Starting my journey to early retirement

[Timeisprecious]

One final thing, I'm a car guy. If anything keeps me from being able to FIRE, it will be cars!!

Welcome, Speed Racer! Sounds like you're off to a great start.

Yes, new cars can really slow your progress toward retirement! I bought my first three cars new and then had an epiphany ("What the heck am I DOING?"). Many people in here will tell you the same thing - best thing to do concerning car purchases is make it your practice to buy pretty nice 2-4 year old gently used cars. Let someone else take the bite of depreciation, but you'll still have a pretty good looking mechanically sound car that you can drive for a while.

I'm glad you're here - I'm sure you'll learn a lot. Keep coming back, and I hope you enjoy the forum.

 

[RxMan]

Welcome to the forums Speed Racer! You’ll find a wealth of knowledge and experience here.

 

[Emerson11]

Hi everyone, someone mentioned this forum in a reddit post and I decided to join after reading a lot of good discussion that isn't just a bunch of rich guys talking about how they somehow managed to FIRE on their six digit salary.

Based on reading, it seems like I'm one of the youngest members. I'm 24 and started officially trying to FIRE last year with my first job out of college. Through some unfortunate circumstances, I lost my job towards then end of the year and did not find a suitable job until March (just in time, right?). Thankfully, I was able to get unemployment and was able to keep myself afloat. By the end of last year I still managed to increase my net worth from about $1k to $20k. My new job is a bit farther away, but is a nice increase in pay from my last one.

My "easy" goal is to retire before my dad did, which is 58 years old. I'm more than confident I have enough discipline to do that. My more challenging goal is to retire at 50. I don't anticipate being like some of the guys you see who are in their 30s making $200k and decide to try to FIRE and be able to do it within 5-10 years. That's not to say I don't plan on trying to increase my salary as much as possible in the coming years. In the next few years I want to increase my net worth by roughly $15-20k per year and hopefully my salary and market earnings will allow that number to increase accordingly.

Anyway, enough of my rambling about that. A little bit about me, I love sports, especially racing, baseball, college basketball, and football. I'm also really into music, especially stuff from the 60s. I've probably been to 7 or 8 Beach Boys and Brian Wilson concerts at this point. One final thing, I'm a car guy. If anything keeps me from being able to FIRE, it will be cars!!

Welcome! I wish that I had had your wisdom at your age. I had no concept of money until middle age. Because of that late development, I have to scrimp in my retirement much more than I would have. Cars were one of my weaknesses. The biggest mistakes that my spouse and I made were with charitable contributions that were WAY beyond our means. Not sure why, but we just always got talked into things. As you develop resources, you'll get many requests; remember your goals. Generosity is related to what you can afford to give.

 

[fruitful]

New cars

Your choice of friends and partner/spouse will be a determining factor in your overall success. It sounds like you got a great start by having parents who had practical habits as well.

Regarding cars:

1) If you have one car payment at zero interest for you first reliable car purchase, that is not a serious mistake. Over time, having reliable transportation is important. You want to show up on time for appointments. You want to be able to take a road trip knowing your vehicle will take you there and back. Pay it off and keep it as long as it is reliable.

2) Having said that, you may at some point want to go crazy and get a car that is impractical but fun to drive. That’s when you want to have the cash on hand to buy it outright. My husband and I each have a fun sports car. We paid cash for them. They are awesome to drive. If the purchase of a hot rod, sports car, 4-wheeler sport vehicle, or some other vehicle gives you a thrill, make it part of your plan.

 

[WhenIsItTime]

Welcome!

I had a similar start as you. Graduated from college (after paying my way through with no debt) in April, got a OK job. Was let go in December when business sold. Bounced around for 10 weeks and landed a good job, which led to a great career.

There is no secret. Live below your means and SAVE! Compounding is powerful and your friend. I remember when I got to a point where I had a meaningful amount of money in the bank and my peers were buying nicer houses, furniture, cars, etc. I realized money in the bank brought me more happiness than the items I could buy would.

I retired comfortably at 47. Those same peers are left scratching their heads. It's a choice.

Best of luck to you!

 

[38Chevy454]

Welcome!

I had a similar start as you. Graduated from college (after paying my way through with no debt) in April, got a OK job. Was let go in December when business sold. Bounced around for 10 weeks and landed a good job, which led to a great career.

There is no secret. Live below your means and SAVE! Compounding is powerful and your friend. I remember when I got to a point where I had a meaningful amount of money in the bank and my peers were buying nicer houses, furniture, cars, etc. I realized money in the bank brought me more happiness than the items I could buy would.

I retired comfortably at 47. Those same peers are left scratching their heads. It's a choice.

Best of luck to you!

When your savings become enough, you reach a point where you make as much money from the investment income as you make working! Of course depends on the rate of returns, and market performance. But that is a great day when you see it happening.

 

[FireEater]

Welcome! Your post has prompt me to come out of lurking - 27 years old with the same discovery path as you. (reddit)



Hope to retire earlier than my father too - he's made it hard by retiring at 50 and being a entirely different industry than I wan to be in.



Have been lurking (learning) without much interaction, glad to see everyone so welcoming.



Here's to you reaching your goals!

 

[Speed Racer]

Your choice of friends and partner/spouse will be a determining factor in your overall success. It sounds like you got a great start by having parents who had practical habits as well.

Regarding cars:

1) If you have one car payment at zero interest for you first reliable car purchase, that is not a serious mistake. Over time, having reliable transportation is important. You want to show up on time for appointments. You want to be able to take a road trip knowing your vehicle will take you there and back. Pay it off and keep it as long as it is reliable.

2) Having said that, you may at some point want to go crazy and get a car that is impractical but fun to drive. That’s when you want to have the cash on hand to buy it outright. My husband and I each have a fun sports car. We paid cash for them. They are awesome to drive. If the purchase of a hot rod, sports car, 4-wheeler sport vehicle, or some other vehicle gives you a thrill, make it part of your plan.

I've noticed you and a lot of others here like paying cash for cars. Is that really the best option when you could buy something used at a say 3% rate while keeping your money in the market that will return around 7%?

 

[Speed Racer]

Welcome! Your post has prompt me to come out of lurking - 27 years old with the same discovery path as you. (reddit)



Hope to retire earlier than my father too - he's made it hard by retiring at 50 and being a entirely different industry than I wan to be in.



Have been lurking (learning) without much interaction, glad to see everyone so welcoming.



Here's to you reaching your goals!

Glad to see someone here getting an early start as well! My only regret is not starting when I was 18! I just wasn't serious enough about it even though I had an interest in personal finance. I read a chart recently that showed a person who starts investing at 25 and stops at 35 will have more money at 65 than someone who invested age 35-65. That made me want to save even more and it looks like we're both on the right track!

 

[OldShooter]

I've noticed you and a lot of others here like paying cash for cars. Is that really the best option when you could buy something used at a say 3% rate while keeping your money in the market that will return around 7%?

Well, to begin with you can't assume that the market will return 7% over any short period of time. Only over longer times like 10 years and 7% may not be the number. The general idea you have here is called interest rate arbitrage. You should approach it like you approach a live hand grenade. For example, your 7% return may not be 7% over the life of your loan. Almost certainly it won't. It may also be taxable, which reduces your margin on the arbitrage. I would just say KISS; forget about arbitrage games.

A policy of not borrowing has a huge consequence when you are young, too, in pushing you towards inexpensive cars that will not cost you thousands a year in depreciation. @Bishop's idea of taking zero interest loans sounds good on the surface but you will only be offered these loans to buy cars that will cost you thousands a year. It's your total cost for cars that you want to minimize as much as possible, not just your interest cost.

Watch out, too, for the OWT that older cars are unreliable and can leave you stranded. Think about how many thousands of cars travel the public roads you travel every day and think about how many cars you have seen stranded on the side of the road. It's statistically extremely rare and probably half of those "stranded" cars are simply out of gas. Buy thoughtfully, maintain carefully but economically, and you will do fine with cars that don't depreciate much.

For toy cars, buy smart and pay cash. Sell at a profit if possible. Over the years I have done that maybe a half-dozen or a dozen times with cars ranging from a 1968 Shelby Mustang GT500 KR convert to a Jensen Interceptor.

When you do start looking at houses, cosider what DW and I did for a first house. We bought a duplex and let the tenants pay most of our cost. That was the beginning of 25 years owning residential real estate, one hustle that has contributed to our comfortable retirement.

 

[Speed Racer]

Well, to begin with you can't assume that the market will return 7% over any short period of time. Only over longer times like 10 years and 7% may not be the number. The general idea you have here is called interest rate arbitrage. You should approach it like you approach a live hand grenade. For example, your 7% return may not be 7% over the life of your loan. Almost certainly it won't. It may also be taxable, which reduces your margin on the arbitrage. I would just say KISS; forget about arbitrage games.

A policy of not borrowing has a huge consequence when you are young, too, in pushing you towards inexpensive cars that will not cost you thousands a year in depreciation. @Bishop's idea of taking zero interest loans sounds good on the surface but you will only be offered these loans to buy cars that will cost you thousands a year. It's your total cost for cars that you want to minimize as much as possible, not just your interest cost.

Watch out, too, for the OWT that older cars are unreliable and can leave you stranded. Think about how many thousands of cars travel the public roads you travel every day and think about how many cars you have seen stranded on the side of the road. It's statistically extremely rare and probably half of those "stranded" cars are simply out of gas. Buy thoughtfully, maintain carefully but economically, and you will do fine with cars that don't depreciate much.

For toy cars, buy smart and pay cash. Sell at a profit if possible. Over the years I have done that maybe a half-dozen or a dozen times with cars ranging from a 1968 Shelby Mustang GT500 KR convert to a Jensen Interceptor.

When you do start looking at houses, cosider what DW and I did for a first house. We bought a duplex and let the tenants pay most of our cost. That was the beginning of 25 years owning residential real estate, one hustle that has contributed to our comfortable retirement.

Those are some fair points. My IRA will be maxed out after I get my paycheck this week and I can't contribute to my 401k until July 1st, so until then it might be a good idea to throw some extra money at my car loan.

 

[Scratchy]

I've noticed you and a lot of others here like paying cash for cars. Is that really the best option when you could buy something used at a say 3% rate while keeping your money in the market that will return around 7%?

Welcome to the forum It's great you are saving a lot. If you get a return of 7 % then paying off the loan is a losing proposition. Problem is you may not get that type of return. What is your investment plan for your savings?

 

[OldShooter]

Those are some fair points. My IRA will be maxed out after I get my paycheck this week and I can't contribute to my 401k until July 1st, so until then it might be a good idea to throw some extra money at my car loan.

As others have said, you are wise.

I got my first and only car loan when I finished graduate school. It was for a used Porsche 911 and was for about two months' gross pay. God, I hated those payments. Finally paid it off and almost never borrowed again.

I say "almost" because decades later I was buying a Mazda RX-8, "new" on the dealer's books but one model year old and it had been damaged and repaired after a test drive went a little bad. (Buying a model year old is a good way to duck a bunch of depreciation.). It was already a good deal, then Mazda offered a cash discount of $2,500 on the car if I financed through them. So I did it, then paid off the loan a few weeks later when the state title paperwork came through.

So ... once your car is paid off, make a resolution to drive it as long as you can. My Nissan Frontier pickup is a 2007 with 140K miles. At this point I am thinking it will last longer than I will and my son will get it in the estate.

 

[Speed Racer]

Welcome to the forum It's great you are saving a lot. If you get a return of 7 % then paying off the loan is a losing proposition. Problem is you may not get that type of return. What is your investment plan for your savings?

Right now my savings/house down payment fund is in a brokerage. I put it in back in January and it has managed to return about 5.5% even through all of this market turmoil. I haven't quite decided what to do going forward. I guess I need the money first lol.

 

[Scratchy]

Right now my savings/house down payment fund is in a brokerage. I put it in back in January and it has managed to return about 5.5% even through all of this market turmoil. I haven't quite decided what to do going forward. I guess I need the money first lol.

Given your background in finance and the reading you have done, I'd be curious to know what you have in mind for investment strategy going forward. That's the key to long term success, in my opinion. I'm a big fan of investing in passive index funds, especially vanguard funds and my asset allocation was high in stocks until about 10 years ago. Now I'm about 50/50 equities/bonds.

 

[nvestysly]

Hi Speed Racer,

Welcome to e-r.org. You've come to the right place for good discussion regarding FI and RE. You're doing well to be thinking about retirement at an early age.

You mentioned racing... did you happen to watch the NASCAR race yesterday? I'm not an avid fan but I do enjoy seeing the races when I have time. Interesting to see the race with no fans in the stands. Glad to see a major sporting event back in the saddle - hope more will follow soon.

Cars... There are several members of e-r.org who have an affinity for motorized things - motorcycles, cars, planes. I think of myself as a car guy but don't have anything exotic. An '84 CJ-7 that DW bought before we were married and a '66 El Camino along with an Airstream trailer and an Airstream (Sprinter) motorhome, a 4WD Sierra and a 4WD Suburban round out the fleet.

