Today’s post is inspired by a rockstar in her own right, Tanja from Our Next Life. After digging up old ledger numbers and notes from 10 years ago, Tanja could reflect on how far she had come, in a relatively short period (thanks in no small part, to the Power of Compounding Interest). Are you curious, “Can I retire early too?”
What I love about the post and OurNextLife in general, is Tanja’s attention to detail and her deft use of exhibits. In ten years, Tanja and her husband Mark were able to retire early at 38/41 in Tahoe, California. Not too shabby. Especially when you consider Tanja’s starting position of $2,147 net worth!
I’m about to throw down my version of this record. Instead of spinning up something as groovy and American Top-40 as Tanja’s, this ditty ambles along to the stylings of Hank Williams. Think of a slow, yodel-filled, feel-good when it’s over kind of vibe. There could be tears by the time we’re through.
Can I Retire Early? Check out the Situation, c. December 2005
Negative ten grand. How does that net worth strike you? Oof. About 12 years ago, I was nowhere near early retirement. I was a helluva lot closer to indentured servitude!
On top of this, the value of the home I’d purchased the year before had gone up nearly $10K, but because I used a home equity line of credit to avoid PMI, I was practically underwater on the real estate front too. Man…
The really sad part? Here I was, ten years out of college, without jack to show for it. My investment savings were $42K. AFTER TEN YEARS! What did Mr. Money Mustache has stashed away, after ten years out of school? At least a million. This is not to lament my current situation. Nope…
But I do want to point out two things: 1.) You don’t necessarily have to start young to save for early retirement. Give yourself a magic 10-year window, and go kick some ass. 2.) As Tanja said, don’t get discouraged. Even if it takes you 15 or 20 years, you’ll get there faster than 95% of the crowd.
Living the High Life in My 20s
Just take a look at that exhibit above. Holy buckets. The top three expense line items are credit cards, WITH BALANCES. Bap! Bap! Ow. And to think, this was before I dropped some heavy coin on my dream girl’s engagement ring.
Well, considering how much she’s meant to my current situation, that was a super-smart investment, in retrospect. Let’s move on.
Yeah, so what’s the deal with “Braces”? Turns out I was not-so-disciplined at using my retainer after my first braces came off at age 16. So, I justified braces in my 30s with the notion that straight teeth are less likely to cause problems later. And I’m single.
$3,300 later, voila. Straight teeth. And that much further in the hole… C’mon, Cubert… Smile, man!
Maytag? Yeah, I needed a new fridge for the new house. The old one died on me. Funny how that works, two months after you move in. sh*t. At least this new fridge came with a zero % interest finance deal.
Overall, this 2005 budget was “death by a thousand cuts.” I didn’t need to be blowing $125 a month on clothing. That was nuts. And I wasn’t even a flashy dresser. But you can’t have a blue striped polo shirt, without having a red striped polo shirt, can you?!?
The other cuts included Brinks (home security), Haircuts, Quest (landline phone), Star Tribune (Sunday paper), and Netflix. As for Brinks? Well, six months after I moved into my new house, it got broken into. The worst of the physical damage was the kicked-in door.
The psychological damage? Paranoia comes quick. So, home security system to the rescue.
In 2018, we use a different home security system that costs about zero: We’ll occasionally have our friend and her rottweiler stay with us. Not many burglars want to mess with a rottweiler.
Oh, and haircuts? They’re now performed by my wife for me, and by me for my son. Nowadays, the hair gel lasts forever with 15 follicles left on my dome.
Don’t cry for me. I’ll take a well-deserved right hook instead. BAP!
Trade-offs that Delay Early Retirement
The only thing I can tell you is that even when you suck at money, you can typically find others who suck worse than you do. (Tweet THAT.) The story of how I recovered to the place we’re at today (within 500 days of early retirement), is filled with a litany of financial looney tunes.
