I asked The Groovies to come do a guest post highlighting their FI journey. Their blog, Freedom is Groovy, is a consistent pit stop on my morning bus rides. I love the straight forward and honest writing style. Head over and check it out!
Here’s the story of Mrs. Groovy and me in a nutshell:
In 2006, we were living on Long Island in a one-bedroom condo and struggling financially. To get out of our monetary funk, we decided to relocate to Charlotte, North Carolina. This proved to be a very sagacious move. In less than 10 years, we managed to save enough money to be financially independent. We officially retired on October 14, 2016.
It’s a great comeback story. Two financial boobs get their act together and in 10 years give the proverbial middle finger to the soul-destroying cubicle life. And they do it all on middle-class incomes, to boot.
But while our story makes for a good read, I often wonder how relevant it is to the average guy or gal. In other words, did we do something anyone could do if he or she put his or her mind to it? Or did we just step into a heaping pile of buena suerte mierda?
To find out, let’s begin with the math behind financial independence (FI).
Financial Independence Math
According to the King of Early Retirement, Mr. Money Mustache, FI is achieved when you have accumulated 25 times your annual living expenses. Mr. Money Mustache also insists that you can achieve FI in 10 years by saving 65% of your take-home pay.
For our purposes here, I’m going to assume that Mr. Money Mustache’s target accumulation for FI is correct. After all, who am I to argue with the King? But will saving 65% of your take-home pay for 10 years deliver you to the gates of financial Valhalla? Let’s run the numbers and find out.
Years to Financial Independence at Various Savings Rates, Based on a $50K Take Home Pay and a 7% Annual Return
As the table above shows, if you’re taking home $50k and saving 5% of that, you’re spending $47,500 annually. This means you will need to save $1,187,500 in order to be FI. To get that size of a portfolio, in turn, you will need to save $208 for 50 years.
Ouch! Those are pretty daunting numbers.
But the beauty of Mr. Money Mustache’s FI math is this: as your savings rate goes up, your FI target amount goes down. At a 5% savings rate, you’re throwing $208 a month at an FI target amount of $1,187,500. That’s why a 5% savings rate takes 50 years to achieve FI. If you had a 65% savings rate, however, you’d be throwing $2,708 a month at an FI target amount of $437,500. And that’s why a 65% savings rate takes 10 years to achieve FI.
More Savings = Smaller FI Target Amount = Fewer Years to FI
So Mr. Money Mustache’s FI math works. And I can attest to this from my personal experience. From 2007 to 2016, Mrs. Groovy and I had an annual savings rate of 60-65%, and by the conclusion of 2016, we had managed to accumulate twenty-five times our annual living expenses.
(If you want to figure out what your current savings rate is, I’ve included the chart that Mrs. Groovy and I use to calculate our savings rate each year.)
Mr. and Mrs. Groovy’s 2016 Savings Percentage
It Can Be Done, But…
Okay, achieving financial independence in 10 years is doable. Mrs. Groovy and I are proof of that. But we had a lot things going for us. To show what I mean, let’s review the key ways the financial gods smiled upon us.
No Debt
When Mrs. Groovy and I sold our one-bedroom condo in 2006, it was the height of the real estate boom. We made enough money from that sale to wipe out our credit card debt, pay off the balance of Mrs. Groovy’s student loan, and buy a house outright in North Carolina.
The main reason we were able to save 60-65% of our take-home pay for 10 years is because we had absolutely no debt. If we had a mortgage, there’s no way we could have achieved FI so quickly.
Two Incomes
Since moving down to North Carolina, Mrs. Groovy and I have each averaged around $55K a year in income. Those are hardly killer salaries. But don’t forget, the median household income in the United States in 2015 was $56,516. Our household income has been nearly twice the national median during our drive for FI.
Living in a Low-Cost State
In North Carolina, our property taxes are a little more than $2,100 annually. Had we remained on Long Island and purchased a decent three-bedroom home in a decent neighborhood, our property taxes would easily be around $15K annually. That’s roughly a $13K difference.
In addition to higher property taxes, staying on Long Island would have meant higher utility, transportation, food, and entertainment costs. It also would have meant having a mortgage. We walked away with $250K from our condo sale, but decent three-bedroom homes in decent neighborhoods were selling close to $600K on Long Island in 2006.
Staying on Long Island would have added $40-45K to our annual living expenses. Yes, our household income would have been higher, but it still would have required a herculean effort to save 25% of our take-home pay. This savings rate, in turn, would have added at least 15 years to our FI journey.
