having the freedom to choose what you do with your time when you do it. Who you do it with how you spend your day. That's just so valuable for me now and seeing my youngest child grow up. She's 14 at this point. We homeschool her. I would like to be a lot more involved in that process. And we just want the freedom and the luxury and the leisure to be able to go and do as we would like to do on our terms. So absolutely ready to quit my job.
1718 - 1746 Jonathan Mendonsa I got a lot of value from what Paul said here. I mean basically he is he's talking he has the same vision that I have. You know you're pursuing freedom you're you're you're spending your time on the things that bring value to your life. And for him that's no longer his job. It is you know his family his kids his his church you know it's his local community that is where he wants to put his time and energy and because he's done these other things right. He's now earned the right to have his freedom. You know he can make that choice and that's extremely powerful to me.
1746 - 1777 Brad Barrett Yeah that flexibility I know I can speak from personal experience the flexibility that pursuing fi for you it's just so significant I mean the fact that I can be at my daughter's school every week I volunteer every single week or have lunch with my younger daughter Molly every single day during the week. I mean that it's amazing. And just being a part of your kids lives on a more significant basis is is really very powerful. So yeah I definitely can relate to what Paul saying.
1777 - 1789 Jonathan Mendonsa So the next question we asked Paul is you know what does retirement actually look like for you in a perfect world where you get to do whatever you want at this point where where are you going to be spending your time. What are you going to fill it with.
1789 - 1842 Paul We home school our daughter. So I think I'll be a lot more involved. I would like to be able to participate in more things with my church to be able to participate in events and help out volunteering and doing some efforts with them to be more involved in small groups people that are my contemporaries my age things like that. I think it would be great to be able to bring this experience to some of those small groups because you know we can let some other people see that things like this are possible as well too also look looking to get going with my side hustle. I have secured the Web site pursuing fire. dot com And I'm really excited about that. I know I'd be another writer in this space for the F-I retire early crowd but I just think everybody's got a unique perspective and that everybody's voice resonates with someone so I'm hoping to to start writing there and to get some information out that hopefully will benefit other.
hustle, volunteering
1842 - 1853 Jonathan Mendonsa And I love the idea of building your framework ahead of time. It will give your life more purpose you know what are you running to. And so I think that's kind of the heart behind this behind this thought. Any comments Brad.
1853 - 1924 Brad Barrett Yeah I mean fi is not about money. And I think that's really important for everybody to understand. While it obviously is money related and money helps you achieve financial independence. Is about as you said running to a better life and figuring out what you want out of life as opposed to just mindlessly going through days like unfortunately such a high percentage of the population does. I mean people just do their same routine over and over again day after day month after month decade after decade. Right. And that's not what we're talking about here. But you also have to realize that once you hit your FI number everything is not going to be wonderful and you know ponies and rainbows you know that's that's not the way the world works. It's you have to figure out how long that journey what you value out of life and what you're going towards what FI looks like for you. So we've heard many of our guests like Brandon from Mad Fientist and Carl from fifteen hundred days talk about this philosophy and it really is important for you for the audience out there to take a step back and say like what do I value out of life. What can I do to make my life better. Not only down the road when I'm at FI. But today and along that journey. So yeah this is a very crucial point.
1924 - 1991 Jonathan Mendonsa And I love that he mentioned is his side hustle. Brad and I have always tried to make the distinction that this is choose FI this isn't choose er. And what I mean by that is you know financial independence is distinct from early retirement. They are not the same entity. You know we are not telling people to go and do nothing. We're talking about finding and developing your passions. And the cool thing is if you create a framework in which money is not the primary motivator you don't need to. You do not need to earn any more in order to support your family. You can now pursue the things that you're interested in without the pressures of those financial constraints. And if your passion is getting your message out there creating a blog. How much more powerful is it that you can do it from this financial freedom platform. And if it earns money along the way and it's now a side hustle that's producing income that's fantastic. That's amazing. But if you don't need it in order to feed your family it's extraordinarily powerful. So one of the things we want to do guys is incorporate your questions along the way here so one of the questions that Frank had this for Paul he said on that crowd sourcing case study one philosophical question that needs to be resolved is what level of support for education do they intend to provide for their daughter beyond high school and have those funds been segregated already.
families, hustle
1991 - 2023 Paul We have about a hundred and eighty seven thousand dollars in taxable accounts and we have one particular account that is today valued at $43000. We have earmarked that for our daughter's college in the event that she needs it. It is purely taxable it's not a 529 or anything. And the reason we did that is because we want to keep that flexibility to be able to spend it as as we see fit. If she does not go to college then there's no penalty for pulling it out. So I think we have a college covered at least for right now with what our daughter's college plans are.
529, college
2023 - 2035 Jonathan Mendonsa So what do you think about this college plan. I mean I think that just first of all he's miles ahead of many people in terms of what he's already done in terms of preparing for college. He got 43 K set aside in a bank account. What are your thoughts on that.
2035 - 2121 Brad Barrett Yeah I mean I think I think you're absolutely right Paul is is miles ahead of most people with every aspect of his financial plan. So so that's that's huge. I mean I gleaned from his comment that it sounds like his daughter and the family have discussed college in depth at least what I'm understanding because you know he said something to the effect of at least what my daughter's college plans are now and I don't know any more about that. Obviously I didn't follow up with Paul. That's that's what this is all about. You know $43000. I think Jonathan I might might potentially disagree on this like. To me that doesn't sound like enough to fully fund college for most people. But again we are in the FI community and we are not most people. So maybe Paul and his daughter have something planned out ala going after scholarships or doing even community college which could save a whole boatload of money. Maybe she has aspirations to go to a more expensive school and she's going to have student loan debt of her own. I don't anticipate that being the case. But you know I just simply don't know. You know my own mind says $43000. That's Not enough to cover room and board at a state school for four years. But with intelligent planning and maybe his daughter's going to live at home you know then that's very doable I think you know I think Jonathan's probably going to jump in here and say you know if you college hack which is what we what we're trying to teach people and intend to do over the next couple of years then you can do it very easily for 43. So you know throw it over to him instead of keep babbling.
college, college-loans, debt, families, scholarship
2121 - 2227 Jonathan Mendonsa Brad thanks just totally stealing my thunder. OK. Yeah I mean that's exactly how I feel. The problem is I don't have to figure it out yet. I'm trying to learn it along with you guys. I know that there are people that have gotten four year degrees in today's dollars for less than 43 grand. There's probably hundreds of thousands of examples of people that have figured something out. The question is how can you build a framework that can be applied to if not the masses certainly the fi community. And I think that is where I'm putting my energies and my efforts. That's those are the ideas that I'm trying to collect and just build something new. Tell a story with it. I don't want to spend more than 43 K on college. I think that's crazy. I think I think it's absolutely crazy at the same time. I know that most people do it or are willing to take out debt to do it. So what would it actually look like to say you know this is a reasonable amount of money to set aside and we're going to make it go farther by being smarter about it. I don't necessarily have that answer right now but I'm committing myself to figuring that out over the next five years and presenting it one piece at a time and I think we've certainly touched on dual enrollment. I think that's a possibility. I'm sure we can find someone that could tell us how to game out scholarships. We need to have that conversation. We need to talk about community college which is another piece of dual enrollment but often that's what you're actually looking at you're talking about going to high school while going to community college. Part of it is just planning room and board. You know that's a nonstarter if you're talking about doing at least the first couple of years at a community college you should certainly be able to do that while you're at home the landscape is rapidly changing. And I think to spend you know a hundred thousand dollars on student loans and come out making a year it is absolutely ludicrous. Does everybody need to go to college. Yeah probably you know probably at this point. But certainly if we apply our minds to this as a community we can come up with a better way of doing this going forward. Is this the answer right now. No. Can we start the conversation please please we should have already started it. Let's start working on that.
college, college-loans, debt, dual-enrollment, scholarship
2227 - 2285 Brad Barrett Yeah I'd love to see some more data points from from the community and pieces of information give us hacks and tools. You know I don't want the answer to be that college is going to cost more than $50000. I don't want that to be the answer at all. You know I've had in-depth talks with my wife this past week and you know it's funny I'm coming across here on this podcast as the pro spending a lot of money on college and that's not my position at all. It's just you know unfortunately based on the current landscape and the current realities most people are spending way over that. Even for state schools so I think it's can we be smarter as the FI community and can we all gather our knowledge and put it together so we can put together these lists of hacks to save a boatload of money and make it very plausible. Because you know the unfortunate reality in society today is that like Jonathan said college is necessary whether you think it's valuable or not. And I could argue that till the cows come home. I think that's the reality today. So we need to figure out how to do this smarter.