Between 2006 and 2012, we did annual vacations to places that required passports. Switzerland, Costa Rica, Paris, Mexico, the British Virgin Islands, and Mexico again. Not cheap. And no, we didn’t take advantage of credit card bonus miles back then. Not to the degree we do today, that’s for sure.
To be fair, we have no regrets whatsoever about our travel. But I sure wish I’d been smarter about miles.
Also during this period, we ate out a lot. How much? So much so, that we kept a journal to keep track of the experience (service, space, food) as if we were food critics for the Star Tribune.
When you think about how much impact $150 in weekly restaurant tabs has on your long term prospects, it makes you want to scroll up for another face punch. In case you’re wondering, that habit puts you out $150,000 over 12 years. That’s your opportunity cost vs. a 7% annual yield on S&P 500 Index Funds.
It Takes TIME to Build Net Worth
There were a few constants, going back to my first year out of college. I had always squirreled away at least 8% (often more) into a 401K. And, I had always worked hard to quickly pay off debts and balances.
Yes, I had periods where credit balances rolled interest, but it never persisted. All of those credit balances shown above were wiped out before the end of 2006.
I lived in a cheap apartment with a roommate for several years, relying on cheap, often hand-me-down furnishings. Paying off $18K in student loans was easy back then. There was zero passport travel for me those first five years out of school, until those debts were gone.
From 2013 to today, two dynamics converge: One, we had our wonderful twins. All of a sudden, we’re paying roughly $25K per year in childcare. Ack!! Two, we got into real estate. We take some well-informed risks that turned out alright, thanks to a good friend who showed us the way.
Mastery in our day jobs began to crystallize. Mrs. Cubert went from very few patients at the beginning, to turn them away today. My salary (plus bonus) has more than doubled since 2006.
One thing I should be clear about is this: When we combined our finances in 2006, our net worth plunged to the negative six figures. Mrs. Cubert had just finished up Chiropractic school, and that ain’t cheap. She’s more than covered her investment in the 12 years since.
Can I Retire Yet??
The “six-thousand dollar question”, right? Yes, we’ve made it to the seven-figure milestone. But it took time, diligence, and a heckuva lot of education along the way.
We’ve been in the same house since 2004 with no plans to buy up to a McMansion anytime soon. I drive a used Honda Fit. Both of our cars are fully paid for. We don’t carry collision or comprehensive insurance. Our cell plans are on Ting, and we haven’t upgraded our phones since 2015.
Our $1.3M swing from 2006 to today is owed in large part to the power of compounding, alongside the power of real estate investing. Half of our net worth is in retirement savings, while the other half resides with tangible assets: our house, four long-term rental houses, and that wily Airbnb condo. I don’t even really know the value of Mrs. Cubert’s practice, but it’s easily well over six figures.
In fact, with much the same investments and budget three years ago as today, we’ve seen a nearly 70% increase in our net worth. You know exactly why. The stock market has been on a tear. And, the real estate market has taken off once again, making me think another bubble is looming.
Words of Caution (and Encouragement!)
On paper, reaching a seven-figure net worth is rewarding, but it can be misleading. And for that matter, relying solely on net worth as a measuring stick can be dangerous.
I am pretty confident about the 4% rule, which says you can safely take 4% of your nest egg each year, and never exhaust your core capital. Still, markets crash and housing bubbles burst.
The emotional, overly cautious side of me needs the stability of cash flow to hedge my bets. In YOUR quest for early retirement, my advice is to diversify. Branch out into a business, real estate, or other cash flow venture to balance your portfolio.
Can I retire early? If you take nothing else from this post, remember that the next 10 years can make a huge difference to your subsequent 20, 30, 40, 50, or even 60 years. As Tanja wrote in her fine post last week,
Compounding is magic.
Compounding works on both your investments and your income.
Success begets success, and the more we saved, the more we wanted to save.
And because it takes a while for the locomotive to gather up steam, but once it does, there’s no stopping it.
Oh, and before asking yourself, “Can I retire early?” make sure your significant other is on-board!