Evaluate & critique my situation! : )

[Tommy_Dolitte]

TD's age:  28
Salary:  $75 K/yr
Bonus:  15-20% salary
Stocks:  70-140 shares per yr
Avg stock price:  $45/share
401 K:  Max
Roth:  Max
Index Fund:  TBD     :-/
Money market:  $11.8 K

Car payment:  $0
Insurance:  $57/mon
Home:  $931/mon
Cable:  $30/mon
Phone/internet (MCI):  $64/mon (both...unlimited LD + high speed....message me on how to get this!)
Food:  ~$200/mon
Gas: ~$50/mon

Mastercard:  $2,300 limit, $0 balance, 8 yrs old
Sears:  $1,150 limit, $0 balance, 9 years old

Future wife age:  25
Salary:  $52 K/yr
Bonus:  10% salary
Stocks:  None
401 K:  6%
Money market:  $100/mon
Savings:  $50/mon
College loan:  $150/mon
Cable: $40/mon
Phone:  $35/mon
Food:  $300/mon  
Gas:  $100/mon
Car + ins:  $400/mon (done next year)   :
Rent:  $500/mon
Credit cards:  None

Now, with grace, I figure our capacity to save painlessly should be $41,000/yr (pre-kids)--@ 6% interest, 67% of take-home pay...we'd have $1MM in our early forties.

We've discussed this and she's on board!  This is one of the reasons I love her, she is not caught up in all of the hype (she'll get a nice rock for that!  

Anyway...I figure that we should be in pretty good shape b/c:

All cars will be paid for by next year.
We'll get a used Honda Accord, Maxima, BMW, etc. in a couple of years---no more than $15 K--pay cash.
Our "rent" will be less than our currents combined.
We'll live in a lower tax or 0% tax state.
Phone, food, insurance should go down....

My credit score -- 700's
Hers --low 600's

What do you guys think?

I personally think the gap is my lack of knowledge on mutual funds.  I'd love to find one that is tax efficient, has low turnover, and returns closer to historical avgs---I use 6% in all my projections and 2% points can knock off a couple of years!

Advice?

TD

           :        :-/  

 

[unclemick]

Poke around the Vanguard site - under tax managed, tax efficient funds. I.e. broad index funds can exhibit tax efficient behavior.

 

[Whakamole]

Re: Evaluate & critique my situation!  : )

Ask her before you buy that rock - not all women are into that. She may prefer retiring a few months early to a pretty stone

 

[Beachbumz]

Your situation is very similar to ours, when we were 28, only you make more money than we did then. We are FIREd now at age 37 and 36 and having the time of our lives.

My advice, if you want super early retirement is to take a good portion of that $41,000 savings and invest it in real estate or some other asset that will provide you with leverage. I recommend that you read Robert Kiosaki's new book (I can't remember the name). He is not the best writer, but makes some good points regarding the "velocity" of money.

We made ours by investing in resort property on the beaches of NC, where we felt there would be significant appreciation. There are no guarantees, but I believe this to be your best chance to achieve FIREd status. It worked for us anyway .

By the way, I give a lot of credit to Paul Terhorst's book and this website (although I have been a lurker until now )for teaching me to think differently than the rest of the sheep out there!

 

[ESRBob]

Right on BeachBumz!
Welcome to non-lurker status.
Tommy -- I would echo Beachbumz on a) read Terhorst (and kiyosaki cautiously and only for real estate investing matters) b) think about taking on risk during these years with your career and your savings. Real Estate helped my brother FIRE at 40 -- (rehabbing SF apartments in his spare time during the 80s). and taking a more audacious risky career path in my corporate life (leaving the cushy jobs in head office to become a sales executive and a sales manager -- high risk, high reward, high stress), then starting two Internet firms in my mid and late 30s helped me to ER at 42. Spending will start to increase as you move through your 20s and 30s--it is inevitable (kids, house, vacations, lifestyle?)-- but if you can make even more money as you go along, you'll increase your savings even more.

To ER without a defined benefit pension from a big or govt employer you need to kick in some serious asset accumulation. To do that, in almost all cases, you need to take some risk. Not dumb risk, but something more than just being clever in a salaried job and getting lucky. Some of the older folks on this Board may disagree with me, but I think we have it tougher than our parents generation -- you can't just plan to buy a house, keep your nose clean for 30 years, and come out with a cushy early retirement. I think you need to do something audacious along the way --maybe not this year or next year, but seek the path with more risk and more reward at work, seek some investments like real estate that you pour some serious night and weekend time into to master and transform in value.

A metaphor I used to hold in my head came from chess. I learned after many painful years that you could never win a chess game by playing perfect defense. Inevitably an opponent beats through, you make a mistake or just get cornered, and you lose. You need an offense -- you need to be proactive -- in chess and in ER. Don't try to ER simply from keeping expenses low and being in safe mutual funds. Chart an offensive strategy that balances safety and savings with calculated risk-taking, moving out of your comfort zone, and playing to win long term.

You are on a good footing now, but there is a long way still to go.

Bon Courage!

ESRBob

 

[Tommy_Dolitte]

Thanks for taking the time to respond guys. I just ordered the book you both recommended (used of course.. ).

I appreciate the insight on what to pay attention to in the book as well.

The metaphor you used is right up my alley in how I think!!! Thanks a bunch...and ENJOY your accomplishments!

Regards,
TD

 

[Beachbumz]

Thanks ESRBob, I figured it was time to "come out". I'm still working on my second star though :! And your post was soooo true, especially that second paragraph!

Tommy, the name of the new Kiyosaki book is "Who took my Money". I agree STRONGLY with ESRBob that this book should be read cautiously. I don't agree with alot of what Kiyosaki says (although I have read most of us books), but the concept of leverage, or in his terms "the velocity of money" is paramount to your success in my opinion. You should also read some of the other books recommended on this sight (I think I have read most of 'em ) to further educate yourself on these topics.

Good luck to you too in achieving your FIRE goals!!!

 

[John Galt]

Someone said that compound interest was one of the
wonders of the financial world. I believe it's
leverage.

John Galt

 

[Beachbumz]

I'll take leverage any day !!!

 

[Sunrunner4]

Err, yeah...About Kyosaki in general:

http://johntreed.com/Kiyosaki.html

I read Rich Dad, Poor Dad after noting it on the best-seller lists, and came away unsure how it got on the lists. I agree with many of the items Reed critques him on, and his misnamed financial terms are downright frightening. Anything worth positive net cash in an asset, I'm sorry. It may be a long-term, illiquid asset, but you can still evaluate it sensibly financially.

But the best is his analysis of Kiyoaski's Meet the Street interviews (formerly I had the transscript but have misplaced the link - anyone?), with these notable gems: "avoid 401ks and mutual funds because they are too risky", "my net worth varies by 50% depending on the day". Classic stuff.

I think his books (the older ones anyway, unsurprisingly, I have not read any since) are downright dangerous for many people to read. "Your money or your life" is probably a better, and safer book for the vast majority of the population.

But if RK helps you, more power to you.

Sunrunner4

 

[Marshac]

I'm still working on my second star

What do those stars mean anyways?

 

[Cut-Throat]

What do those stars mean anyways?

The more you have, the more time you have on your hands