2285 - 2353 Jonathan Mendonsa And just in the same lines. By the way guys we've been telling you the sun woo was going to write an article on how to hack the FAFSA and have a million dollar net worth and get a zero dollar EFC. He released that article just this past week. So we're going to put a link to that in the showboats. You know guys you can get the show notes from today's episode by going onto our Web site. But if in the future you would like to get the show notes in your inbox. We will. We can actually send that to you right away if you subscribe to our e-mail list so to do that. If you're on your phone you could just text choose F-I That's one word for for 1:58 or if you're on a desktop or laptop you can just go to choose if I dot com slash subscribe and get on our email list and that is probably the simplest way to get access to each individual episode show notes you know directly as they happen so you can actually follow up on this stuff. But I think I'm very excited the sun woo release that. I think that that is starting a conversation that is long overdue. And and certainly you know as we crowdsource this thing and we bring in other people's ideas we are going to figure this out. We absolutely are I'm much more optimistic about college time about health insurance. All right. So one of the questions that we asked Paul was you know what what psychologically Paul what's holding you back.
college, fafsa, healthinsurance, networth
2353 - 2440 Paul I think it really comes down to four different things here. One really is about sequencing returns. That whole idea that what happens in the first 10 years or so after retirement makes all the difference in success down the road. Looking at where the stock market is today we may be at a high we may continue to grow. But sequence of returns does spook me a little bit in thinking about leaving the workforce now. Another is the uncertainty in the health care market. Does Obamacare stay does something replace it from the Trump administration. Who knows. But that's going to be a bigger and bigger portion of our cost as we get into this into this retirement segment of our lives. My wife has a desire for us to be able to pull off 70000 a year instead of the 60000 that we have today. I think it's more of a comfort thing than anything else. I don't think that she wants to expand our lifestyle but I think she just feels more comfortable with a buffer zone such as that. And finally there's an age difference between she and I she is seven years younger than me. So that means that if the actuarial tables are right and we are your normal average Americans that means that she's probably going to outlive me for several years. I think the age difference today is that men die about three years earlier than women. So if you add that seven to three She's probably got another decade or so on me. If something like that should happen and I think she's just worried about running out of the money so that's something that would probably be the four biggest issues that we're facing on that front today.
healthcare, stock
2440 - 2509 Jonathan Mendonsa A couple of things that he touched on there was one sequence of returns and then to the margin that his wife wants. And then three just the possibility of her outliving him. So the sequence of returns we can touch on that Brad and I would like to do a full show on that first so keep in mind that some of these case studies will get better and better as we bring more guests to explain these different concepts to our audience at large. We don't want to get down to the weeds necessarily go through sequence of returns now so we may just touch on that touch on the concept but not necessarily unpack it per se. Certainly looking at how much money you actually want to withdraw it will affect what your FI number is. So there may be some give and take there. I think when you decide you know let's say you want to live off 70 versus 60 there's a few other things that you have to keep in mind you know in particular are you going to be supplementing with other income and would you count that toward that. Or are you wanting to draw it down so as you create a FI plan and you have a number it really it's not necessarily telling you which route you have to go but it's kind of showing you what your different options are. One of the other questions that we have for Paul is what are your plans with regards to social security. Are you building that into your FI plan. I think for you all it certainly should be a component of that.
myfinumber, socialsecurity
2509 - 2553 Paul We're both eligible for Social Security. My wife and I but we aren't heavily counting on it to be there. We're thinking more that would be like icing on the cake when I can begin withdrawals with her between age 62 all the way up to 70. My minimum would be $23000 a year and my maximum would be $43000 a year just based on the estimates off their Web site. My wife's benefit. Again depending on when she takes it will be somewhere between 11000 and $19000 and our plan with. Social security is to really make that decision based on the financial and political circumstances at that time. Is it time to take it because our finances desire. Well because there's going to be some changes come into the program. Whatever makes the most sense for us at that time that's what we're planning to do with Social Security.
2553 - 2565 Jonathan Mendonsa And one of the other questions that we asked Paul is how are your investments actually arranged between pretax and taxable What is the breakdown. I think he said his number was 1.47 million. We just wanted to know how is that actually broken down.
2565 - 2679 Paul So today the assets are actually at one point four and a quarter million. Here's how it's broken down. There's 502000 in my 401k and also have 170000 in a lump sum pension at my current employer. My wife has a SEP IRA of 100 and $77000 my Roth IRA account is currently $250000 and my wife's Roth is one hundred and thirty eight thousand dollars and we have a hundred and eighty seven thousand dollars in taxable accounts. And I mentioned that 43000 of that is earmarked for college. In cash we have $50000 that we call our emergency fund and that's not included in that total. Here's the exciting part of the thing. A few years ago we did some Roth conversions in 2010 when there was some tax leeway to do that. And looking at our Roth conversions in contributions those total a hundred and eighty seven thousand dollars. There's a hundred twenty three thousand for me and 64000 for my wife. And so I know that that amount is available to me today that we could withdraw and actually live off of. So the plan is to roll over the 401k the pension and the SEP-IRA all to a traditional IRA. Then we can convert roughly 40 to 60000 dollars per year to Roth just depending on how much we want to live on to build our Roth ladder. We would convert first from my 401k and pension and then from my wife SEP IRA because of our age difference so that we can get those converted as much as possible before age 70 and required minimum distributions hit. And so hopefully we'll get enough built in there that we can get this ladder going and keep going in perpetuity. I won't yet be 59 and a half by the time that I start my first five years I think I'll have created enough of a ladder through converted dollars and be able to pull a good amount off each year from the Roths to keep our living expenses going. If not we may look at 72 T distributions I'd love to hear comments on our distribution of dollars and some other thoughts that you might have. Thanks guys.
