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First things first — my wife is a financial superhero. She is the reason we 
were able to pay off $50,000 in student loans in 12 months (they were mine). She’s the reason we have extra money to invest at the end of each month. She’s the reason we’re in the financial position we’re in. Brace yourselves for what I’m about to tell you — she balances our checkbook to the penny every single month. How many of you balance your checkbook, let alone to the penny?! She’s amazing!
We’ve always had financial minds, but we’ve also always been in debt. For the past ten years we’ve said that once we get our debt paid off we would really kick our saving and investing into high gear. The interesting thing when I look back over the past 10 years, we always had debt so we kept putting investing off until the next year. Then, that next year turned into 10 years. And, wow, 10 years went so fast! We are finally at the point that even though we have one small car loan left, we are finally able to invest. And it feels so good watching our balance increase every two weeks!
Redefining Retirement
We plan to ‘retire’ by the time my wife is 45 and I’m 50, as we discussed in our roadmap post. When I say ‘retire,’ I think we need to take a step back and define that word. The traditional definition is to leave one’s job and cease to work. My grandma has been ‘retired’ for many years and she still works every single day. My definition of ‘retire’ is when I reach Financial Independence. When I no longer need my W-2 income to live because I have already reached Financial Independence. I will always work, I may not get paid for it and it may be on my own terms doing what I want to do, but I will always work when I retire.
So, How Are We Saving For Financial Independence?
Create a Plan
The first step is to create a plan. Seven years ago, my wife and I sat down and created a goal. By the time she is 35, we would have at least $50k saved and all of our debt (minus mortgage) paid off. We are eight months from her turning 35 and we’ve already destroyed that original goal. In fact, we’ve already set our next 1, 5 and 10-year goals. When I think about those last seven years, our lives have changed so dramatically. We made some really bad financial decisions, but also made some good ones. It was definitely not a straight line, but we made it through and we’re going to be successful.
Keep Expenses Low
As discussed in my last post, we review our monthly expenses every single month. If you haven’t read that post, check it out because it’s extremely important if we’re going to be successful in our short-term and long-term goals. Do you know how much your expenses total each month? We do and we review those expenses.
Imagine for a minute that a family of four has credit card debt, mortgage debt, vehicle debt(s) and student loan debt with monthly obligations, just on those debts, totaling $2,000/month. That’s not too far off from a typical family. And, it’s probably on the lower side of bills for those items.
Now, imagine what that same family could do if they didn’t have those debts. They now have at least $2,000/month to invest and save for retirement. That’s a lot of money each month!
Live On One Income
“We don’t make a lot of money, but we also don’t spend a lot of money.”
My goal in my early 20’s was to have a huge paycheck so I had more to spend. My new goal began in my early 30’s which is to have a $0 net paycheck (no, not work for free!). I want to be able to invest in a 403b, 457 and save the rest so we’re only living on my wife’s income.
Just to note, my wife doesn’t make much more than me so it’s not like she’s a doctor or lawyer making six figures. We don’t make a lot of money, but we also don’t spend a lot of money. We’re frugal minimalists or at least we try to be.
Beginning this past January, we’ve been able to almost live on one income. We are so close to completely living on one income which is super exciting!
We Don’t Buy Stuff (anymore)
I love the quote by Dave Ramsey because it’s so true, “We buy things we don’t need with money we don’t have to impress people we don’t like.” I just want to scream to the world, “Stop buying crap! You don’t need it!”
Our lives and financial mindsets are so different from where we were ten years ago. Now, my wife and I drive really nice 7 and 8-year old cars. These cars drive so beautifully down the road, in fact, I bet they drive as well as a luxury vehicle. When I spin my leather-wrapped steering wheel to the left, my beautiful car goes left; I bet the same as a luxury vehicle.
We purchased a house last year for half the amount we were approved. The house is in a safe neighborhood with more space than we need. I’m trying to talk my wife into a tiny house, but she just doesn’t see my vision.
