Category: Retirement

Posted on

Late Starter to FI series #19 – What The FI?

Welcome to the Late Starter to FI series!

I am a Late Starter – I did not discover FIRE (Financial Independence Retire Early) concept until I was 47. This was way later, I thought than others who seem to have it all together in their 20s and 30s.

Since I started to write about my own journey, I have discovered there are many more Late Starters like me, yay! It is such a relief knowing I am not alone. 

I want to share our stories, our unique perspectives and show that it is absolutely not too late for us.

So in this series, I particularly highlight those of us who start our FI journeys in our 40s, 50s and 60s. And explore questions such as ‘where do we start’, ‘can we still retire early(ish)’, ‘what are the specific challenges for us late starters’. We look at our past, not to castigate ourselves but so that you can learn from us.

Please join in the conversation in the comments below. I encourage you to share your story if you fit the profile of a late starter. You absolutely don’t have to be a blogger or podcaster to share your story. 

Please email me at info@latestarterfire.com or connect with me on Twitter or Facebook or Instagram

And if you’ve missed any previous stories, you can catch up here – Late Starter to FI series

 

Disclosure: Please note that I may benefit from purchases made through my affiliate links below, at no cost to you. Additionally, as an Amazon Associate, I earn from qualifying purchases

Photo by Chait Goli from Pexels

I first heard late starter, Tom speak about his journey on FI After 40’s podcast (Edit – no longer available) and knew I had to invite him to share his story here. Tom writes at What The FI to “help the average person with strategies and tips for saving, investing and achieving larger financial goals.”

Here is Tom in his own words …

 

A little about me

I live just outside Chicago, Illinois and have been an 8th grade language arts public school teacher for 25 years. I just turned 48 years old, happily married with two young boys who keep me busy and laughing non stop. 

We love the outdoors, jumping in the lakes, hiking, exercising and exploring new places. My wife is just as passionate about health and fitness as I am about financial independence. It makes for a healthy dynamic and keeps us motivated and constantly learning.

Lightbulb moment

At one point, my wife and I had a combined income of $140k yet still lived pay check to pay check. Money in, money out. Lifestyle creep set in and it became harder each year to make ends meet. 

Eventually we had children and my wife had to leave her job to stay home with the kids. And due to a lack of financial planning, we started to incur debt. We lacked the financial mindset to budget, so we couldnt’t figure out what was wrong.

I thought of starting a new job that might improve my income but found little opportunities I would enjoy. My frustrations started to show in my work and at home. Thankfully my wife knew I needed a mindset shift.

She showed me a youtube video of a Chicago police officer who had some of the same frustrations and began investing in real estate – Jemal King, the 9-5 Millionaire. For some reason, this was my spark.

I began learning and reading as much as I could about this thing called ‘passive income’. It started with Rich Dad Poor Dad (my spiritual guide) and morphed into 50 books about finance.

I shifted from a scarcity to abundance mindset and saw opportunities all around me that I was never aware of before.

I began eliminating our debt, built our savings rate to 53%, bought a cash flowing rental, got rid of subscriptions, leases and other boneheaded financial decisions (ie moved from actively managed funds to index funds, dropped whole life insurance, ended car leases).

I even started a blog about our journey at whatthefi.com and try to help others understand how they can turn around their financial situation.

Today, we are happier, motivated, and on our way to becoming financially independent.

First steps on the path to FI

Reading, reading, reading. I’ve read so many books on finance that sometimes I dive into a book and forget I already read it! I also listen to tons of financial podcasts and continue to learn from others on blogs and instagram.

At this point, we are building money and strategising for our next move. It’s exciting for us. Two years ago, our only strategy was merely how we were going to make ends meet. New world now.

How far along the path to FI are we now?

I feel like we are FAR beyond where we were two years ago but also in the beginning stages. Probably the hardest thing was saving enough money for a $1k emergency fund. Now that fund is approaching $20-$30k, it opens up a new world of opportunities. 

We will have a choice pretty soon to dive into rentals for extra income, throw it all into retirement funds, or pay down our mortgage. Maybe all 3 options – who knows?

The point is any extra money we get will work for us from now on and buy us our time in the future. AND any unforeseen debt will be more like a bump in the road due to our sinking / emergency funds.

My goal is to not be working by 55 on anything I don’t have a passion for. If it still is with teaching, fine. But I’m starting to feel the burnout.

getting started checklist

Feeling Overwhelmed?

