One of the reasons I started this blog was to hold myself accountable and measure our progress on our journey to FI. I am a fan of J. Money’s blog Budgets Are Sexy. A recent post of his got me thinking of what we have accomplished so far and I thought I’d use it as a frame work to review our past year.
In his post he asks the following questions which he credits to WorkableWealth.com:
Are you better off right now than you were when the year started?
Answer these 6 questions:
- Did you increase your net worth?
- Did you reduce your debt?
- Are you tracking your spending and keeping a budget?
- Did you reach a savings goal?
- Did you ask for and/or receive a pay increase, or take advantage of your company benefits in a way that allowed you to keep more money in your pocket?
- Do you have the right insurance policies in place?
KEEPING TRACK OF OUR JOURNEY TO FI
Since January of 2019 I have kept a FI journey journal of sorts. I started this before I knew I wanted to start a blog. I journaled day to day about our wins and fails in our goals to pay off debt, decrease expenses, and increase income.
For the purposes of this post I combed through my journal over the past year to tease out what financially related things happened each month so that I could answer these questions thoughtfully. Here’s what I found…
Debt starting at January 2019:
$63,000 (not including mortgage):
$8,000 credit cards at ~ 16% interest
$25,000 student loan at 6.125% interest
$19,000 camper loan at 5.99% interest
$11,000 solar panel loan at 6.79% interest
Emergency fund (EF): less than $1,000
$83,000 mortgage at 3.875% interest
I calculated that by saving only $125 a month of our monthly take home pay our savings rate was a paltry 1.69 percent. I did not include the required pretax amount withheld from my paycheck which is approximately 7%. I work for the state and this goes to a retirement plan. We were not making any other pretax contributions to retirement accounts.
I started talking to Mr. Root about FI and what I was learning from YMOYL.
By February we started tracking our expenses in Mint online.
It was a tough month financially. Mr. Root is a self-employed business owner in the construction industry which means his income can be variable. When business is steady he’s able to pay himself a pretty consistent amount twice a month. But sometimes he might be able to pay himself more or less.
The end of 2018 and the beginning of 2019 were slow business months. Fortunately we had about $5,000 in our savings account at the end of 2018 which we used to float some business expenses until his clients paid up.
Work was picking up though and as Mr. Root’s clients paid their balances he was able to replenish our savings account. We were officially in our new FI mindset so we used our savings to pay off $6,000 dollars on one of our credit cards. That left $2,000 to pay on one other card. Our savings account/EF was low at under $1,000 but we had one credit card PAID.
Business continued to stay steady for Mr. Root. We got serious about finding ways to cut our expenses.
A big and timely win this month: we got a $1,900 tax return! After a $500 payment we made on our remaining credit card balance we owed $1,500. We used the tax return to pay off this balance and put the rest in our emergency fund. We were now credit card debt free! We vowed to never carry any credit card balances again.
Around this time I started listening to the Choose FI podcast. This kicked my FI-Fervor to the next level. Mr. Root even listened to some episodes.
I read JL Collins’ the Simple Path to Wealth where I learned about F-You money and index-fund investing.
With the cuts we made in our monthly expenses we were able to save $2,000! WHAT? How in the heck did we go from saving just $125 a month to $2,000????
Where was all that money going before??? I don’t know!
We put that $2,000 in our EF.
By the end of March our debt looked like this (not including the mortgage):
$25,000 student loan
$19,000 camper loan
$11,000 solar loan
no credit card debt!
7.5% savings rate
Our next goal was to build our EF to at least three months worth of expenses.
I was so stoked about what we had accomplished so far that I felt confident enough to increase the auto-draft to our savings from $125 a month to $250. I knew we wouldn’t miss it.
When I say we “saved” money this means that with mine and Mr. Root’s paychecks we paid all of our regular monthly expenses including the minimum payments on our loans and whatever variable expenses we normally have such as groceries, vet bills, entertainment etc. Whatever is left at the end of the month is what we saved.
This month we saved $1,000. This doesn’t include the auto-draft into our savings account.
We put $1,000 in our EF.
We were now into our fourth month of tracking our expenses and I had a better understanding of what our life costs from month to month which is around $5,000.
Our EF was now close to one month of expenses.
On the Choose FI podcast I listened to episode 13 “The Unfair (FI) Advantage of Teaches, 457B” with the Millionaire Educator. This is how I learned about retirement plans available to public sector employees: 403(b) and 457. Guess what? I am a public sector employee because I work for the state. I have access to these tax advantaged retirement accounts!
My employer does not contribute to these but I am free to contribute my pretax income to either. The great thing about a 457 is that there are no penalties if you make withdrawals before the age of 59.5 as long as you are separated from you employer.
