28 years old. what would u do if you were in my shoes?

[sripunp]

Hi, I'm paul.

First time poster long time reader. The idea of early retirement has been with me for a long time even before i've stumbled onto this website. I wish to ask you all for advices.
A little bit about my self. I'm currently 28, married, no kids(want 1-2). We both make 80k/year on earned income. I own a business which make me about $20k a year and growing in passive income as well as $900 in rental income. I have no saving aside from emergency fund. No 401k, no roth IRA, no stock or bond, etc. and i'm very uneducated about it, but i would like to know more. My wife on the other hand, she, has about 15k in 401k. We own a home. we have about 30k in equity in the $300,000 home. we have 2 cars, one of which is paid off, the other we owe 9k on it. No other debt.

My goal is to be retired at 40 or latest at 50. with my business continue to grow. Retire to me means, I can choose to or choose not to work and my income/assets will continue to grow with the same pace of inflation rate.
What should I do at this point?
Should I continue to grow my passive income? or
Should I start investing in my retirement?

 

[catman2020]

Hi. Welcome. Sounds like you have a great start. To really accelerate your retirement savings you can focus on three things that you can control:

1) your savings rate which is a combination of your earnings and your spending. Here is a blog post that talks more about that, but basically you want to max your earnings and LBYM (live below your means). For example I always tried to save at least a third of my pretax w2 income and 100% of my passive income.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

2) your investment costs. Vanguard is a popular choice here because of their low cost index funds and ETF's. You can keep your investment expenses below 0.25% which is very doable.

3) your asset allocation. Specifically the percent of equity (stocks like a sp500 index fund) that have in you portfolio. Over the long run, the higher the percent of stocks in your portfolio the higher the return. To get this higher potential return you have to be willing to live with more short term risk of losing money like we have seen this year so far.

Best of luck!


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[HadEnuff]

Hi. Welcome. Sounds like you have a great start. To really accelerate your retirement savings you can focus on three things that you can control:

1) your savings rate which is a combination of your earnings and your spending. Here is a blog post that talks more about that, but basically you want to max your earnings and LBYM (live below your means). For example I always tried to save at least a third of my pretax w2 income and 100% of my passive income.

The Shockingly Simple Math Behind Early Retirement

2) your investment costs. Vanguard is a popular choice here because of their low cost index funds and ETF's. You can keep your investment expenses below 0.25% which is very doable.

3) your asset allocation. Specifically the percent of equity (stocks like a sp500 index fund) that have in you portfolio. Over the long run, the higher the percent of stocks in your portfolio the higher the return. To get this higher potential return you have to be willing to live with more short term risk of losing money like we have seen this year so far.

Best of luck!


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as you do this, I'd recommend you make certain you are maximizing any tax deferral vehicles for your savings. If you aren't already maximizing whatever your wife can put in her 401k, start there.
Also, if you aren't covered in a pension plan where you work, open an IRA and put the max in there that you can, to the tax deductible limit.

Letting those tax deferred funds compound, without the proceeds being taxed until you take withdrawals later is magic.

 

[heeyy_joe]

I'd venture to say if you upgraded to a new car you would find the money out of earned income to pay the monthly payments, eh? So you should be able to save the same starting now preferably into any tax advantaged plan. No excuses, get crackin'!

 

[Travelwanted]

I'd start by reading:

Bogleheads Guide to Investing
http://www.amazon.com/Bogleheads-Gu...sr=1-1&keywords=bogleheads+guide+to+investing

Another great financial website is www.bogleheads.org

Earlier you start the better off you will be.

 

[hnzw_rui]

If You Can: How Millennials Can Get Rich Slowly by William Bernstein

Since you're planning to retire at 40, you're probably gonna need to save something like 2-3x of expenses every year.

 

[ivinsfan]

I'm confused about the way you posted your earned income is it 80 total or 80 each?

Right off the bat it sounds like you bought that house too quickly as you have PMI payments with about 10% equity which is the same as no equity as the 30K would vanish in fees if you sold that house.

So right off the bat, look at your spending side or you won't have any money to invest.You have lots of time,but you are only 12 years away from 40 and have negative net worth so 50 is probably a little more realistic goal.

 

[Big_Hitter]

max our your 401Ks - that's $36K a year.


kids are expensive

 

[photoguy]

What should I do at this point?
Should I continue to grow my passive income? or
Should I start investing in my retirement?

Why wouldn't you do both? does growing your passive income require capital that you would otherwise use in investments?

 

[Walt34]

Read The Millionaire Teacher, The Millionaire Next Door (somewhat dated now but a classic for good reason) How a Second Grader Beat Wall Street, The Four Pillars of Investing, and Predictably Irrational.