DW and I always knew we needed to save for our own retirement and did so as soon as we had jobs out of college. We weren't planning for early retirement at the time, just comfortable retirement at a pretty typical 62-65 age. IRA's were available "back in the day" but only about 50% of our peers were utilizing them. A few years later (mid to late 80's) our employer implemented a 401k plan and with that our IRA contributions fell by the wayside so we could be sure to get that employer match. As we transitioned from one job to another over our careers we always rolled the 401k's into IRAs (couldn't move 401k's at the time) and were surprised how many peers simply "cashed out" their 401k when they changed jobs. Their response was typically something along the lines of "it's just a few thousand dollars." Yikes! A few thousand dollars in your 20s is many, many thousands in later years. We always lived below our means and had no consumer debt except for a mortgage and a car payment once in a while over the years.

At some point we realized early retirement was a possibility and we switched into major FIRE mode. That's about when we became familiar with this forum and with FIRECalc. Those things helped change our lives. That, along with reading and earnestly following several principles found in the book Your Money Or Your Life.

We retired early at 52 (me) and 48 (DW) nearly 11 years ago. No regrets, can't understand why more people don't do it. You're definitely on the right track.

 

[SpinDoctorTX]

Nice to meet you, Speed Racer. Welcome! You're light years ahead of where I was at your age, so I suspect you'll achieve your goals one way or another.

As many in here have said, don't rush so fast you don't get to live your life as you wish- and while you are young enough for the challenge.

I didn't get very serious about saving until I was in my late 30s- partly b/c my company was not big (so no 401k until '88 or so). Even during that decade I didn't save a while lot (just enough for the match) as me & my ex were "house poor" for a variety of reasons.

Your degree in finance is very marketable & depending on where you live, you should be able to garner a 6 figure income easily in the first 3 years.

It's a good time now to figure out where you want to live... We are stuck where we are (Houston area) in part due to familial obligations + obtaining high dollar jobs, but I would prefer to be in the mountains somewhere near a city.

I'll look forward to your posts. This is a great place to learn about anything related to retirement.

 

[Speed Racer]

Given your background in finance and the reading you have done, I'd be curious to know what you have in mind for investment strategy going forward. That's the key to long term success, in my opinion. I'm a big fan of investing in passive index funds, especially vanguard funds and my asset allocation was high in stocks until about 10 years ago. Now I'm about 50/50 equities/bonds.

I'd say I'm actively passive, if that makes sense. With my IRA, right now it's about 40% index funds and 60% individual stocks. Overtime I want to be 50/50 index/stocks, but right now there are still good values individually. So for part of my portfolio I'll put in the money and forget about it, and the other I'll sell if I feel it's the right time/situation. For example, I'll be in Microsoft for the long haul, but Delta I'll probably dump if it gets to its pre COVID levels. As I get older I'll likely go all in on index funds.

 

[Speed Racer]

Hi Speed Racer,

Welcome to e-r.org. You've come to the right place for good discussion regarding FI and RE. You're doing well to be thinking about retirement at an early age.

You mentioned racing... did you happen to watch the NASCAR race yesterday? I'm not an avid fan but I do enjoy seeing the races when I have time. Interesting to see the race with no fans in the stands. Glad to see a major sporting event back in the saddle - hope more will follow soon.

Cars... There are several members of e-r.org who have an affinity for motorized things - motorcycles, cars, planes. I think of myself as a car guy but don't have anything exotic. An '84 CJ-7 that DW bought before we were married and a '66 El Camino along with an Airstream trailer and an Airstream (Sprinter) motorhome, a 4WD Sierra and a 4WD Suburban round out the fleet.

DW and I always knew we needed to save for our own retirement and did so as soon as we had jobs out of college. We weren't planning for early retirement at the time, just comfortable retirement at a pretty typical 62-65 age. IRA's were available "back in the day" but only about 50% of our peers were utilizing them. A few years later (mid to late 80's) our employer implemented a 401k plan and with that our IRA contributions fell by the wayside so we could be sure to get that employer match. As we transitioned from one job to another over our careers we always rolled the 401k's into IRAs (couldn't move 401k's at the time) and were surprised how many peers simply "cashed out" their 401k when they changed jobs. Their response was typically something along the lines of "it's just a few thousand dollars." Yikes! A few thousand dollars in your 20s is many, many thousands in later years. We always lived below our means and had no consumer debt except for a mortgage and a car payment once in a while over the years.

At some point we realized early retirement was a possibility and we switched into major FIRE mode. That's about when we became familiar with this forum and with FIRECalc. Those things helped change our lives. That, along with reading and earnestly following several principles found in the book Your Money Or Your Life.

We retired early at 52 (me) and 48 (DW) nearly 11 years ago. No regrets, can't understand why more people don't do it. You're definitely on the right track.

I did watch the race yesterday. It was really weird with no fans in the stands. Almost felt like watching a long practice session. Glad to have racing back though and I'll be watching again Wednesday night, also at Darlington.

