We have made some solid progress over the past year with our FI journey. There was the slight dip in the markets at the end of 2018, which demonstrates as a blip on our FI Journey Chart. But other than that, some solid gains have been made!
One exciting change that we have implemented this year was beginning a Mega Backdoor Roth account. After listening to a Choose FI Podcast, I learned what this was, and then found out that I had access to one at work.
What is a Mega Backdoor Roth?….
My organization allow for post-tax contributions to be deposited into a employee’s retirement account of up to 10% of the employee’s gross income. The employee can then take an “in-service distribution” and immediately roll that money into a Roth IRA. Where it can then grow tax free for eternity! The only hitch is that this is a manual, paper process, and I need to have a notarized signature from Mr. HG in order to complete the rollover. Therefore, I will execute the roll 2-3x/year, and just pay any tax on the gains in the brief time that it has been growing in the account.
We continue to max our contributions in our regular 403B accounts and Roth IRAs as previous.
I previously updated that we have reduced our living expenses by selling our primary residence and have downsized into a 2 bedroom apartment. The additional monthly savings from this will be invested. I am also hoping that a part time position will become available at work so that I may downshift to less of a full time grind. Having reduced living expenses will make this transition easy-peasy, and should also allow us to continue to save the maximum in our tax advantaged accounts.
We have re-entered the world of apartment renting.
“Why?” you might ask…
We spent the better part of the past few years weighing the pros and cons of continuing to live in (and maintain, and pay $$$$ for) our 3,000 sf suburban home. Mr. HG has been warming up to the idea of renting temporarily until we become closer to our solid FI goals and possible eventual relocation.
Pros of Continuing to Own:
Lovely house; we built it and choose everything
Nice neighborhood, private backyard
Avoids the pain of moving
Unsure of our long term plans, so inertia
Cons of Continuing to Own:
Waaaaaaay more house than we need
Cost of maintenance
Cost of heating/cooling
Potential upcoming recession, in which we would have large amount of $ in illiquid asset (house equity)
We are considering moving to a lower cost of living area, closer to family, so renting now short term makes sense
Spring 2019 – The housing market in Portland Metro area always picks up in the spring, and all signs were pointing that it would again be a seller’s market. Other economic indicators demonstrate that there might be some future recessionary trend (inverted yield curve, trade wars). We figured that now would be a good time to sell, and that if we waited due to inertia, we might have some future difficulty with selling.
We decided to put our house as FSBO (for sale by owner) on Zillow, with courtesy to buyer’s agent. We figured we had nothing to lose by trying, (we are frugal DIY weirdos, after all) and saving the listing agent fee would be worth it.
I am a Zillow and Realtor.com troll, with a fascination about everything real estate. We knew we had that right pricing based on comps in the area. After snapping some photos, we put the home up on Zillow in early May. We stuck a sign in the front yard, and I pushed some posts thru on social media to help get the word out. Luck was in our favor, as the next day another house down the street went on the market. This encouraged some lookers to come see our house too. We had an open house on the first weekend, and a week later received 2 offers. After some back and forth, we went under contract, and with a close date end of June.
Ok, Great. So, now what???
Priority 1: Find a place to rent
Priority 2: Purge rooms of useless stuff to prep to downsize
Priority 3: Secure movers and plan a moving timeline
Rental location priorities:
Pet-friendly for our 2 little dogs
Close to Mr. HG’s work, and quick freeway access for me
Walkable to parks and shops
Gym and pool would be nice perks
We toured a handful of places, and decided on one that we thought would be perfect. 2 bedroom, 2 bath 950 sf apartment in a complex with a nice gym and outdoor pool. It is 2 miles to Mr. HG’s work, and very convenient to the highway for mine. The rent is reasonable for the area. The complex is 20 years old, and they are slowly updating all of their units, but we chose an apartment with the old “classic” design. Privacy is afforded from trees screening the balcony and windows, and an added bonus is the rent is cheaper since the unit has not been remodeled. It is quite nice, and light and bright with southern exposure.
The apartment was available right away, so that we could begin moving some things over. (How in the WORLD do people accomplish this in one weekend?!?!?). I knew that we needed extra time to be able to sell and purge 2 decades of useless stuff that had been reproducing in the cabinets and cupboards, plus lots of furniture and yard equipment. I will outline how we accomplished this in a future post: Purging and Downsizing.
Our house has since closed, and the proceeds (for now) are sitting in a high(er) interest savings account. We have now resided in the apartment for exactly one month and are really enjoying it!
Apartment living pros:
The dogs are settling in nicely
I love the 1 level living (after the stairs to get in – we are on 3rd level)
So quick and easy to clean
Quiet – much quieter than I/we thought it would be
There are miles of trails/bike paths right outside our door
Love the gym and the pool
No yardwork or maintenance – the gift of time
The cost of our rent + utilities is = just the property taxes/insurance/utilities and upkeep of our previous clown house – cue in JL Collins Why your house is a terrible investment
Huge savings on a monthly basis – we can funnel that extra money into our post tax account.
Apartment living cons: (and I had to dig deep here)
No garage to store the cars
Carrying groceries up the stairs to third floor
All in all, we are thrilled with our new place! And ready to funnel the cost saving to future freedom from the daily grind.
As Mr. HG and I continue on our FI journey, there are a series of downshifts that we are executing.
Downshift #1: Mrs. HG: Moving from middle manager 60 hour/week grind to 40 hour meaningful, direct contributor role DONE
Downshift #2: Mrs. HG: Moving from a full time, 40 hours per week position to a part time, benefitted position (essentially working for health benefits and golden handcuffs-retirement age) Estimate 2021
Downshift #3: Mr. HG discontinuing routinely scheduled work and FIRE Estimate 2022
Downshift #4: Mrs. HG discontinuing routinely scheduled work and FIRE Estimate 2026
Details behind our decisions
We discovered the concept of FI during a period of time where I was feeling dissatisfied and burned out in my work. Initially, I became obsessed at pushing for the FI finish line to simply be done with the daily grind. However, FI was still at least 3-5 years away. The thought of remaining in my middle manager role at work became untenable. There were a series of organizational changes that happened with my manager role. I was no longer excited about what I was doing, and the evening meetings + delegated mundane tasks + email burden had tripled as a result of the restructure. It was time to make a change.
I began exploring other options. I was interested in downshifting (demoting) from my middle management role to a direct contributor role in my area of expertise as an occupational therapist. Yes, this would result in a considerable wage decrease, but it would also result in less hours at the office (40 instead of average of 60!). I interviewed at several other companies, and received a 2 competitive offers, and 1 below market offer. However, I really wanted to remain with my current organization, and, as it turned out, a perfect opportunity opened up internally.
There are many reasons I wanted to remain with my current organization:
Amazing health benefits
Generous retirement benefits (provided I can hold out to age 55 – 8.5 more years)
And the clincher: I believe in the mission and the vision of the organization I work for. I did not love the role that I was in, but I do feel that overall the organization is on the right path for making a difference for many people.
In February of 2018, I completed downshift #1. I moved from my middle manager role into a direct contributor role as a staff occupational therapist in one of our outpatient hand therapy clinics. I have now been in my new role for 6 months, and I couldn’t be happier. I feel like I am making a difference. I feel appreciated by my patients. I feel appreciated by my coworkers. And when I am away from the office, I am able to fully disconnect. Evenings, weekends, and vacations are back to being my own. I work a 4×10 schedule with a 3 day weekend. It is a pleasure to enjoy what I am doing in my daily role. It has been a while since I have felt this level of contentment and joy with my work.
It was fall of 2015, and I was increasingly dissatisfied with my work. The day to day grind was bringing me no joy, and I was rarely ever doing any direct patient care (which does bring me joy). I did not hate my job, but I did not love it either. I did not see myself continuing to plug away at the same ole same ole for the next 20 years.
I was trolling the internet for low cost of living places to retire. We currently live in the Portland, OR metro area, and prices keep creeping up. Family is in the Midwest and Southeast, and we envision ourselves moving back east in the future. In my internet search, I stumbled into the Mr. Money Mustache (MMM) blog. There were two articles from that blog which, in all seriousness, made me feel like a veil of financial ignorance had been lifted from my existence: The From Zero to Hero article, which led me to the Shockingly Simple Math article. I proceeded to read every article in the MMM blog over the next couple of months, and began to plot our own numbers down on spreadsheets.
Financial independence was totally within reach. Holy $#&%!
Although I have always eschewed debt, and was doing a pretty good job of contributing to my 403b, I had allowed myself to fall prey to lifestyle inflation. I was not fully maximizing that tax advantaged space, nor was Mr. HG, although we were always sure to contribute enough to receive our employer’s matching contributions. We certainly were not contributing to Roth IRAs or into post-tax investment accounts. Sure, we had a good emergency fund, no debt except a mortgage, but we were frittering away literally thousands of dollars a month.
We had hit our strides with our careers. We worked hard. We “deserved” things. Only those things weren’t necessarily making us happier. We just did not realize it at the time.
I am thankful that my father had raised me to be debt adverse. He has always followed the tenants of FI, and was teacher of those tenants :
Live below your means. Invest the rest.
Never pay a dime in credit card interest.
Never be without health insurance.
Buy reasonable cars with cash.
We had done a lot of these things right. I followed all of the principles like a good frugal Jedi. However, I realized that we could be doing more. We could achieve FI sooner, which would free up time for us to pursue our passion projects. And we certainly had made some financial mistakes along the way.
Financial Mistake # 1 – Lifestyle inflation
Seriously, why does one 7# little dog need 8 designer leashes with matching collars, each of which cost approximately $50???
Or – 40 pairs of shoes, some never worn, and 10 skirts with tags still on them (slightly too tight because the owner needs to lose 5# for them to fit correctly).
$100 cable, $150 cell phone bills with new phones every 1-2 years, designer gym memberships when barely attending
Shopping when bored
Paying the grocery store to cart away food, store it a while, and then eventually throw it away
YIKES! Yes, we were doing all of that!
Financial Mistake #2 – Buying too much house, at the top of the housing bubble
OK, well we couldn’t have predicted the housing bubble, but had we been paying more attention, we may have picked up the indicators. We might have been able to sit on the sidelines until after the decline. Oh well, hindsight is 20/20, and I consider it a valuable learning experience.
We built a home in 2007, just prior to the housing bubble bursting. We also added a bunch of upgrades, which inflated the house cost, and some of which I would skip in the future. Our builder actually filed for bankruptcy during the building process, which was a bit stressful at the time. Fast forward 10 years, and the home has finally recovered to the same purchase price value. We were never underwater, having put a sizeable chunk of money down. But there were some drawbacks. Interest rates dipped to a level where we wanted to refinance. We got a killer interest rate (2.625%) but had to pay PMI for 2 years because our loan to value ratio had decreased to 70% and we did not have the cash to close the gap. It’s not like we were taking any cash out either, and we were paying closing costs up front! The PMI was only $57/month, and we were required to pay it for minimum of 24 months. So a small opportunity cost outweighed by the larger savings from refinancing overall.
Although we love our home, and our neighborhood, and our private, greenspace backyard, it is definitely way more house than we need. It is a large, 2-story, 4 bedroom home. We will definitely be downsizing to a smaller place in the future. The timing and future location of making such a change is uncertain, so we will stay put for now. We have the stellar interest rate, and much of our payments are going to paying down the principle. We will bite the bullet on the property tax (and the unfortunate limits on State and Local Taxes under the new tax bill – boo) for a little bit longer. We do love the home, our commutes are reasonable.
Crunching the Numbers, and Making Changes
I began tracking our spending, and this naturally led to optimizing our expenses. I will chronical those changes in more detail in another blog post, but in general, we took action on the following:
We began to accelerate our savings.
We opened Roth accounts and fully funded them.
We maxed out our 403B contributions.
We stopped paying extra principle to the house and redirected it into post-tax accounts.
We developed reasonable budgets. And stuck to them.
We began taking advance for credit card rewards for travel.
We developed a FI target and began tracking our progress.
Our FI Target
Once we had a better sense of our monthly expenditures, it became easier to determine what our numbers would be to become FI. We established a goal, and began plotting it out on paper. It has been extremely motivating to see the numbers accelerate. And of course, the 2016-2017 market surge was a boost during this time.
We continue to plod along with our savings. In addition to our FI number, we employ the following assumptions:
Fully paid off house
A significant budget for health care expenditures
Travel budget (which includes using travel rewards)
We both will have small pensions + social security, and we consider those things as “padding” to the retirement budget rather than including it in our FIRE projections
We continue to follow the climate as it relates to healthcare options, and will sit on the sidelines as this situation is volatile. This issue is the single greatest concern about derailing the FI path.