We eat out more than we should, but still not that often. If there’s a good restaurant in the area that we haven’t tried, we save up some money and go. Hey, we like good food! We just don’t drop $400 in one night like we did ten years ago.
We minimize our spending by meal planning and creating grocery lists. And, we never and I mean never go to the grocery store when we’re hungry. Biggest mistake right there. When we buy groceries, we go to Woodman’s, Aldi or Walmart when possible. And, we always try to buy generic and store-brand items.
Weekends usually get us the most. For fun, we hang out close to home or with our family. We try to plan our weekends ahead of time, even if it’s a weekend at home. If we don’t have a plan, we could find ourselves at a car dealership buying a new car like we often did in our financially-foolish 20’s. Even if it’s during a snowstorm when no one should be out driving; yeah, that happened!
We just don’t spend that much money anymore, plus we are so close to only having our mortgage so it’s becoming easier and easier to live on one income. We’re far from where we want to be, but we’re working hard to get to where we want to be.
So, Where Are We Saving For Financial Independence?
Fees Matter!
We invest in low-cost index funds through Vanguard. There are other companies out there, we just prefer Vanguard. Fees matter! Be sure you understand how much it’s costing you to save for retirement. There are many different kinds of costs when it comes to saving and investing. Some of the common fees include expense ratios, load fees, marketing fees, purchase or redemption fees and commissions.
If you don’t know exactly how much you’re paying in fees, you need to find out! Here’s a chart showing you how much fees can cost you in the long run:
All of our money is invested in low-cost index funds. I know exactly how much I am paying in fees, and it’s not much.
Asset Allocation
I like the KISS strategy — Keep It Simple, Stupid. I try to keep my investing simple. I’m a fan of Jim Collins and his book The Simple Path to Wealth. Check out my book review to learn more.
Our current asset allocation is:
- US Stocks: 87% (comprised of VTSAX, VIIIX, VMCIX, VSCIX)
- International Stocks: 5% (VTIAX)
- Bonds: 5% (VBTLX)
- Alternatives: 3% (part of VTIVX)
Our targeted asset allocation is:
- US Stocks: 85%
- International Stocks: 10%
- Bonds: 5%
We moved our investment accounts away from our advisor about two months ago. I couldn’t handle the fees anymore. I still have a good relationship with our advisor, but I felt I could manage my own financial destiny and not pay so much in fees. Also, I recently decided I wanted more international exposure. I’m still less than many, but I’ve been learning some good information and decided to add some weight in international funds. I am considering increasing our international exposure even more in the future. Our allocation would then be 80, 15, 5.
We currently have alternatives, but I’d like to move away from that in the future. This is a part of a small Target Date Retirement (TDR) account that we have through Vanguard. When I was considering moving money away from our advisor a few years ago, I had opened a TDR account and still have some money there. I actually do like TDR’s and think they are a solid choice for many people.
Final Thoughts
I wish we were at this point five years ago, but we had to learn some hard life lessons before we could get to this point so I’m glad we’re finally here and ready to really ramp up our retirement savings.
My biggest piece of advice for anyone reading this is to get rid of your debt. If you don’t know where to start, read Total Money Makeover by Dave Ramsey. Create a budget, control and track your expenses and pour all your extra money towards your smallest debt. When that’s paid off, take all the money you were paying towards that debt and put it towards your next biggest debt. Don’t worry so much about interest rates, just pay it off.
Life is so much easier financially when you don’t have debt obligations hanging over your head. Once your debt is paid off, start investing.
Do we have everything figured out? No.
Is our plan perfect? No.
Is there room for improvement for us? Oh, man, there are so many areas of our lives we need to be better, but we’re trying.
Create a plan, follow your plan, fine-tune and adjust as needed.
Since I’m a teacher, I have to add: Never Stop Learning!
If you need help creating budgets or spreadsheets to track expenses, please reach out and let us know. We want to help! If you want the help of my financial superhero, reach out to her here.
How do you define retirement? Are you on the path to financial independence?
Do you know what fees you’re paying to invest and save for retirement? What is your ideal asset allocation?
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