I opened a 457 retirement account and set up my investments in a Fidelity low-fee index fund. $200 a month from my pretax income was now going directly to my spankin’ brand new retirement account.
I was becoming financially literate for the first time in my life. Around this time is when I found a new appreciation for my employment situation. As a vested state employee I will have access to a pension starting at age 57. It wasn’t until now that I fully understood the value of this. A ten year plan was starting to brew in my mind.
- Goal: save 50% of our income, or in other words live off of just one of our incomes and save the rest.
- Build EF to 6 months
- Pay off all our debt
- Maximize contributions to tax advantaged retirement accounts
- Save money to invest in real estate so we can generate passive income with 1 to 3 rental properties.
- Retire in 10 years? Maybe 12? Living off pension, passive income, investments, side hustles?
This was truly astonishing thinking on my part. Just three months ago I thought we would be working until we die. Now I had the audacity to think we might be able to retire?
We were chugging along and saved $1,000 which we put in our EF.
I was feeling ballsy and raised my pre-tax contribution to the 457 from $200 to $250. Yeah buddy! Like a boss!
Fourth grade wrapped up for Root Jr. Summer was upon us and it was time to test our frugal mettle. Normally we would finance summer fun and vacations with credit cards. But no more!
We took a trip to the beach with friends. We brought our little RV Camper to save on expenses. We still splurged but it we cash-flowed it and we did not go into debt.
Our EF was higher than it’s ever been. We weren’t quite at three months expenses but we were eager to make another dent in our debt somewhere. We discussed how we wanted to approach our debt pay off: the snowball method or the avalanche method.
We agreed on the avalanche method. The loan on our solar panels has the highest interest rate so that is the first loan we want to accelerate paying off.
We saved $2,000 in June and used it all on a big payment on the solar panel loan bringing it down to approximately $9,000.
I calculated that our after tax savings rate was at 29%. Not at 50% but definitely an improvement from 1.69%!!
Momentum = SCREEEEEEEEEEEching halt.
Two things happened:
- July was a spendy month.
- It was a one paycheck month for Mr. Root
We borrowed $1,000 from our EF to cover expenses.
July was a bust BUT in comparison to our pre-FI ways it wasn’t too bad. Before we would have gone further into debt by using our credit cards to finance our expenses. At least we had the money to cash flow our month and our EF was still more than it has ever been. Our credit cards had ZERO balances.
I did have some wins though.
Summer is when my employer requires employees to reenroll for their benefits.
For the first time I elected to participate in the Health Flex Account. This allows me to put aside pre-tax income from my monthly paychecks to use for medical expenses such as doctor appointments and prescription drugs.
It’s use it or lose it meaning if I don’t spend all my saved dollars by the end of the fiscal year I lose it. Pretty stupid if you ask me. I didn’t want to risk losing any money so chose to put aside $1,000 for the year which works out to be about $83 dollars a month.
Second win: I applied for the group term life insurance plan offered by my employer. I currently have a life insurance policy through another provider. It’s too expensive though at around $115 a month. If approved for my employers plan I could reduce my monthly fee to about $65 a month with more coverage. I put in my application and waited.
Third win: I started my blog!
And oh yeah, I turned 47.
Income was back to normal this month. We paid back the $1,000 we owed the EF and added an extra $300.
In an effort to increase my income I applied to a higher paying position with my employer. It would be a lot more work and loss of flexibility in my schedule but it would increase my income by at least $13,000 a year.
I was one of two finalists but did not get the job. While I was disappointed I was also relieved. The boost in income would get us moving along our path to FI faster but I know the challenges of the new job would have stressed me out. So I made my peace with it and had gratitude for things working out as I think they were meant to.
Root Jr. started 5th grade.
Mr. Root turned 50!
We saved $1,700 which we added to the EF. We now had TWO months worth of expenses saved up. One more to go before we’d be comfortable switching to the debt pay off plan.
We increased our monthly auto-draft to savings from $250 to $480 thanks to savings in after-school-care expenses.
Working for the state has many great benefits. One thing that’s not so great is that annual income increases are legislated by the state and are generally from zero to low for your average worker. If I want to increase my income I need to change jobs.
September is when we find out what our annual increase will be for the coming fiscal year. My merit raise did not even cover the $83/month contribution to the health flex plan so my paychecks this year are actually a few dollars lower than they were last year.
Up until now we hadn’t been using a budget. We just tried hard to cut expenses to save money. At the end of each month I used a free budget spreadsheet provided by the Smile&Conquer blogger to look back at how we spent our money, a kind of post mortem review if you will.
But in September I decided to use the budgeting tool provided in the Mint app. I arranged the budget with the goal of saving at least $1,900 a month.
I calculated that our savings rate for September was 24%. Not bad, but not 50%. We needed to figure out a way to kick things to the next level.