Use this FREE Checklist to start your journey to Financial Independence

DOWNLOAD NOW

Our current financial situation

We have:

– Improved our net worth from 115k to 333k within a few years

– Improved our savings rate from nearly 0% to 53%

– Have a 4.2 month emergency fund (counting sinking funds)

– Developed several sinking funds (birthday/gift fund, Christmas fund, car/house capX fund, summer deferred pay fund, date night fund, and now dog fund)

– Started “flex” pay with our health care that deducts $1k pre tax (basically a health care sinking fund)

– Went from $175 per month contribution to our tax deferred 403b retirement fund to $500 per month

– Opened two Roth IRA and contribute $250 in each and contribute $200 per month into 529 plan and throw in extra $ when we can

– We plan on improving all the retirement/college funds as soon as we reach 6 month emergency fund

– We also purchased our first rental last year that pays us $560 cashflow per month. We plan on buying another rental at the end of this year or next year if we have enough saved

– Had two car payments and are down to one. It was a (dumb) car lease that will not be renewed when it ends next year. We plan on buying a used car in cash when we turn it in. After the cars our only major debt will be our mortgage which we will hopefully start to really attack next year.

I wrote about How We Found $6000 By Cutting Every Day Expenses

Thoughts on early retirement

Obviously I am a bit late getting started and I knew my retirement could be at age 55. At 55, I will have 75% pension but will have extra to pay in health care. Retirement at early age was a major goal of mine but I noticed lifestyle creep was killing this hope.

I needed to start paying down debt, developing a large savings rate and adding as much extra income to support the idea of retiring at 55.

I don’t feel like I will fully retire at 55 but rather, stop the daily 9-5 grind. I may substitute teach, dive into real estate, or even possibly become a realtor. The point is that I will have the CHOICE to do what I want rather than work for W2 income for the rest of my life in order to pay our bills. 

How my relationship with money has changed

Ugh, where to start. When I was single and in my 20s to early 30s, I was trying to keep up with the Joneses so much I couldn’t recognise myself. I definitely was not “acting my wage”. 

In my 20s, I remember building up so much credit card debt I would have to refinance my home just to pay it off.

When I turned 30, I stopped with the credit card debt but mistakenly thought that money would just build if I paid off the balance each month.

I didn’t understand lifestyle creep at the time and it still felt money in , money out. 

When I got married, we continued this behaviour. Instead of settling in one home and paying it down, I’ve moved into THREE homes in the ten years we’ve been married. Each one just wasn’t enough room. 

Basically we played the traditional consumer role. Money was paid by our bosses, and our job was to spend it as soon as possible. 

We now see money as a tool and use it to work for us as much as possible. We track our net worth weekly, have money planning discussions, eat out less and meal plans per month, find joy in exercise and experiences instead of online purchases or gifts, and save for our future.

Specific challenges or advantages of starting late

The biggest challenge is that time is not on your side as let’s say a 20 year old, for compounding interest on investments.

The advantages are we are probably in our biggest earning years right now so we can build up reserves a lot quicker than I did in my 20s.

Will we reach FI?

It’s not if but when for us. I’m hoping by 55, we can reach a level of FI where we can choose if we want to keep working or not. We have most of our money now working for us but need the time to build.

Our bigger goal was to have 2-3 rentals by now but we had to pause due to my wife being temporarily laid off. We may have this by next year.

 

What's next?

Reading, saving and buying assets. I hope to read more of your blog and share the journey 🙂

Back to Latestarterfire

Thank you for sharing your story, Tom!

I love sinking funds too – there is just something about naming an account that makes it really clear what it can be used for and you know exactly what you are saving for. I started with one and at last count, have 8! 

Once again, Tom has demonstrated that we can achieve great results when we have a plan to move forward. You’ve made so much progress in two years!

And finally, your confidence of WHEN you will reach FI (not IF) just shines through!

Looking forward to reading more of your journey in the years ahead.

 

Do you utilise sinking funds? How many do you have?

Posted on

My Biggest Money Mistakes

Big Red Cross on blue green background | My biggest money mistakes

Disclosure: Please note that I may benefit from purchases made through my affiliate links below, at no cost to you

As I approach the final year of my 40s, I am in a reflective mood.

And being immersed in this coronavirus pandemic with night curfews and carrying a work permit in case I am stopped by the police for travelling outside 5km of my home … well, let’s just say the present is bizarre. The future is uncertain. So let’s look at my past instead. My financial past, to be exact.

I have made many money mistakes in the past, the most obvious one being that I left proper money management to my late 40s. Duh!

