When can you retire at your current income and spending levels?

Saving for retirement boils down to spending less than you make and saving the rest.  Thanks to this chart below from Four Pillar Freedom, you can both visualize and calculate your current path at a glance.

Early Retirement Chart from Fourpillarfreedom.com

Even someone making $100,000 a year, wouldn’t be able to retire for 62 years if they only saved 5% of their salary and spent 95% of it each year.  But, someone making $40,000 a year could retire in 16 years if they only spent half of their salary annually.  This is retiring 46 years sooner than someone that makes six figures!  Lets say you make $4ok and you want to retire as soon as possible.  Besides only spending half of your salary each year ($20k), you need to put away more money to retire sooner.  So, you find another way to make more money!  You get a couple side gigs: doing some odd jobs = $5k/year, consulting = $5k/year, doing some focus groups, product testing, random money making stuff = $5k/year.  You have now increased your annual income to $55,000!  At that income level you can now retire in just over ten years.  Boost your income even more or sell some of your old junk on eBay and Craigslist, save that money, and you’ll have enough retirement income even sooner.

Are you balking at the idea that anyone can live on $20k a year?  You shouldn’t be.  Tons of people actually do it. Take Mr. Money Mustache for example, his family of 3 spends exactly $25k a year… for three people.

Sure you’ll have to make a few sacrifices and it will take some work to make your finances as efficient as possible, but you can end up retiring much sooner than any of your peers.  🙂

Most people love buying a new car.  That’s why most people are broke 🙂

Of course there are some times when buying a new car can save you money in the long term.  For example, if you are spending $100’s a month on maintenance to keep your old car on the road, or your current car is a gas guzzler, then you might be a candidate for buying another, possibly newer vehicle.

Keep in mind though, there are additional expenses when you do buy a newer vehicle.  Namely higher insurance, higher property taxes (depending on where you live), etc.

If you currently lease a car or are thinking of leasing a car: Just. Don’t. Do. It.  Leasing is almost always a bad deal.  I remember in business school, one of the analyses we had to do was “buy vs lease” a vehicle.  Every student was given various scenarios i.e. buy and sell after 1, 2, 3 years vs lease for X years,  etc.  We could pick any vehicle we wanted.  Every single student, after going through a myriad of scenarios came up with the same result: leasing always ends up being more expensive; even when you factor in the depreciation if you bought the car.  Of course this is easier said than done.  If you finance a new car (another mistake unless it is 0% APR), the monthly payments could be $400 or more!  You can probably lease the same car for 3 years for $199 per month.  Of course at the end of the lease you have nothing.  At a recent trip to the dealer, I asked a salesman who had been working at that dealer for over 30 years about leased vehicles.  He showed me a row of returned leased vehicles at the back of the dealer lot.  I asked, “don’t you guys buy some of these to sell as used cars on the lot?”.  His response was “No way! The leasing company/manufacturer always wants too much money for off-lease cars.  We just return them and then buy the same cars back at the auction for thousands less.”  It goes to show you that buying the car at the end of the lease isn’t usually a great deal.  Even the car dealer, who gets a discount on that price, won’t do it!

Here is a quick scenario I ran.  Suppose you own a 2013 Jeep Wrangler Unlimited Saraha.  Sure the Wrangler is a fun vehicle but it is not the most fuel efficient at 19-20 MPG for a 6 speed manual.  Jeeps are also not known to be the most reliable so repair costs may be rising in the near future.  Fortunately in this case, Wranglers have very good resale values.  Edmunds has a neat tool to help you calculate savings assuming you are getting a more fuel efficient vehicle.

In this scenario, you replace the 2013 Wrangler 4WD with a brand new 2017 Toyota RAV4 Hybrid AWD.  Now the vehicles have some different capabilities but they still each can get 5 people from point A to point B in snowy conditions… except one gets nearly double the fuel economy:

2013 Jeep Wrangler Vs. 2017 RAV4 Hybrid

Here you could sell the Jeep on your own for around $25k.  Then, for an additional $3,600 not including sales tax, you could buy a 2017 RAV4.  You would nearly double your fuel economy saving $66 on gas each month at the current price of $2.25 /gallon.  This doesn’t take into account maintenance costs which would be zero on the Toyota and who knows how much on the Jeep.  It also doesn’t consider insurance, taxes, etc.

In this scenario we replace the RAV4 with an even more efficient, and less expensive compact sedan: a Toyota Corolla. You can buy a new 2017 Corolla for less than the 2013 Jeep is worth!  You would start saving $71 per month on gas from day one plus put nearly $6,200 in the bank.

2013 Jeep Wrangler Vs. 2017 Toyota Corolla

At the time of writing, gas prices were in the low $2 range and still gave reasonable fuel savings.  Imagine if gas went back up to $4 /gallon again!  Savings would double.  I hope these scenarios get you thinking about how you can save money by getting rid of your current vehicle and getting a more economical and environmentally friendly one.  Keep in mind, if you were to downgrade your current fairly plush ride to a reliable used car, your savings would be much more significant.

This resources page is in progress!  😉

Credit Cards

Chase Freedom – 5% cash back on a new category every quarter.  It is hard to beat 5% back.

Citi Double Cash – 1% cash back when you buy and 1% cash back when you pay your credit card bill.  Plus a Balance Transfer Offer: 0% Intro APR on balance transfers for 18 months.  I like this because it encourages you to pay your credit card bill!