Yes it is a lot of reading. There will be a test. The test comes in ~25 years when you want to retire. Will you be able to?

You are living within your means now but are not saving nearly enough. OTOH, even thinking about retirement now puts you way ahead of most people your age.

 

[ESRwannabe]

What should I do at this point?
Should I continue to grow my passive income? or
Should I start investing in my retirement?

Both. You want as many different streams of income as possible.

Now is a good time to start averaging into stocks. Best time to buy them is when they are getting cheaper.

If you like being a landlord I'd slowly build that up too.

 

[sripunp]

Thank u for all your massively useful response.

Why wouldn't you do both? does growing your passive income require capital that you would otherwise use in investments?

Yes, both is not really an option for me at this point. 20k in passive income is for future investment that i have in mind to expand my business and increase my passive income.

Both. You want as many different streams of income as possible.

Now is a good time to start averaging into stocks. Best time to buy them is when they are getting cheaper.

If you like being a landlord I'd slowly build that up too.

Yes, its tough for me at this point as i explained above.
Property investment is what i'm looking to get into as well.
as far as stocks, i'm very uninform about it; i dont know how to buy them, etc.

I'm confused about the way you posted your earned income is it 80 total or 80 each?

Right off the bat it sounds like you bought that house too quickly as you have PMI payments with about 10% equity which is the same as no equity as the 30K would vanish in fees if you sold that house.

So right off the bat, look at your spending side or you won't have any money to invest.You have lots of time,but you are only 12 years away from 40 and have negative net worth so 50 is probably a little more realistic goal.

no, 80k total.
yes, about the house. I bought the house very quickly when the market is down. in my defense, i was renting for about 12k a month. now my mortgage is $1810 minus $900 rental income. so i ended up paying less than i was renting.

If You Can: How Millennials Can Get Rich Slowly by William Bernstein

Since you're planning to retire at 40, you're probably gonna need to save something like 2-3x of expenses every year.

thank u for the book!

 

[rodi]

welcome sripunp -

As others have suggested there are two approaches to reaching early retirement - and both work together.

- LBYM - live below your means. That means spending less than you have coming in. Lots of ways you can make simple changes to spend less money... drop the landline (if you have one), change cell phone carriers. Have a 2 year old phone rather than the newest one, change your cable package to a lesser one, or cut it entirely. Pay down debt to get rid of the interest charges.

- Save more. Put as much as you can into 401k. Put as much as you can into after tax savings.

Investing isn't scary or complex unless you choose to make it that way. Start with simple broad based index funds. Put a percentage in a total bond fund, and a percentage in a total stock fund. Make sure they're index funds. Or if that's too much work go with a lower cost active fund like Wellington or Wellesly.

It sounds like your wife is already on the path to saving - now you need to join her.

 

[ivinsfan]

You don't need a defense..it's your money..just saying that expenses are a major part of ER planning...you have the house and the car payment so now you can think about other way to budget your time and money. You are young it will all come with a little more time

 

[Markola]

It's also a lot about what you DON'T do going forward, which your peers will start to do, i.e. lifestyle inflation, which becomes addictive, also known as the Hedonic Treadmill. Please be reading the Mr. Money Mustache blog if you aren't already as that family blazed the trail for your generation. Good luck and stay on this smart path!


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[sripunp]

Hi. Welcome. Sounds like you have a great start. To really accelerate your retirement savings you can focus on three things that you can control:

1) your savings rate which is a combination of your earnings and your spending. Here is a blog post that talks more about that, but basically you want to max your earnings and LBYM (live below your means). For example I always tried to save at least a third of my pretax w2 income and 100% of my passive income.

The Shockingly Simple Math Behind Early Retirement

2) your investment costs. Vanguard is a popular choice here because of their low cost index funds and ETF's. You can keep your investment expenses below 0.25% which is very doable.

3) your asset allocation. Specifically the percent of equity (stocks like a sp500 index fund) that have in you portfolio. Over the long run, the higher the percent of stocks in your portfolio the higher the return. To get this higher potential return you have to be willing to live with more short term risk of losing money like we have seen this year so far.

Best of luck!


Sent from my iPad using Early Retirement Forum

welcome sripunp -

As others have suggested there are two approaches to reaching early retirement - and both work together.

- LBYM - live below your means. That means spending less than you have coming in. Lots of ways you can make simple changes to spend less money... drop the landline (if you have one), change cell phone carriers. Have a 2 year old phone rather than the newest one, change your cable package to a lesser one, or cut it entirely. Pay down debt to get rid of the interest charges.

- Save more. Put as much as you can into 401k. Put as much as you can into after tax savings.

Investing isn't scary or complex unless you choose to make it that way. Start with simple broad based index funds. Put a percentage in a total bond fund, and a percentage in a total stock fund. Make sure they're index funds. Or if that's too much work go with a lower cost active fund like Wellington or Wellesly.

It sounds like your wife is already on the path to saving - now you need to join her.

I believe LBYM is a very important factor in early retirement. I am very frugal. My wife, not as much, but not too excessive and that is ok, cuz i love her.
I've just read the link that you send me the money mustache. Understood it.

Though, the way i think of retirement is very difference from both of you. I believe in my business making me money rather than saving from retirement fund, ira, 401k, stock or bond. Am I wrong to think that way? let me know if i'm mistaken.

For example, If I continue to grow my business, let's say 50k a year in passive income, then My wife and I no longer have to work. Right?

 

[hnzw_rui]

Though, the way i think of retirement is very difference from both of you. I believe in my business making me money rather than saving from retirement fund, ira, 401k, stock or bond. Am I wrong to think that way? let me know if i'm mistaken.

For example, If I continue to grow my business, let's say 50k a year in passive income, then My wife and I no longer have to work. Right?

If you're running a business, I think that probably qualifies you more as self-employed rather than retired.

 

[sripunp]

If you're running a business, I think that probably qualifies you more as self-employed rather than retired.

that is because i'm paying my self about 40k a year. If i decide to hire some1 else as a manager, and i'm sure alot of people would, then i should be okay, right?
As of now, I would make 20k/year if i decided not to go to work at all.
Perhaps, I am using a wrong term. Passive income to me, google definition "is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of "unearned income"".

 

[hnzw_rui]

that is because i'm paying my self about 40k a year. If i decide to hire some1 else as a manager, and i'm sure alot of people would, then i should be okay, right?
As of now, I would make 20k/year if i decided not to go to work at all.
Perhaps, I am using a wrong term. Passive income to me, google definition "is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of "unearned income"".

You're still self-employed (business owner). You just happen to be the boss and can dictate your hours and how much or how little work you wish to do.

 

[catman2020]

You're still self-employed (business owner). You just happen to be the boss and can dictate your hours and how much or how little work you wish to do.

Hi. I had my own business for most of my career. I recently exited it. While it had a number of advantages, I found for me personally it was the opposite of being FIRE. I had trouble getting away from w**k mentally and even physically - I hadn't taken two weeks off in a row in twenty years. The greater ability to control my income from having my own shop did allow me to FIRE eventually. We all have our own path. If you enjoy being I involved in the business and it doesn't conflict with your pursuit of happiness, then I don't see that you need to worry too much about whether it does or doesn't make you FIRE. For example I have read a number of posts from folks who run rental properties and consider themselves FIRE. I had done this on the side for a few years and didn't personally enjoy it and would not consider that part of my own FIRE lifestyle, but others clearly do.


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[sripunp]

You're still self-employed (business owner). You just happen to be the boss and can dictate your hours and how much or how little work you wish to do.

i see. you are right about that. hopefully and eventually I will not need to come to work in the future.

Hi. I had my own business for most of my career. I recently exited it. While it had a number of advantages, I found for me personally it was the opposite of being FIRE. I had trouble getting away from w**k mentally and even physically - I hadn't taken two weeks off in a row in twenty years. The greater ability to control my income from having my own shop did allow me to FIRE eventually. We all have our own path. If you enjoy being I involved in the business and it doesn't conflict with your pursuit of happiness, then I don't see that you need to worry too much about whether it does or doesn't make you FIRE. For example I have read a number of posts from folks who run rental properties and consider themselves FIRE. I had done this on the side for a few years and didn't personally enjoy it and would not consider that part of my own FIRE lifestyle, but others clearly do.

I see your point. I think being my own boss is another way of me wanting to early retire. i guess the word FIRE doesnt mean exact same to everyone in here. Everyone has their own interpretation version of it. To my definition, working less than 10 hours a week and 9 months/year is pretty good. To some, prefer not working at all and i completely understand. With 401k and Roth IRA, they certainly can easily achieve that goal.

 

[Milton]

Almost no (and very dated) investment advice, but otherwise very helpful: Dominguez and Rubin, Your Money or Your Life. Any decent library will have a copy.

 

[dadu007]

My #1 piece of advice has nothing to do with your savings rates.
It is this:
If you want to have children, as you said, do it NOW. There is never a "good time" to have children. Might as well dive in, since your life seems relatively stable and the clock is ticking for your wife with each passing day, trust me.
I became a father for the first time at age 40, and it was about 10 years too late. Late in the sense all my peers are now empty-nesters and I'm having trouble keeping up with the kids physically. My friends and relatives who had children in their 20s blew threw those years blindfolded and by the seat of their pants. They are having a helluva lot of fun now that the kids are gone and their health is still good.
Just sayin'...