401k, college, ira, roth, rothladder, traditional
2679 - 2825 Jonathan Mendonsa Wow Paul is killing it. I love it. He's adding a lot of value to this conversation. He's really helping us create this framework. And guys I hope that if you're getting excited about this you're actually taking notes on what that might look like. Brad and I are going to create an excel sheet over the next month to help us put these different numbers in place and maybe add a template that we can use going forward and also that you can use. But if you have a tool or a reference sheet that you're already using or you have something that you found somewhere on the Internet that you found helpful in creating your own fire plan. Send that to us at feedback at ChooseFI dot com and we will get it included and spread it out to our community so we can all benefit from it. So Paul one comment that we did have and this was from Page she said you know she had some info that you might find useful for your case study series. Apparently there is a special rule for 401-K for people aged 55 and older. And she says you can actually start to draw some funds from the 401k of the place you are employed when you turn 55. Without penalties and this is called The Age 55 rule if you are 55 years or older and you in the year you left your job and you need to take a distribution of your time and plan funds immediately you should leave the money in your company plan and take your withdrawals from there. The reason is because distributions from your company plan when you leave the company in the year you turn 55 or later are not subject to the 10 percent early distribution penalty if you no longer work for that company or what the tax code refers to a separation from service. Remember though that the distribution would still be subject to federal income tax. It's the year that you turn 55 that matters. For example in one tax court case the court ruled that a person was liable for the 10 percent penalty for early distribution made from a company retirement plan although her distribution took place after she turned age 55 she left her job when she was just age 53 which disqualified her from being eligible for the age 55 exception to the 10 percent penalty. It's the year someone separates from service that matters not the distribution day to qualify for the penalty exception separation from service must occur and the year the person turns age 55 or older this can be really helpful if you're a little bit older like Paul and myself and pages thought she would share. She also wanted to let us know that you can roll any old 401 case into the 401K of the company you plan to separate service from after age 55 and that money is now available to withdraw. That is a really cool tip route that I haven't seen anybody else talk about. I'm definitely going to look into that but maybe someone else in our committee has already heard or used this rule and can comment on it and maybe that would be something that Paul would find helpful especially if his plan is to retire within the next couple of years but not necessarily this year.
401k, age55rule, tax
2825 - 2835 Brad Barrett Yeah that is a cool one. Honestly I had never heard of that before. You know this minute essentially So I'm going to look into it a little bit further and yeah hopefully someone in the audience can enlighten us.
2835 - 2884 Jonathan Mendonsa But isn't it neat that like people have figured out these different things and they latch onto different things that help them in the specific problem that they're facing in this specific framework that they're dealing with. But by sharing it with the rest of us we can all benefit from it and put it in our toolbox for when we need it. And I love Paige who took the time to email that to us. And you know guys if you have other ideas like that feedback I'd choose F-I dot com we love your ideas love your comments. All right guys. My first thought is how fortunate we were to actually have Paul be the one to volunteer for our first case study. He is bringing so much value to this conversation you guys are basically getting a chance to live this out with him because and i'm not throwing 1500 days under the bus here but he had a 1500 day plan there's a re a reality that you know after we finish this case study he could be right there at the door. I mean his numbers just what I'm thinking as I'm reading these are this looks very doable. Brad what are your thoughts.
2884 - 2929 Brad Barrett Yeah I agree. I mean just looking at the numbers just back of the envelope it certainly seems like Paul is there or very very close. I think one follow up question that I want to ask Paul is what makes up his expenses. You know I know he's quoted some number between 52000 and 70000. And you know I'd like to dive a little bit more into that because that sounds like a significant number. Significantly higher than I would have anticipated based on the fact that he already has college covered for his daughter and his house is paid off and all this other stuff. So I feel like I'm missing something. But even with that it sounds like he's in great shape. So yeah I think I think this will be a pretty cool thing. And who knows. You know maybe Paul will pull the trigger on early retirement after hearing our results in a couple of weeks.
college, housing
2929 - 3211 Jonathan Mendonsa Very cool. All right. Now we need the community's help. Now you guys have sent us some of your ideas and I am forwarding those to Paul as I get them. He is really excited about the feedback that you already sent him and he's tackling these other problems as soon as you send him over. And you've already had some great ones. Here's basically the plan. This is our first one Brad and I are going to need a little bit more time than we will maybe going forward so we're going to try to get in the habit of doing one case study per month and that's just a goal we don't know if it's reasonable yet we're going to find out with you guys so this will be our May case study we gave ourselves one extra week. Hopefully by the last week of the month we will have presented a FI plan for Paul. And that just gives us a little bit more room to kind of go through some of these different ideas and build it as we go and make sure that we do a good job since this is our first one. Alright you guys this was a longer episode. You know you've got to take your time. We're really trying to figure this thing out for you guys. We're trying to share this information. We want to spend just a second. First of all thank you for the for the incredible feedback that we got on our iTunes reviews page. I'm glad that you're getting benefit from the show. And Brad talked about this virtuous circle we're going to keep that going Brad said and I'm excited about it as well. We're going to do one give away for every five written reviews that we get and all you need to do to qualify for that is just take a screen shot of the review that you submitted and send it to us at Feedback at. ChooseFI dot com. And you are in the drawing. And just to really show our appreciation we're increasing that to one book giveaway of the simple path to wealth for every five written reviews so again we realize you're helping us more than we're helping you with those reviews. But we are so grateful to you for being a part of this. All right. Let me let me go ahead get my hat out here. Our first winner today is Meg pillow. She said My family just went on a road trip and my husband and I listen to two of your podcasts together the interviews with go Curry cracker and Jim Collins. Previously we listened to your podcast independently on the way to work or while cooking doing dishes. And then we discuss the information together later. We had fun listening together and smiling at each other whenever you use words like actionable levers or unpack and we use plenty of those. Meghan we try to dial back. My husband and I love all the information that we get out of your podcast. We've already taken action on some of your advice for example. I've tried to get a better handle on our grocery expenses which are over $1000 a month that she now uses a Google spreadsheet in order to track it. And she says as we continue to listen to you we are starting to reconsider what is really necessary for us to spend money on and how we can live our lives differently so that we can save more while working toward a life that allows us to work less and be with family more often doing activities we really enjoy. You've given us many ideas and the realization we can take steps to have the life we really want and it won't involve sacrifice but rather refocusing on what is important to our family. Thank you Meg. And that's really cool. Thank you for sharing so much. All right so our next winner is useless message poster. So this is he says John and Brad are bringing it. I've been listening since the beginning and these guys have changed my life. I have hundreds of thousands of chase ultimate rewards points now and he says I'm not kidding I actually have 220 2267 points which are worth more than 3000 travel. That's just using regular spending I'm paying my bills as usual. I've lined up to save thousands by dumping my financial adviser and leveraging VTSAX. Thanks Dale. I have reconsidered my spending measuring on how many months of work will this cost me as a yardstick. I under I understand the 4 percent rule that was just a concept before I started listening. If you're into Mr. Money Mustache or Mad Fientist this will supplement and clarify many of those points. And this week we have a third one just due to the sheer volume of reviews of he got over the last week which guys is amazing. Thank you. Thank you so much for taking time out of your day. All right let's take a look. We got our third one today. All right. And this third one is code monkey and Code Monkey says choose FI has quickly risen to the top of not only my go to financial podcast but it's my number one podcast period. Brad and John lay out a road map and I have found actionable steps in every episode. We are still on the Get Out of Debt stage but the show has motivated me to pay off my credit card debt and move my existing retirement accounts out of high expense providers and into Vanguard. When we get the rest of our loans paid down behind us hopefully within the next year we'll be revisiting each episode so that we too can unlock the power of FI. Thanks guys this is awesome. So if you guys heard your review today will be reaching out to you. But if you hear before we do please go ahead and send us your your address we'll make sure we get that right out to you guys. Just thank you so much. And again this is an ongoing thing guys we're not going to stop this for every five written reviews that we get. All you got to do is take a screenshot and send it to us at feedback at choose FI dot com. You'll be entered in a drawing to win a free copy of Jim's life changing book the simple path to wealth. And just thank you for being a part of this alright my friends. Well Brad thanks again. Great show. Glad we put this together for you guys. And you know the fire's ready so we'll see you next time. As we continue to go down the road less traveled.
Jonathan_Catchphrases, cooking, debt, families, indexfunds, testimonial, travelrewards

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