Modest Wants and Tastes
Mrs. Groovy and I are very comfortable living under the radar. My wardrobe basically consists of 12 polo shirts and 4 pair of jeans. Mrs. Groovy owns maybe 6 pairs of shoes and has very little jewelry. Our car isa dinged-up 2004 Camry with 157K miles on it. The last thing we want to do is buy stuff that announces to the world that we have “arrived.” We really want no part of the bubble popularity that so many of our fellow Americans seem to crave.
In addition to living modestly, we are also easily amused. A great Saturday night for us is playing May I with family and friends or taking a ride to the Dairy Queen so we can indulge in some Blizzards. Our last vacation was a road trip along the Gulf Coast. The highlight of the trip was eating meat pies at a Chevron station in rural Louisiana. Yes, it’s pathetic. But we’re happy. And because our contentment doesn’t hinge on the finer things in life, it’s easy to live within our means.
If you remember anything from this guest post, please let it be this:
Modest Living + Simple Joys = A Less Onerous Path to Financial Independence
No Kids
Kids are expensive. A dear friend of mine just spent $130K on his oldest child’s college education. And his son didn’t go to Harvard or Yale. His son went to the University of Wisconsin. And his son didn’t take five or six years to complete his studies. He got his degree in four years. Now, I would never advise anyone to forego kids. Kids are a tried and true way of bringing joy and meaning to one’s life. And not having them is my biggest regret. But make no mistake, having kids will add years to your quest for FI.
Final Thoughts
Mrs. Groovy and I are very proud of how we handled our finances since 2006. But we have no delusions of grandeur. If it weren’t for an epic real estate boom, and our incredible good fortune of selling at the height of it, there’s no way we’d be retired today. And there’s no way I’d be guest posting on the Apathy Ends blog.
Achieving financial independence in 10 years is a bridge too far for most people. Too many variables have to be properly aligned for that to happen. I do think, however, that once you’re completely debt free, achieving financial independence in 15 years is a reasonable goal. So my advice to Millennials is this: focus your energies on being completely debt free by the time you’re 40. If this means foregoing a big-name college, a succession of new cars, and a dream home in a dream neighborhood, so it be. By going small (i.e. living under the radar), you sacrifice nothing truly important, and you give yourself a great shot of accumulating your FI target amount.
Okay, groovy freedomists, that’s all I got. What say you? How many years will it take you to achieve FI?And what’s a realistic goal for the average guy and gal? I’d love to hear your thoughts. Peace.
The Groovies on Apathy Ends!! Wow, a great way to start my day!! Congrats on saving 65% of your salary!! I’ve been saving ~20%, and “The King’s” math works there, too. I’ll be retiring in June18, after 32 years in Corporate America.
I couldn’t agree more with your groovy advice to Millennials – “Debt Free By 40” is an appropriate, and achievable goal! Listen to the Master, young ‘uns, he’s on to something (and, oh yeah, he’s really, really Groovy).
Thank you, Fritz. You’re way too kind. And you’re so right about the King’s math. If you start early enough, you don’t need a herculean savings rate to achieve FI at a fairly young age. By starting in your 20s, you could put 20% away and retire at 55. I love it. You’re a great example for Millennials.
Thank you for sharing Mr. and Mrs. Groovy’s story on the challenges involved in reaching financial independence within 10 years!
We set a similar timeline to be financially independent by the age of 55, and have already accepted the fact that this will be a tough (maybe impossible) goal to reach, but regardless, we feel we must put forth the effort for the sake of our financial security. Even if we fall short, we’ll still be much better off for trying!
The expectation of working until the full retirement age is unrealistic at best, especially where so many people we know have been forced into unemployment earlier than planned from involuntary job loss, age discrimination, automation, illness or other reasons, and we feel it’s best to be prepared. And the experience I have had personally with having my job outsourced has only solidified this belief!
Thank you, OFE. I really appreciate your kind words and your sage counsel. I have a dear friend who got downsized at age 54. It took him over two years to find another job, and his new job paid half of what his prior job paid. Sigh. Getting old isn’t always kind. I’m glad you guys realized this when you had the time to prepare for the economic winter we will all face.
You list out the lucky breaks that you caught that helped you get to 10 years rather than 15, but I think it is still worth aiming for 10. The more effort you put in, the more likely you are to get lucky breaks.
Sure, you got lucky with the timing of the sale of your condo, but you were in that position because you wanted to move to get a better handle on your finances. You were able to use that money to pay off debt rather than spend it because you were focused on debt reduction. You were able to live without a mortgage because you wanted to work towards FI rather than buying more house.
There was some luck, sure. But you also create a lot of your own luck.
Thanks for sharing your story here!
Thank you, Matt. I really appreciate your kind words. And I agree with you. The thing Mrs. Groovy and I are most proud of is how we handled the good fortune that came our way. Not many people get a quarter of a million dollars handed to them. So we were determined to be good stewards of our new found wealth. And we accomplished by mainly saying no to debt.