I'm kind of like you when it comes to cars. Sure there are expensive old cars I want, like a '59 Eldorado or '61 Continental, but I'd be more than happy buying a '61 Thunderbird for under $15k. The hard part will be learning how to repair them!

Congrats on retiring much earlier than you had anticipated. I certainly hope I can say the same someday.

 

[OldShooter]

I'd say I'm actively passive, if that makes sense. With my IRA, right now it's about 40% index funds and 60% individual stocks. Overtime I want to be 50/50 index/stocks, but right now there are still good values individually. So for part of my portfolio I'll put in the money and forget about it, and the other I'll sell if I feel it's the right time/situation. For example, I'll be in Microsoft for the long haul, but Delta I'll probably dump if it gets to its pre COVID levels. As I get older I'll likely go all in on index funds.

I'd encourage you to keep very careful track of the total return on your stocks vs the total return on your passive funds. Odds are very strong that you will find the stock-picking to be expensive fun. There are thousands of professionally-managed stock-picking funds, just about all of them in fact, that fail to get close to their benchmarks.

To learn about this, start here: https://us.spindices.com/spiva/#/about and then read a few of the US SPIVA reports. You'll get bored quickly; the stock pickers win in approximately the proportion that randomness would predict. No skill is apparent.

Next, look at manager persistence (Do winners continue to be winners?): https://www.spglobal.com/en/researc...-performance-matter-the-persistence-scorecard (Spoiler: The answer is no. Manager performance is indistinguishable from random noise.)

 

[Speed Racer]

I'd encourage you to keep very careful track of the total return on your stocks vs the total return on your passive funds. Odds are very strong that you will find the stock-picking to be expensive fun. There are thousands of professionally-managed stock-picking funds, just about all of them in fact, that fail to get close to their benchmarks.

To learn about this, start here: https://us.spindices.com/spiva/#/about and then read a few of the US SPIVA reports. You'll get bored quickly; the stock pickers win in approximately the proportion that randomness would predict. No skill is apparent.

Next, look at manager persistence (Do winners continue to be winners?): https://www.spglobal.com/en/researc...-performance-matter-the-persistence-scorecard (Spoiler: The answer is no. Manager performance is indistinguishable from random noise.)

Oh, I'm absolutely aware of the risks of active vs passive investing. One of my finance professors always drilled that into our heads. As I said though, it's not like I'm going to be a day trader or anything. It's just that right now the market it low, so there is opportunity to earn more with individual companies. Both my IRA and brokerage are higher than the market right now. A few years ago I started playing the Investopedia simulator game and my portfolio is up 152% vs 63% for the NASDAQ. Of course, I know that won't necessarily continue in the future. Once you factor in my 401k, my individual stocks should only comprise maybe 20% of my total contributions each year.

 

[Scratchy]

I'd say I'm actively passive, if that makes sense. With my IRA, right now it's about 40% index funds and 60% individual stocks. Overtime I want to be 50/50 index/stocks, but right now there are still good values individually. So for part of my portfolio I'll put in the money and forget about it, and the other I'll sell if I feel it's the right time/situation. For example, I'll be in Microsoft for the long haul, but Delta I'll probably dump if it gets to its pre COVID levels. As I get older I'll likely go all in on index funds.

Appreciate the follow up to my question. Based on my own experience, I'd strongly encourage you to stick to passive funds and devote the time saved to other fun things in life. Nevertheless, obviously you are very motivated which bodes well for a bright future. Best wishes!

 

[OldShooter]

... It's just that right now the market it low, so there is opportunity to earn more with individual companies. ...

Really? Link to the research or statistics please.

 

[Speed Racer]

Really? Link to the research or statistics please.

The reasoning for picking a particular stock isn't always based on quantifiable numbers. I mentioned in another post that in a rational world, Tesla wouldn't be $800+ while Ford languishes around $5. Back in 2009, Ford was the company to invest in. It was the only one of the Big 3 that didn't take a bail out and Wall Street viewed Alan Mulally as a guy who could do no wrong. Look where the stock went after he retired. Last month, Microsoft was the company to invest in. It has a bright future in could computing and has slowly been shedding its image as uncool compared to Apple.

Again, this is a small portion of my overall contributions. Although right now I wish it was a larger portion. It's up about 22% compared to about 11% for my total market index in the same time period. I don't think it's a big deal to invest in a few individual companies when the vast majority of my profile is literally invested in the entire market.

 

[Speed Racer]

You folks will be glad to know that for my last contribution into my IRA, I plan to put it all in SPLG. Maybe after that I'll play around with some individual companies.