Welcome to the FIRE Lane.
My name is Stephen (36) and I’m a VP for a small commercial construction group in Texas. In my worklife I handle estimating, cost control and vendor management.
My wife Erica (37) is an elementary art school teacher. She helps shape the minds of 500 of America’s Generation-Z and beyond.
We have two kids under the age of 10.
Our financial history from 10,000 feet.
In 2018 it began to dawn on us that we have taken a great income and are letting life get the better of us. We have allowed lifestyle to creep in, and swallow up our entire budget leaving no room for savings.
In September of 2018, we earned $10,000 after tax and spent all $10,000 without saving a dime. With a base income of $147,000 per year + bonuses, it makes no sense that we aren’t further ahead.
At the founding of this website in September of 2018, our Net Worth was $429,991.31. That’s not a terrible net worth but it’s not great either when you consider our income. Of that amount, only $187,000 is located in retirement accounts. The standard rule of thumb would have somewhere between 2x and 3x our income saved in those accounts.
So we’re only short a couple hundred thousand short of this very basic requirement!
It’s not all doom and gloom. We’ve done a good job-saving on our family home. We are 16% paid off on a 15-year mortgage and we’ve built $150,000 in equity in a $400,000 home. Each month we pay this mortgage down another $1,350. This is a form of savings but the money is not liquid without a second mortgage or selling the home.
Until now, we’ve defined ourselves by our lifestyle. We’ve defined necessities as a house payment, two cars, a cable bill, excessive dining out, lawn care, gym memberships, swim classes, karate practice, and twenty subscription services. All these necessities eat away at our great income until there is nothing left for savings.
If that sounds at all like you, are you fed up?
Because we are FED UP!
What is The FIRE Lane?
The FIRE Lane is a multi-phased plan taking us from over-spent 30-somethings to a Financially Independent family.
Are you familiar with the FIRE Movement?
FIRE stands for Financial Independence Retire Early. This is 2 parts to a whole.
Financial Indepedence is having many assets or wealth working for you. So that you no longer require an outside source of income to subside or even thrive.
Retire Early is just what it sounds like. At the point you no longer require outside income to thrive you can quit your job, cut your hours, or take a different position. Retirement means different things to different people.
How do we get from where we are now to where we want to be?
It takes a plan of course!
A plan with 3 Lanes
All plans have different steps required to move from Point A to Point B. Visually our steps are Lanes. We’ll need to journey down 3 Lanes to take us from overextended to financially independent.
Lane 1 includes trimming lifestyle and increasing our savings rate.
Lane 2 is saving for Financial Independence and along the way finding ways to increase income.
Lane 3 is defining for ourselves what Retirement is and carrying out our own Retirement.
Lane 1: Trim our lifestyle to increase our savings rate.
We need to cut back on expenses.
In Lane 1 we will define necessities. Once we have a grasp on the superfluous items in our budget, we can slash spending on them.
How we have cut spending from our lives:
- We Killed OnStar, the $40 per month car service we never used.
- We Slashed The Gym, we were averaging over $200 per month!
- I Hacked Out A Hobby, which cost us $277 per year!
- We Sliced Some Subscriptions which saved us $443 per year!
- I Curtailed the Ripoff Car Insurance In Our Budget saving $1,152 per year.
Monthly we monitor net worth and spending. These reports show that we are spending more than we are saving. But by following our Lane 1 plan we will create additional monthly cash flow which can be applied towards our savings.
Top Posts related to Lane 1:
When can we call it quits on Lane 1?
The end of Lane 1 will be reached when we achieve a monthly cash and investment savings rate of 30%.
Our mortgage savings rate is currently 14% each month and should be relatively consistent through Lane 1.
Both rates consider after-tax income.
For consistency, we’ll need to maintain that rate for some time. We need to hit that rate for 9 out of 12 months in the year to move forward entirely to Lane 2.
My estimate is that we start hitting a 30% savings rate in 2020 and complete Lane 1 by 2021.
In 2021 Erica will turn 40 and I’ll turn 39.
Summarizing Lane 1 steps:
- Evaluate spending to define necessities and find unnecessary items in our budget.
- Cut Spending. Remove the unnecessary expenses from our lives.
- Monitor spending and net worth monthly to confirm progress is being made.
- Reach a cash and investment savings rate of 30% or more.
Lane 2: Save for financial independence while increasing savings and income.
Lane 2 will likely take a substantial time.
I’m projecting that we’ll have no mortgage at the end of this phase. Assuming no early payments our mortgage will be complete in 2031 (50 and 49).
Back of the napkin math. Assume we need (25x) a ($60,000 income for retirement) to meet the FIRE friendly 4% rule. That totals $1,500,000 in retirement accounts. Your Money or Your Life calls this the Crossover Point.
The Crossover Point is when your passive income exceeds your expenses. For the purposes of our initial plan we will assume the crossover point applies only to the income from our investment accounts. Other sources of passive income could include royalties,
We’re discounting social security and pensions. We both expect pensions. Because of Erica’s teachers pension the district doesn’t fund Social Security for her. So only I will receive social security. Both Social Security and Pensions will be gravy when we receive them.
How long will it take for us to hit our Crossover Point and complete Lane 2?
What does the math show today?
Conservatively I’ll assume we enter Lane 2 in December of 2021 with $230,000 in investments. I strongly believe there is a downturn in the markets coming. Hence my conservatism.
30% savings after tax would be $36,000 a year for us. If I assume 8% average annual market gains it will take 14 years to reach Financial Independence.
So by December of 2035? Erica (54) and I (53) would reach our Crossover Point and we could be considered Financially Independent.
But 53 and 54? That’s a terrible FIRE goal!
I agree. I expect that we can boost the savings number during Lane 2 and speed up the process.
How? It’s hard to see the future but consider these things.
- Our mortgage will be paid off in 2031. If we are still accumulating wealth we can pile that $2,000 a month P&I into savings.
- Speaking of mortgages, our youngest child will graduate from high school in 2032. Do we really need a large family home without any children at home? In 14 years with a 4% annual value increase our $410,000 home would be worth over $700,000. We could buy (or rent) smaller and throw half of that at the nest egg.
- Income increases aren’t figured in any of the above numbers, but that keeps me from having to also account for inflation. I’m assuming income grows with inflation. But what if my income grows faster than inflation? Savings boost.
- Side hustles? Absolutely. 14 years is a long time and it’s completely reasonable to think Erica and I can achieve some side hustles to boost our income and savings.
- Other sources of passive income.
So what is our Lane 2 goal?
I would like to hit our financial independence numbers by the time Erica turns 50. I’ll be 49.
Financial Independence = April of 2031.
And then what?
Everybody uses the FIRE acronym because it is catchy and “Early Retirement” sounds desirable. But for most people who get there, Financial Independence does not mean the end of your working career.
Instead it means, “Complete freedom to be the best, most powerful, energetic, happiest and most generous version of You that you can possibly be.”
Mr. Money Mustache
Lane 3: Define for ourselves and carry out “Retirement”.
I can’t tell you today what Retirement will look like for us.
We will transition away from our current 9-5 careers. Each of us will have spent 25 years in those fields and we’ll be ready for a change.
We’ll probably still be working. But we will be working for ourselves and our passions.
Retirement will involve less work.
We may or may not decide to draw down our nest egg.
We may or may not continue to invest new income.
A parting thought.
Where are you in the FIRE Lane?
Are you retire-by 25, 30, 40, 50, 58, 62, 68? Retire-by-death?
Are you planning to retire LeanFIRE, FIRE, or FatFIRE? No FIRE?
What is the hardest thing for you to have given up on your own Lane 1 step?
Thank you reader for taking this trip with us. Please take the time to sign up for our updates below and watch us travel the FIRE Lane.