Keeping finances on track
After two years, we are $235,000 wealthier than when I left my job. Around $120,000 of that net worth boost came from Mrs. Root of Good’s salary since she continued working even after we reached financial independence (more on that decision below).
The other $100,000+ of net worth growth came from investment gains in excess of our annual spending. In other words, even if Mrs. RoG didn’t work at all these past two years, we would still be $100,000 richer today than when I quit working. That’s the true test of how well our early retirement financial plan worked these past two years.
As I write this, we just suffered through one of the worst weeks in recent stock market history. Our net worth dropped almost $100,000 over the past two weeks. Are we worried? Not yet. I don’t think we will run out of money in early retirement, so these fluctuations, while volatile, aren’t that scary.
1. LIVE TWO TO THREE TIMES BELOW YOUR MEANS
Sorry, folks: Simply skipping that $4 latte in the morning ain’t gonna cut it. It takes a much more committed approach where “sacrifices” are viewed in a new light. “It’s amazing when I work through the numbers that some people think manicures, landscapers and maids are a need,” said Michael Chadwick, a certified financial planner and CEO of Chadwick Financial Advisors in Unionville, Conn.
2. REDEFINE ‘COMFORTABLE RETIREMENT’
Less spending later constitutes the flip side of less spending now. If you imagine comfy retirement as a vacation home and monthly cruise ship trips, revisit that vision so you don’t have to bleed cash — but can still retire in style. Instead of two homes, for example, why not live in your vacation destination and pocket the principal from selling your primary residence?
3. PAY OFF ALL YOUR DEBT
Americans aren’t saving for retirement
It seems like every day a new survey is released that concludes Americans aren’t saving nearly enough for retirement. Google “percentage of Americans who haven’t saved for retirement” if you want to engage in some schadenfreude. My search suggested that fully a third of folks have saved a big, fat nothing! Scary.
There are many reasons for this. In my dad’s case, he never had a job that even provided retirement programs he could contribute to until he was in his 50s (let alone a job that offered a match from his employer). In fact, if I recall correctly, he never even had a job that offered health insurance until late in his career.
Since he was raising two children and caring for a disabled wife during many of his working years, retirement was always one of those things he thought he’d have to deal with later.
We are able to get by on a retirement budget of about $33,000 per year including a paid off house. We could rent our house in the US and net $800-900 per month which might be enough to allow us to rent a decent furnished house or apartment in Mexico. Almost all of our costs would drop, but we would have to use part of our $5,300 vacation budget for visits back to the US. Food, transportation, and entertainment costs would drop. Electronics and appliances tend to cost the same or more down here, so we might see an increase in these expense categories. Overall, I imagine we could live a slightly more luxurious lifestyle on a little less money.
But should we move 2,000 miles away just to save a little money? That’s the tough part of the equation. I don’t think it’s necessarily better or worse in Mexico assuming you have adequate funds to live on. Just different in some aspects. There’s a vibe here that’s hard to explain. The parks seem to attract more people having fun. There’s always a festival or parade or protest going down. Running errands can be a cultural and language adventure.
I thought it would be fun to look at a typical week for me because it might help others figure out how they can fill their free time. The schedule also shows the diversity of daily and weekly activities for me. No two days are alike, and each day typically has a mix of a lot of fun, a moderate dose of physical activity and a small dose of work.
I don’t adhere to a strict schedule since my only recurring time constraints are the morning and afternoon kid drop off/pick up times. In other words, I know where I’ll be around 8 am and 3 pm each day, but otherwise my schedule varies a lot day to day and week to week. This past week was pretty fun, partly because Mrs. Root of Good is on her sabbatical right now so it’s like a test run of early retirement for her too. I loosely modeled this schedule on what we did in the past week.
Reaching back to Google X, Sergey Brin stresses the tremendous benefits of failure, and I echo that. Let’s assume, for a moment, that this early retirement experiment doesn’t work out–perhaps for one of the reasons stated above. What is the effect? Well, I’ll have a few thousand bucks in passive income flowing my way each month. I’ll have a blog that will hopefully be touching hundreds of folks. I’ll have a mindset toward happiness and reduced consumerism. And I’ll have the knowledge of how I can readjust and make it work–maybe just a little further in the future. Hey, if I fail at retirement at 34, well, 35 ain’t so bad, either.