Part (plank) 1 covered how we tackled and improved our financial lives by focusing on eliminating credit card debts and buying the right-size home.
Part (plank) 2 covered how we looked for ways to minimize the outflow of money on the necessary expenses for most families – cars, cellular phone and utilities.
In this last post on building a platform to get to FI, I will cover all the other decisions that we have made over time to greatly improve our financial position to get to FI.
1) Closing the gap is not just about cutting expenses (outflow). It’s also about finding extra earnings (inflow).
- Any salary increase, bonus, or other windfall we were lucky to have was saved and not spent. We incurred very minimal lifestyle inflation.
- In addition to his regular teaching salary, Jim worked summer school for many years to earn extra money. In the years he worked summer school, we could afford a family vacation, but the cost of the vacation was limited to what Jim earned.
- Jim also did some extra paid duties during the school year, from coaching to grants for developing new courses. The famous British actor, Michael Caine, said he always remembered his early days of being a poor, starving actor such that he never turned down a role or other opportunity for earning money, even after he became successful and wealthy. You never know when the offers will stop.
- I worked hard and took advantage of every opportunity that came my way. I stayed relevant and current; I took extra training to improve my skills so I could set myself up to earn more, to get both raises and bonuses.
2) Saving is an active verb, not a passive, mattress-stuffing one.
Once you get extra money, it’s important not to just shelve it, bury it, or put it in a piggy bank; use the financial tools around you to grow it:
- We took advantage of all tax-advantage savings opportunities: maxing out 401k plans and 403b and catch-up contributions. Putting more money in your 401K means your take-home is smaller today, but if you can get by, it means BOTH you and your employer are contributing to your retirement later.
- There are many other financial savings programs that minimize taxes or freeze costs at today’s levels, such as traditional IRAs, Roth IRAs, HSA, 529 college saving plans, and state college tuition plans. If you are not familiar with these programs, it’s worth it to at least search the web for basic explanations of these types and then find out more about the ones that could apply to your circumstances.
- While we can’t control the financial market, we can control the cost of fees to manage the investments; We looked for ways to minimize both bank fees and investment management fees by choosing low fee investment companies like Vanguard, Charles Schwab or Fidelity.
- In the last great recession of 2008, we continued to max out our 401k and 403b and invested a significant amount in stocks, setting ourselves up to take advantage of the later rebounding market.
Most importantly, we were and still are diligent savers. I spent a lot of my summers when I was growing up in Thailand with my aunt who helped her husband manage a family hotel business. She often took me to work with her and I always remember her advice to me, “it’s not how much money you make, it’s how much you save and what you do with your money.”
I learned from my aunt’s teaching and my own experiences that, if you were a good saver, you don’t have to be a good investor to reach your financial goals. On the other hand, I know many people who have a great life on the surface, but remain one paycheck away from homelessness.
3) Keeping the “fun” in functional.
When we have described our methods, we sometimes get one of two pushbacks:
- “That sounds like a lot of work.”
- “It sounds like you don’t have fun.”
To the first, we say, “Yes, it is.” We’re not gonna lie, it takes attention and effort. Then again, it’s also a lot of work to exercise regularly and watch your diet to be fit, pursue education to be better trained, and anything else worth having. Mountains aren’t easy to climb, but no one complains about the view from the top.
As for the second, we say that’s a misperception. There’s still plenty of fun to be had on a budget. We have two sons, and they were typical kids in wanting to do things, as we did both for ourselves and as a family.
Food: Dallas is a very diverse city with a blend of Chinese, Indian, Vietnamese, Ethiopian, Korean and Thai cultures, and that means GREAT food to be had. While we ate mostly at home, we still ate out, not only to enjoy the cuisine and have fun times, but to expose our sons to different cultures and customs. We learned that most ethnic grocery stores with restaurants inside are good and more authentic (at the cost of somewhat plainer décor). We ate Vietnamese food in the little tables in the Vietnamese and Korean food in the Korean grocery stores. We frequented the Thai temple for Sunday Thai market where we could find authentic Thai street food at cheap prices.
Clothes: Resale-shops gave the boys old school styling panache and Jim had some teacher coolness for his vintage neckties. One Christmas, we set a maximum amount and everyone had to find the funniest, funkiest gifts they could at thrift stores. The boys talk about that Christmas more than some of the ones that they got expensive, “in” gear!
Entertainment: We cut the cord many years ago with cable TV because we hardly watched the 250 channels that we paid for! We subscribed to Netflix and used Redbox to rent newly released DVD movies; we only went to a movie theater rarely (may be 2-3 times a year at the most). Watching streaming was a fun family night, sometimes with debates and votes over what to watch that took longer than the program, but (almost) always ended up with family laughter and bonding.
Most people forget that our tax dollar already paid for entertainment with access to public parks and public libraries. We borrowed books, movies and books on tapes from the library. We always played tennis at the public courts.
We even saved money while doing International travel by taking advantage of geographical arbitrage. We went where US dollars gave us the most value – Thailand, Vietnam, Cambodia, Guatemala, etc. And no, we didn’t stay in bug-infested holes, but we loved the low-cost hotels, pensions and inns that gave us local flavor and extra dollars for exploring. We even used layovers in cities like Seoul, Dubai, and Amsterdam to get a quick taste of these places, often inspiring us to come back for a longer visit.
Still, the most important thing is that when we traveled, we only did so if we knew we could pay it off in full. It meant I saved all of my bonus and used Jim’s extra earning from teaching summer school to afford the trip, but it also meant we only came away from those trips with great memories for years to come, not great payments to make over the same time.
4) Final thoughts.
As I reflect back on what got us to where we are today, early retired and living the dream in Spain, it is not that we had lucky lottery tickets, profitable rental properties, investment in big stocks, or an inheritance. We have had some windfalls, caught quite a few breaks, but in many ways, we got here by an age-old method: controlling our spending and saving diligently.
It’s like the old saying, sometimes “luck” is preparation meeting opportunity. We’ve been preparing for FI our whole marriage, building a platform to wait on till the FI opportunity pulled up.
And now we are all aboard.