We saved $2,300. I calculated that we if we include what we have auto-drafted to savings plus my pretax contribution to the 457 we had a 33% savings rate this month.
That’s good but we should be doing better. Mr. Root has been really busy and this was another extra income month. If he hadn’t had the extra paycheck this month we would have only saved $400. Same for September, we had extra income and should have saved more.
Were we experiencing lifestyle inflation? Were we experiencing FI-fatigue?
We did have an $800 annual camper insurance payment and two trips to the vet – one for a stray puppy we found… and an annual visit for our mutt Frieda.
This month we were able to gift $1,000 to a loved one.
We added $2,300 to the emergency fund bringing us to three months worth of expenses. YAY!
By using Mint and the budget spreadsheet I was able to track our expenses down to a $5 error.
It was another extra income month for Mr. Root.
Our credit cards are still consistently paid off to a zero balance every month. I started using them to accumulate points while spending. Now that I’m much more financially healthy I’m comfortable using the cards month to month knowing we will pay them off in full and not pay any interest.
In our Pre-FI days November was traditionally a very spendy month. We either hosted Thanksgiving or traveled somewhere for it, either way increasing our expenses. Root Jr.’s birthday is in early December so we typically spent extra in November for that too. We didn’t track our expenses back then but I know we lived outside of our means.
Not this month though. We hosted Thanksgiving and prepped for the boy’s birthday not only without going in to debt but saving money too. Yay us! We have changed so much in one year.
This month Mr. Root had a very good month and paid himself extra. With his regular pay we would have saved $1,300 this month. This is astonishing because December includes Root Jr.’s birthday and Christmas.
But with the extra dough that Mr. Root brought in we made a $4,700 payment on our solar panel loan.
Our EF remains at 3 months of expenses. We plan to knock out debt going forward. We’ll keep slowly building the EF with the monthly auto-drafts.
Our debt is now:
$23,400 student loan
$17,800 camper loan
$4,300 solar loan
no credit card debt!
My application for group term life insurance through my employer was approved! I’ll now pay $65/month instead of $131!
Root Jr. turned 11 years old!
BACK TO THOSE QUESTIONS
After this review of the past year I am ready to answer the following questions.
Did you increase your net worth?
In February using Mint I noted that our net worth, not including the value of our house, but including the mortgage was -$93,182.
Using the same numbers our current net worth is -$45,889.03.
Did you reduce your debt?
My rough calculations show that we reduced our debt by approximately $25,000.
Are you tracking your spending and keeping a budget?
We use Mint to track our expenses and keep a budget. There’s room for improvement in the budgeting area. It’s still pretty loosey goosey.
I continue to use the budget spreadsheet as well.
Did you reach a savings goal?
My goal was a savings rate of 50%. I know that’s a lofty goal but I figure it doesn’t hurt to aim high. Our savings rate has been around 25-30% though which is pretty dang extraordinary since we started with a 1.69% rate in January.
Did you ask for and/or receive a pay increase, or take advantage of your company benefits in a way that allowed you to keep more money in your pocket?
YES and NO.
I did try to increase my salary by applying for a new position but did not get it. I forgot to mention also that I tried to increase my salary in my current job by taking on more duties but the pay I was offered was not commensurate for the extra work I’d be doing so I declined. So no wins there.
However, I did take advantage of my company’s benefits by enrolling in the Health Flex Saver plan and the group term life insurance plan. Both allowing me to keep more money in my pocket.
Mr. Root took on a lot more work this year and saved money by doing more work himself instead of replacing an employee that left. He definitely increased his pay.
Do you have the right insurance policies in place?
This is one thing we had right even in our pre-FI days. I do count the cheaper life insurance as a FI win though.
So to this question: Are you better off right now than you were when the year started?
I can answer with confidence HELLS YES!!
It’s been quite a year and I have learned so much. I’m grateful for the FI community that has shown me how to improve our financial health. I also recognize that we are fortunate that we are a two income family, that we’re healthy and able to work, and have access to good paying jobs.
OUR FI JOURNEY GOALS FOR 2020
Keep “getting to zero” which means paying off our debt to get us to a zero net worth. Once we get there we can start maximizing investments. But to get there we need to keep attacking our debt first.
After we finish paying off our solar panel loan we’ll start attacking my enormous student loan debt since it has the next highest interest rate.
To pay this off as fast as possible I want to keep striving for a 50% savings rate. This means increasing income and/or cutting expenses further.
To increase income I want to continue to explore side hustles.
To cut our expenses further I want to try the backwards budget method that the blogger at the Wicked Wallet writes about.
I hope that 2019 was a good year for you too and that 2020 brings you good wealth and good health. What are your goals for 2020?
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