Chase Sapphire Preferred® – A very popular card in the travel hacking community. Earn 50,000 bonus points or $500 cash or $625 towards hotels/airfare after you spend $4k in three months. No foreign transaction fees. Get an additional 5,000 points for adding an authorized account user within the first three months after they make a purchase. $95 Yearly fee is waived the first year. The points transfer at a rate of 1:1 to Southwest and United Mileage Plus, among others.

Other Blogs

Mr. Money Mustache – This guy practically wrote the book on frugal living.  With his family, he lives on $25,ooo a year.  He retired in his 30’s.

Car sales are booming and gas is cheap (although who knows for how long), there’s new advice on which automobiles will have the lowest total ownership costs.  Your car is one of the greatest consumers of your wealth.  By now, hopefully people understand that a car is not an investment.  Anything that costs you money instead of making you money is not an investment.  On the other hand, if you are a business owner and use a vehicle exclusively for deliveries, then that vehicle is hopefully making you money.

The trusted magazine Consumer Reports has new numbers on the most affordable cars to buy.  The hands down winners based on total 5-year cost of ownership are the Toyota Prius and the Honda Fit.

Various cars cost varying amounts to operate per each mile. The average vehicle costs more than $.60 cents per mile! Some luxury cars cost around that average, while other luxury rides cost 3 times the average cost per mile!  The true cost of owning a car includes the purchase price, depreciation, fuel costs, maintenance costs, insurance costs, etc.

By comparison, the Fit and Prius cost around ~$.40 cents per mile to own and operate.

So what other cars are relative “deals” regarding ownership expenses over 5 years?

According to Consumer Reports:

• Compact cars: Scion xB, VW Golf, Toyota Corolla, Honda Civic, Subaru Impreza
• Midsize: Subaru Legacy, Mazda 6 and Honda Accord (4 cylinder)
• SUVs: Subaru Forester and Honda CR-V
• Minivans: Mazda 5

The full list is available here: Consumer Reports.

The real shocker is which vehicles are horrible to own: The Ford F-250 pickup truck has a cost per mile of $1.16. That is some serious money. If you drive and average of 12,000 miles a year, you’re talking almost $14,000 a year to own and operate that truck!  Hey, if you really need a truck to haul some heavy loads occasionally, you can always rent one for a weekend.  How often do you really need the capacity of a gas guzzling, large SUV or pickup truck?  The other day I saw a woman loading bags of mulch into the trunk of her 4 cylinder Porsche Boxster!  I’m not saying get a Boxster in lieu of a pickup truck, but just pointing out that someone with one of the smallest cars on the road is making Home Depot runs!

Maybe you’re not really sure what an entrepreneur is.  Or why you would want to be one.  From Wikipedia: “Rather than working as an employee, an entrepreneur runs a small business and assumes all the risk and reward of a given business venture, idea, or good or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes.”

Here are a couple videos to inspire and motivate you:

Part two of the series.  Yes, these are technically ads for Marketing 360 (which I am not selling or promoting BTW) but I felt they did a great job making these videos and  they were powerful in conveying the essence of entrepreneurship.  Enjoy!

You need a purpose: do what you want to do and make money at it.  Don’t do something just because you are trying to make money.  Eventually it will become a job and you will grow to hate it just like the job you have now.

Motivation: It should not be a problem staying motivated when you are doing something that you like.  It is very important to stay motivated.  Many people start out at full speed and become winded.  While this out of the gate excitement is paramount, slow and steady still wins the race.

Progress: Progress almost always trumps perfection contrary to some beliefs.  While quality is very important as you build your business, progress is even more important.  One of my mistakes has been analysis til paralysis.  Keep moving forward, you can always go back and tweak something later.

Listen: One of the biggest mistakes I feel people make is only hearing what they want to hear.  Of course they want to hear how they can make five figures a month.  What they often overlook is exactly how to do this, the guidelines, and knowledge that is available.  People fall into their own routine and while they listen to the experts to a certain extend, they take their own shortcuts and the only thing they are short-cutting is themselves.

I don’t know about you but I was sick and tired of saying “not bad” or “pretty good” or even “good” when people asked me how I was doing. I wanted to say “Great!” or “Living the dream!”. Before this point in my life there once was a time when I would say “Excellent” when people asked how I was doing. That time was when I was in high school. Young, naive, getting good grades, there was a world of opportunity out here and the world was my oyster. So many possibilities abound. But what happens to us? I have met many people that were on a great path, pursuing their dream and then I would see them a few years later working a dead end job. What happened?

Responsibilities, life, and the soul crushing task of going to a job you don’t love everyday. It wasn’t until I hit rock bottom that I realized what was important in life.

Who wants to spend the most able and vital years of their life working to make someone else rich? One of the more recent turning points in my life was at a retirement party for a co-worker. It was actually the first retirement party I had ever been to and more depressing than any funeral I have ever attended! I could not believe the impact this event had on me. Who would think merely attending a retirement party would have any impact whatsoever. This woman had spent the past 40 or so years of her life working for others and now she was free to spend her later years doing whatever she had the budget for. While picking out a card for this coworker, I was drawn to one particular card showing a beautiful tropical beach scene, one of my favorite things in the world. Inside the card read: “Congratulations on your retirement… You are now free to follow your dreams!” Follow your dreams?!?! You’re 65, what the hell have you been doing your whole life? I am a firm believer in better late than never and it is never too late to start, starting today is a lot better than next week, month, or year. You will be that much closer tomorrow than you were today.

You and I both came all this way; and we didn’t just come to watch!

Until Next Time,

-Jeff