Let me set the scene for you.

The Roaring Twenties

All through university, I longed to be working. I could not wait to earn money for myself and be independent, no longer dependent on my parents.

Unfortunately, I graduated from university in the early 90s where jobs in my field were scarce.  I remember dropping resumes to various establishments and not hearing anything back at all. Eventually, I landed a weekend job and worked as a locum during the weekdays. One of my locum jobs turned into a full time job.

More than twenty five years later, I am with the same employer.

I happily worked 12 to 15 hour days, weekends if necessary. It was an exciting time – and after the instability of working as a locum, never knowing if income was guaranteed for more than a few weeks ahead, it was fantastic.

I was living at home with my parents. I had little expenses. And a lot of disposable income to spend.

getting started checklist

Feeling Overwhelmed?

Use this FREE Checklist to start your journey to Financial Independence

DOWNLOAD NOW

Early Goal - Purchasing a Home

My first big money goal was to buy a property. This was really important to me – I wanted security and stability.

I wanted a place to call my own and I didn’t want to live with my parents forever.

I craved freedom and independence.

But I was also hugely influenced by my mother for whom home ownership signified financial security. Read more about it – My Money Story

And in Australia in the 1990s, buying property is seen to be a good investment – the prevailing wisdom then is that property prices will always rise.

I knew about saving for a deposit. Buying a house was a common topic of conversation among friends and colleagues. Banks then were happy to lend 90% of purchase price. I was brought up to view debt as BAD so I aimed for a 20% deposit.

It took me 9 years from university graduation to save up a deposit and purchase my home.

In those 9 years, I was often discouraged by the slow process of saving my deposit. And at times, I was disheartened, watching property prices increase rapidly.

In the meantime, to cheer myself up, I went on overseas holidays and alternated between being frugal (bringing lunch to work) and mindlessly buying books, clothes and shoes. A girl has to live – was my motto – she can’t just focus on saving endlessly for a house deposit and not have a life.

Some Good Money Decisions in My 20s

During this time, l bought shares as state owned companies such as Commonwealth Bank, Telstra and Qantas were privatised and floated on the share market. To be honest, I only bought them at the urging of my father.

My accountant explained about reinvesting the dividends as he observed that I hardly needed the cash from dividends. So I did that too.

A family friend was an agent for AMP and convinced me to start a superannuation fund (retirement account) which was separate to the one provided by my employer. At the time, I was working as a locum and did not qualify for any superannuation anyway. Once a year, I would deposit $2000 to $3000 after tax into this account.

In addition, I started salary sacrificing a very small amount from my full time job towards the superannuation fund associated with my employer.

So it seems that I made some good financial choices in my 20s … what happened next?

The biggest money mistakes started after I bought my house – in my 30s and most of my 40s.

Money Mistake 1 - I Sold the Majority of My Shares to Fund My Home Deposit

I was aiming to save 20% of home purchase price as a deposit but ended up having 30% in cash by the time I bid successfully for my home at the auction.

But because I was debt averse, I sold the majority of my shares to make up another 10% of the deposit. So in the end, I had 40% and borrowed the other 60%.

Would I be in a better position today had I held on to those shares? Most likely, yes. The number of shares would have increased simply due to dividends being re invested. However, they were individual company shares and besides CBA, the others may not have done as well.

Money Mistake 2 - Lifestyle Creep

I LOVE my house. Full stop.

Once I bought my house, I wanted to create a home that reflected who I was and a space that was comfortable and inviting. And so I bought home furnishings, kitchen appliances, and just … stuff.

I bought most of them on sale. Remember Boxing Day sales? I would be there at 7am, ready to shop till 9pm. But the irony is that now I am struggling with decluttering.

I love my comfort and not having to economise. I didn’t go over the top but I never really worried if I was spending too much. After all, I could afford it. And I needed to reward myself for working so hard.

Money Mistake 3 - I Got Used to Debt

Oops.

My loan was for 30 years and it was always my aim to pay if off well before the 30 years was up.

Everyone (except my parents) told me that I would get used to it, that everyone has debt and having a mortgage was the cheapest debt available. Don’t worry about it so much , they said – live a little, enjoy your house and of course, you must still go on holidays. You work too hard.

I deposited my weekly wage directly into my loan account. And as long as I was $2000 ahead of the loan repayment schedule, I could redraw as much as I liked. So every time I looked at my loan, I could see a massive amount (over time) that I could redraw whenever I wanted.

