August 07, 2020

241 | Troy & Lindsay Calculate Their FI Number with Brad | Households of FI

1 hour

The Troy and Lindsay are new on their journey, finding FI several months ago after making a budget and realizing they had no money left over at the end of the month. Compared to other systematic approaches to becoming debt-free, they felt FI was creative and adaptable to a variety of lifestyles.
The first step Troy and Lindsay took was to determine where all their money was going using a budget tracker, which enabled them to cut monthly expenses and continue to do the things they enjoyed doing, like going to happy hours.
Except for their mortgage, the Troy and Lindsay have paid off all of their debt, contribute to a 401k, and have an $80,000 net worth, including a $15,000 emergency fund.
Though they both enjoy their jobs now, Lindsay is a teacher, so Brad suggests considering her pension's “worth vs worth it” as Grumpus Maximus has discussed on the podcast and in his book, The Golden Albatross.
Use the 4% rule of thumb to determine what your net worth should be to reach FI. Using the 4% rule, you can withdraw 4% of the balance each year to live off of and reasonably expect it to last for the rest of your life. To calculate your FI number, multiply your annual expenses by 25. For every $100 cut from your monthly expenses, is $30,000 less you need to save to reach FI.
Troy and Lindsay recently refinanced their mortgage from 4.75% to 3.25% and are investing the $500 a monthly savings into 401ks and Roth IRAs.
When wondering about paying off their mortgage, Brad acknowledges that there is a real psychological satisfaction the goes along with it, but he looks at it in this way. The interest portion the payment is the true expense, while the principal payment is a reallocation of net worth going from your checking account into home equity.
Brad suggests taking the time to document a year's worth of expenses and look at different scenarios for what life may be like in retirement to come up with a range of possible annual expenses.
When calculating their FI number, Troy realized the number was double if he included a mortgage payment. Brad suggests looking at the mortgage amortization schedule for prepayment options.
Food expenses have been cut with a goal of $500 a month. Lindsay checks to see what's in the pantry before shopping and meal preps one day a week to avoid eating out, but she isn't penny-pinching when it comes to quality.
Removing mortgage and childcare from their expenses, Troy and Lindsay's monthly expenses are about $3,500 per month, which puts their FI number at just around 1 million dollars.
They are currently saving roughly $50,000 per year to add to the $80,000 net worth but are wondering where they go from here.
Brad acknowledges there can be a lot of initial excitement upon finding FI and making changes, but then there can be a lull. He challenges Troy and Lindsay to figure out what they want their lives to look like rather than compare their FI journey to anyone else's.
It's important to understand that life is fluid and wants may change over time. Test small before making big decisions or changes. Flexibility and communication with your partner are critically important pieces of the process.
The next steps Troy and Lindsay will be taking are to build a spreadsheet with different retirement expenses scenarios and talk about what they really want their lives to look like.
Anyone interested in FI should understand that you don't need to be perfect, but you do need to get started.

RESOURCES MENTIONED IN TODAY'S CONVERSATION

ChooseFI Episode 227 The Golden Albatross with Grumpus Maximus
The Golden Albatross by Grumpus Maximus
Protect your online activities with an Express VPN
Earn $1000 or more with ChooseFI's 3 card cash back strategy!
NewRetirement Retirement Calculator
ChooseFI Episode 013 The Unfair(FI) Advantage of Teachers with The Millionaire Educator
ChooseFI Episode 238 How to Test Out of College While You're Still in High School with The Millionaire Educator
Get started on your journey at ChooseFI.com/start
Get a group of friends to join you on the journey with ChooseFI's free FI101 course!

IF YOU WANT TO SUPPORT CHOOSEFI:

Share FI by sending a friend ChooseFI: Your Blueprint to Financial Independence.

...more

View all episodes

By ChooseFI

4.8

50175,017 ratings

August 07, 2020

241 | Troy & Lindsay Calculate Their FI Number with Brad | Households of FI

1 hour

The Troy and Lindsay are new on their journey, finding FI several months ago after making a budget and realizing they had no money left over at the end of the month. Compared to other systematic approaches to becoming debt-free, they felt FI was creative and adaptable to a variety of lifestyles.
The first step Troy and Lindsay took was to determine where all their money was going using a budget tracker, which enabled them to cut monthly expenses and continue to do the things they enjoyed doing, like going to happy hours.
Except for their mortgage, the Troy and Lindsay have paid off all of their debt, contribute to a 401k, and have an $80,000 net worth, including a $15,000 emergency fund.
Though they both enjoy their jobs now, Lindsay is a teacher, so Brad suggests considering her pension's “worth vs worth it” as Grumpus Maximus has discussed on the podcast and in his book, The Golden Albatross.
Use the 4% rule of thumb to determine what your net worth should be to reach FI. Using the 4% rule, you can withdraw 4% of the balance each year to live off of and reasonably expect it to last for the rest of your life. To calculate your FI number, multiply your annual expenses by 25. For every $100 cut from your monthly expenses, is $30,000 less you need to save to reach FI.
Troy and Lindsay recently refinanced their mortgage from 4.75% to 3.25% and are investing the $500 a monthly savings into 401ks and Roth IRAs.
When wondering about paying off their mortgage, Brad acknowledges that there is a real psychological satisfaction the goes along with it, but he looks at it in this way. The interest portion the payment is the true expense, while the principal payment is a reallocation of net worth going from your checking account into home equity.
Brad suggests taking the time to document a year's worth of expenses and look at different scenarios for what life may be like in retirement to come up with a range of possible annual expenses.
When calculating their FI number, Troy realized the number was double if he included a mortgage payment. Brad suggests looking at the mortgage amortization schedule for prepayment options.
Food expenses have been cut with a goal of $500 a month. Lindsay checks to see what's in the pantry before shopping and meal preps one day a week to avoid eating out, but she isn't penny-pinching when it comes to quality.
Removing mortgage and childcare from their expenses, Troy and Lindsay's monthly expenses are about $3,500 per month, which puts their FI number at just around 1 million dollars.
They are currently saving roughly $50,000 per year to add to the $80,000 net worth but are wondering where they go from here.
Brad acknowledges there can be a lot of initial excitement upon finding FI and making changes, but then there can be a lull. He challenges Troy and Lindsay to figure out what they want their lives to look like rather than compare their FI journey to anyone else's.
It's important to understand that life is fluid and wants may change over time. Test small before making big decisions or changes. Flexibility and communication with your partner are critically important pieces of the process.
The next steps Troy and Lindsay will be taking are to build a spreadsheet with different retirement expenses scenarios and talk about what they really want their lives to look like.
Anyone interested in FI should understand that you don't need to be perfect, but you do need to get started.

RESOURCES MENTIONED IN TODAY'S CONVERSATION

ChooseFI Episode 227 The Golden Albatross with Grumpus Maximus
The Golden Albatross by Grumpus Maximus
Protect your online activities with an Express VPN
Earn $1000 or more with ChooseFI's 3 card cash back strategy!
NewRetirement Retirement Calculator
ChooseFI Episode 013 The Unfair(FI) Advantage of Teachers with The Millionaire Educator
ChooseFI Episode 238 How to Test Out of College While You're Still in High School with The Millionaire Educator
Get started on your journey at ChooseFI.com/start
Get a group of friends to join you on the journey with ChooseFI's free FI101 course!

IF YOU WANT TO SUPPORT CHOOSEFI: