Big news: Student loan paid off!

In March earlier this year we wrote about how we were consolidating a couple of student loans into one single Earnest loan at 3.25%.

The Earnest loan began on Mar 21st at $15,824.50 by paying off the Navient and Discover loans.

On Aug 13th we paid off the remaining principal of $7,248.22 and the interest accrued since the last payment of $7.10, to pay a wholesome amount of $7,255.32.

In less than 6 months we’ve paid it off! We paid $180.82 in interest in that period.

earnest_paidoff

Our remaining liabilities are the car loan and mortgage. At 0.9% standing at less than $14.5k we’re in no hurry to payoff the car loan. Mortgage is the next beast we intend to slaughter. At ~$217k, we anticipate to slay this in …wait for it …..4 years!

Incomes (2018)

In this post we bare our incomes.

To state the obvious, we are a two income family. Both of us have professional, corporate, desk jobs. One of us work in a large, publicly listed corporation while the other in a small, private firm. We are salaried employees getting yearly pay raises and almost-guaranteed bonuses, though the size of those bonuses vary from year to year, as do the raise percentages.

W’s base salary is $95,506
W got a bonus of $2,785

M’s base salary is $93,359
M’s bonus was $11,422

Out total yearly income is (or would be if we continued our employment till the end of the year) $203,072

Incidentally, this was the first year that W outstripped M in base salary!

That’s it, that is all our income.

Note: Why don’t we consider dividends as income? Fairly simple: All our dividends gets reinvested automatically into buying more shares of that underlying fund/ETF/stock. Dividends, at this stage of our life, are not something we use as cash.

In the near future, say, five months from now, one of our salary is going to increase by 50%. That will be a story for another day!

Note: If it isn’t clear, these are all gross numbers.

Purpose of this blog and why you should read it

[In our first post we had briefly described what this blog was about. This post is a deeper dive into why we are doing this.]

Another – pick your category: Personal Finance/Financial Independence/Early Retiring/Living Frugal – espousing blog? Kill me already!

Right? I’m sure that thought has gone through your mind as you came here. Relax. We’re doing no espousing. No face punches. No eye roll. No shaming if you aren’t saving 50% of your income. No judgment if you aren’t engaged in some active side hustle. In fact, this space has less to do with you and more to do with us. Specifically, our progress towards financial independence 🙂

You see, the main point of this blog is to document what we are doing. Everything else is secondary. We don’t see this turning into a profit making machine. We don’t even envision making money off the blog, nor do we pursue any strategic or tactical ways for monetization. This is not some fall back option in retirement that will generate income. That’s not the purpose of this blog.

Even though we hope to achieve Financial Independence sooner that most working Americans, we don’t think that is a realistic option for many, many folks. That is just facts. The median household income in the US in 2016 was $57,617. The top 10% households earned at least $175,000. Our household income for 2017 was a tad under $200,000 (and this year has gone past the $200k mark). This is not bragging or showing-off but being acutely aware of cold, hard, reality. We understand we are in a very privileged position. We acknowledge how lucky we are to be where we are.

The historic bull market run that started in 2009 is one of the major reasons our assets multiplied. We would be doing a disservice to not call this out. A whopping 80% of our assets are tied to the markets. There will be a crash/correction. We don’t know when. But from the crash, the markets will rise again 🙂

The *perfect* audience of this blog is someone who is in the similar income range as ours AND still not on the path to financial independence! We really hope we can inspire YOU – 30-something, probably dual-income, with kid(s), high salaried, white collar worker – to bring about a change in how you look at life, work, and freedom. Build your net worth and then control if you still want to go to the corporate job you have every morning. The answer could very well be yes, but at that point you’re making a conscious choice.

Does that mean all others are excluded? Certainly not!

Some of you reading this might be discouraged. Discouraged that the $60,000 job you have supporting your family of four is absurdly low to even think about retiring before 65. That’s not our intention. We hope you see what we are doing and take heart from it. We didn’t start off with these salaries when we got married. If you are serious about gaining financial freedom start working on YOUR net worth, with strategies strewn around in the FIRE blogosphere!

If you’re in a very similar boat as us, welcome aboard! Would love to hear from you.

Others who have gone through this stage we’re in right now – we ask for words of encouragement! Or witty admonishments. We don’t follow the typical FIRE truisms – we have 2 cars (with a loan on one!), we eat out a few meals every week, we have cable, we still use an electric dryer, we have no side gigs.

But we do everything in moderation.

The car loan is 0.9% and we still pay more than the minimum payments; none of the restaurant meals are exorbitant; we love live sports; we run exactly ONE laundry cycle every week; and we don’t have time for side gigs (we had a rental for 2 years and sold it; too much hassle) with work, family, sporting, and volunteering commitments (and till this past February, part time school!). At least for the time being, we have absolutely no qualms and guilt about keeping it that way. And still be on track to be FIRE before our mid-40s, a couple of decades before the overwhelming majority of Americans do.

As for giving advice about how to get started on this path, we think, make that we know, that there are other bloggers who have done this for a long time, in a fashion that is far better than we could (probably!) do. There is no need to reinvent the wheel. Though from time to time we might sprinkle in tidbits about some interesting concepts. At times we will do some deep-dives sessions on something new we learnt or a future-state plan.

So, to recap. This blog is for anyone who cares about growing their money, and increasing net worth. We bask in the warmth (some would say “cold”; we beg to differ) of numbers. Everything you see in our monthly reports are what we are dealing in real life. No make-up, no mark-up.

A deep dive into student loans

We took out student loans when one of us were in grad school. There were two loans taken out.

  • A Federal Sallie Mae (spun-off into Navient) loan in 2014 for $20,500 at a fixed rate of 6.21%
  • A private Discover student loan in 2015 for $15,000 at a variable rate of 4.99% (at origination), which now stands at 5.615%
  • A grand total of $35,500 student loan was taken out
The coursework of this program took 3 and half years. The total cost of this degree was about $80,000 including tuition, books, papers, case studies, “collegiate fees”, a two-week international component, parking – basically everything included. So we paid out-of-pocket for the remaining $45k.
We’ve been making payments on the loans since they were taken out, even though nothing was due till after graduation, with a grace period built in. We’ve been pumping in around $1,500 each month into these loans for the past 5 months. Now that the last of the coursework is done, we decided to roll them into one low-cost fixed-loan and pay them off in the next 9 to 6 months. Here are the current outstanding balances on the loans
  • Navient: $2,745.67
  • Discover: $12,999.64
  • A grand total of $15,745.31 loan is outstanding at end of program
Earnest was the provider we went with and locked in a fixed rate of 3.25%. In the next post we’ll talk about our experiences with Earnest and a couple of other highly rated student loans consolidation services.

Expected future expenses in FIRE

We had mentioned in this post that our future annual expenses when we enter the FIRE phase would be $48,000. This is the breakdown of the the monthly expenses (rolled over into annual, rolled over to our final saved amount).

Most of categories and sub-categories are self explanatory, I think.

A note about the Flight Savings. We want to take a nice long vacation each year. The cost of flights is the highest component in a vacation. You can also rename this category in your mind as “Vacation Savings”.

“Miscellaneous” under Discretionary Spending covers clothes shopping, entertainment, impulse buys.

As you’ll notice, I had to include an “Others (buffer)” category to make it close to the annual $48K we were predicting! This tells me we will be revisiting our total saved amount in the future.

After publishing this, we realize that we need to have a post about our current expenses, to give a true comparison of which spending buckets will be eliminated or curtailed.

How can we be FIRE by 50

In the first post of this blog we mention that our goal is to be financially independent by 50. What this means is that at this point in our lives all our expenses will be funded by our investments, and we will have no need for any active income coming in.

But HOW? To answer that first we have to take a couple of steps back. If you have read about the 4% withdrawal rate (and if you haven’t, please read that first; right now! and all the other posts under the Stock Series by Mr. Collins) you know that once you’ve saved enough where you can comfortably withdraw from your nest egg at the rate of 4% each year, you are set. Also, check this out by MMM. And this in-depth post by the MF.

The question then becomes, what is the amount you need saved. Let’s call this x.

What drives this x? Your expenses! When you’re FIRE you’re not saving, per se, anymore. You’re only looking to get the necessary amount every month for your expenses. We will talk about post-FIRE expenses more in a detailed post later. Let’s call our post-FIRE annual expenses y.

So, y = 0.04x

Pretty simple, huh?

Therefore, x = y/0.04 => x = 25y. Our total savings need to be 25 times our annual expenses. That it’s.

If only we could determine y, our spending, we will know how much we need to save up, x.

We have determined that our spending when we are FIRE will be $48,000 per year, at the most. Again, we’ll publish a post detailing this. For now, just know that this $48k does not contain any mortgage payment or college tuition for our child.

Plugging in, our “Retirement” bucket need to be $1,200,000 before we are FIRE.

The last step now. How long do we need to save till we have $1.2M in our retirement accounts?

In January of 2017 we had $359,774.81 in our retirement accounts. Currently we are pumping in $3,195 every month into retirement accounts. Assuming a return of 6% annually, in 14 years, using this calculator we will have accumulated $1.6M. That is over $400k more than we need!

Few assumptions here:
– An annualized return of 6% over a long time period is very conservative in the first place. Also, as you’ll see in the screenshot, the tool gives your projection if your annualized rate was 5% and 7%. Even with a 5% return we still beat our projection of $1.2M!
– Assumed interest compounded annually, which is again the most conservative estimate
– We have assumed the monthly pay-in of $3,195 as a constant over these 14 years, when in practice this will certainly increase every year.
– We are basing our projections ONLY on the retirement accounts whereas we’ll actually have money in our regular bank accounts and other investments.

In short, all of our assumptions are on the VERY conservative side. Quite possibly we should be able to retire even earlier than the 50-year old mark that we have set for ourselves.

This FIRECalc tool is a great way to see the probabilities of how your money will last in retirement.

Assets and Liabilities buckets

Here are the details behind what goes into our Assets and Liabilities columns.

Assets


Retirement buckets

  • 401(k) accounts

– We both have 401(k) accounts at our respective jobs, with all of our old accounts from previous jobs rolled over into our current accounts – this is, by far, the heaviest bucket
– W has a Roth 401(k) at work [very small component, not contributing anymore]

  • Roth IRA

– We both have individual Roth IRA accounts with Vanguard
– M has a Roth IRA account with CapitalOneInvesting Charles Schwab (a mix of individual stocks and Schwab ETFs – no new inflow of money). Surprisingly, the Schwab ETFs actually have lower expense ratios than Vanguard!

*A note about why fund a Roth IRA – The Madfientist has a detailed article on why traditional IRA is better than Roth IRA. We agree. The reason we still fund a Roth IRA is because we are currently under the income limits where we can contribute to Roth IRA. In a few years our MAGI (Modified Gross Adjust Income) will cross this level. We will stop funding the Roth IRAs at that point.

  • Pension

– M has a fully vested pension from current employer [small component in the overall scheme of things]


529 college account
We have a 529 college account with Utah Educational Savings Plan, for our child. We also have different accounts for our nieces and nephews but those are not included in our assets column.


Bank accounts 
Pretty self explanatory. Only checking and savings accounts. We do not currently have any CDs.


Investments bucket

  • Individual taxable brokerage accounts with

– Vanguard – Main taxable brokerage accounts consisting of ETFs
– Computershare – Mainly “playing around” money. Computershare offers DRIP in major companies, a lot of them with no fee on buying.
Fidelity – Necessitated by employer RSU
Loyal3. – A commission free online brokerage platform, which also allows ordinary investors to take part in IPOs.
Update 5/31/2017: Loyal3 closed down and moved all accounts to FolioFirst. FolioFirst also offers commission free trades, on a larger number of stocks. They charge $5 monthly maintenance fee which is waived till August. We’ll see what we do.
Update 4/16/2018: Closed down FolioFirst and invested the proceedings in the taxable Vanguard a/c

  • HSA account

– W has a HSA account through work. We don’t technically use this as an investment account, as in we fund this monthly and take money out as and when we need it for medical expenses.

Bonds
A bunch of Treasury bonds given as present from grandparents. We let them go till final maturity.

House
Our primary residence. The valuation of $300k is from 2015 when we refinanced. We know there has been appreciation but we don’t factor that in.
* A note on why we include the value of our home in assets as this is a point of contention in the PF blogging community. The reason for us is simple: because we include the outstanding mortgage in our debts assessment. The mortgage doesn’t exist in a vacuum. The home, and consequently the value of the home, prop up the mortgage. We’ll take the house off our Asset column when the mortgage is fully paid off. 

Note: We don’t count our cars as assets. The value of cars depreciate over time, thus making them not suitable for this category. If they were primarily used for business purposes then a case could be made, but they are our personal vehicles.

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Liabilities

Mortgage
30-year fixed at 3.875% (~$238k on Feb 28, 2017 $223k on Apr 16, 2018)

Car loan
5-year fixed at 0.9% (~$21k on Feb 28, 2017 $16.5k on Apr 16, 2018)

Student loans
Earnest loan at 3.25% ($14k on Apr 16, 2018)
Government loan at 6.21% (~12k on Feb 28, 2017)
Private loan at 4.99% (~15k on Feb 28, 2017)

NoteWe have never, ever, carried any credit card debts. We use our cards for any and all purchase, for any amount, where ever they are accepted without any additional fee, and we pay off the full balance every month.

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That’s it. Those are all our assets and liabilities. To get Net Worth, subtract the total Liabilities from total Assets.