I never felt I was struggling or that I needed to repay the debt as fast as possible. I forgot that the money wasn’t mine, that it belonged to the bank.

Frankly, I was comfortable and complacent. While my parents urged me to repay the loan as quickly as possible, I was happy cruising along, enjoying using the bank’s money, travelling overseas every two years or so.

In the end, I cleared the debt in 16 years but really, it could have been done a LOT earlier.

Money Mistake 4 - I Stopped Contributing Extra towards My Superannuation

I told myself that I wanted every dollar going towards my mortgage. Therefore I stopped contributing to the AMP superannuation fund and stopped salary sacrificing at work.

But in reality, I would have been able to manage both contributions had I just tightened my belt a little. And changed the AMP payment schedule to monthly instead of annually so it didn’t feel like I was facing a big bill.

Retirement was a long way away – apathy set in – I never reviewed my decision. Until I woke up in a cold sweat at 47, wondering if I could afford to retire at all.

Now, I am playing catch up – salary sacrificing the maximum amount and fingers crossed, it will be adequate by the time I turn 60 and able to withdraw the funds.

Sigh! Early retirement or Coast FI could have been so possible. If only I had understood the magic of compound interest.

Money Mistake 5 - I Did Not Buy an Investment Property or Two or Three

It was such a relief when I bought my house. The weekends of house hunting, rushing from one home inspection to the next, attending auctions, talking to real estate agents can finally end. I have my precious weekends back.

At that time, I was often working part of the weekend. So the thought of losing them again to search for an investment property was very unappealing. I enjoyed spending time in my comfy home (or hanging out at the local shopping centre), unwinding after a long week of stressful work.

Plus I was happy with my debt burden – I really didn’t want more debt and the worry of not being able to repay it should interest rates rise or I lose my job (although my job was quite secure). The idea of being a landlord was also very daunting.

Once again, I became complacent and quite apathetic – and relegated buying an investment property to the too hard basket. Time marched on and now property prices have increased way out of my reach. I did try after paying off my mortgage 2 years ago but by then, banks had tightened their lending criteria and nearing 50, I was not a good candidate.

Money Mistake 6 - I Stopped Buying Shares

Since the initial foray into shares purchasing in my 20s, I did not start again until my late 40s, when I read The Barefoot Investor (affiliate link) and stumbled onto FIRE blogs. This was when I learned about investing in LICs (listed investment company) and ETFs (exchange traded fund).

While I did enjoy receiving dividend cheques or seeing my shares grow ever so slowly in my 20s, I totally lost whatever small interest I had in shares investment the minute I sold the majority to fund my house deposit. 

I was under the impression that I could not invest in anything while I had a mortgage hanging over me. In hindsight, I should have continued to invest even a small amount every month in a LIC (ETF was not widely available then). But I had never heard of an LIC until 2 years ago.

Once again, I lost the chance for compound interest to work its magic.

Can You Spot the Pattern?

Once I bought my house, I was content. And settled.

I was happy with the status quo. I achieved my dream of owning a home. It was time to stop thinking about money stuff and just concentrate on paying back my debt. (What was I thinking???)

What I was really in was … a state of inertia.

Inertia is defined (by Google) as “the tendency to do nothing or remain unchanged” or in physics, “a property of matter by which it continues in its existing state of rest or uniform motion in a straight line, unless that state is changed by an external force.”

All my money mistakes can be attributed to me being in a state of inertia.

I was so busy working, I never had time to think about what I wanted for my future.

Even though my goal was to pay off my mortgage, I wasn’t very focused and did not have a plan or definitive strategy. I didn’t educate myself in personal finance and relegated investing to the too hard basket, be it in rental property or the share market. 

I was happy moving in one direction, not questioning, not striving for more.

Until I was experiencing burnout at work and woke up in a cold sweat, anxious about retiring at all, let alone early.

That was the wake up call – the ‘external force’ required to knock me off my existing state of rest.

Final Thoughts

I don’t regret buying my house.

But I do regret being in a state of inertia afterwards.

And that inertia was the root cause of all my biggest money mistakes, the chief among them was not investing consistently while paying off my debt.

But it is what it is so … time to move on.

I am thankful for my wake up call – I will focus on my plan to retire at 55 and live my best life now and tomorrow.

 

* Image by chenspec from Pixabay

What are your money mistakes? What is the root cause of your money mistakes?

Where can I send your
Monthly FIRE Goals Plan?

By signing up, you’ll also be added to my newsletter

You can unsubscribe any time, I promise.