So here’s the fork in the road we came upon in 2006. We suddenly had in our possession two intoxicating financial goodies. On the one hand, we had a big chunk of cash and no shortage of bright shinny things to buy with that big chunk of cash. On the other hand, we had no debt. Fortunately, we found having no debt to be far more intoxicating. So goodbye to the notion of having a fancy new car and a fancy McMansion. Hello to a modest home in a nice neighborhood and muddling through life with a decrepit looking Jeep.
Would we have chosen no debt over glorious stuff if we were in our 20s? Surely not. But with age comes wisdom, at least it did for us anyway.
Being debt free is key, imo. Having no debt allowed me to stash away 40% of my income from the get go and let that compound interest work for me, not against me. If I stayed on this course, I have no doubt I would be set for a nice FI life at 35 (12 year career). However, I’m impatient and an overachiever, so I am getting into real estate and really ramping up my efforts to get out of my day job as soon as possible.
I say anything is possible as long as you’re willing to put in the work for it!
Haha! I love it. You’re describing “functioning brain engagement theory,” and I’m a big proponent of this concept. It’s amazing what people with functioning brains can do when they unleash those functioning brains on a defined goal. So, yes, I have no doubt that you’ll achieve FI in 10 years or less. But that’s because you have a functioning brain and you’re using that awesome weapon to save 25 times your annual expenses by the time you’re 33. Now here’s the $64k question: How do we get more Americans to 1) activate their functioning brains, and 2) direct their now functioning brains toward worthwhile financial goals? Sigh. We are truly our own worst enemies. Thanks for stopping by, Gwen. It’s always great hearing from a fiery Millennial with a functioning brain and a kick-ass grasp of investing and financial independence.
Gwen – are you rehabbing properties, or investing in rental property? So how do you get into real estate without going into debt to do it? Right now, that’s what’s holding ME back…I don’t have thousands in cash for that investment.
Sweet for you guys! Very well done, sometimes you just need a bit of luck in your life. In your case it was real estate. So what? You would have still made it, just not in 10 years. You can be very pround of yourselves!
AE, thanks for this great guest post!
Thank you, Team CF. I really appreciate your kind words. And I totally agree with you. It’s now how you handle the things you have no control over; it’s how you handle the things you have control over.
Sorry. My proofreader is off today. “It’s not how you handle the things you have no control over; it’s how you handle the things you have control over.”
It took us 13 years with a few strokes of good luck along the way and lots of disadvantages. But I think if you are in it for FIRE for 10+ years you are bound to find a few bright spots along the way. Housing booms and busts can both be advantages just like bull or bear markets ( preferably one of each…in the right order.) 😉
Thirteen years! With five kids, no less! That’s freakin’ amazing, Ms. M. And I agree with you, by honing your financial skills and mastering your lizard brain, you can turn housing busts and bear markets into major FI catalysts. After all, you never hear Warren Buffett complain when assets go on sale.
Good advice for the millennial readers! I wish I would have understood this in my 20’s or even in my 30’s! Hoping to retire in our early 50’s (3-4 more years). Been actively pursuing FI for almost 4 years now. Having no debt except our mortgage, 2 incomes a bit more than average and a little bit of luck have helped us too.
Young people – Listen to Mr. G!
Haha! I’m with you, Amy. I shudder to think how much money I would have now if I only removed one boozed-crazed weekend a month from my 20-something life and instead put that party money into a mutual fund. Thank God America is the land of redemption and fifth, sixth, and seventh chances. Thanks for stopping by, Amy. And congratulations for being on target to retire in your early 50s. That’s quite an achievement, especially considering that most of our peers will be working well into their 60s.
Personally I have already reached “financial independence” by society’s standards. However, I define financial independence differently. The term to me means the ability to do whatever I want, whenever I want without worrying about the cost.
This means that I need enough money to go on vacation whenever I want and stay at whatever expensive hotel whenever I want without even thinking about the money.
At my current rate, I think I’ll achieve this goal in a decade.
I love it, Troy. Knowing that the world is truly your oyster has got to be a marvelous feeling. Way to think outside the box and add a nice wrinkle to our understanding of financial independence. I look forward to reading about your drive toward “ludicrous” FI.
Great post!
I enjoyed reading a realistic perspective on reaching FI. Some people just aren’t realistic about early retirement or are not saving at all. This is a great reminder to those who believe they can put off saving for a few years.
My strategy to reach FI is through dividend investing. A realistic goal for me right now is between 10 to 15 years. Although I’m not saving at an insanely high rate right now, I plan on increasing the rate frequently and will continue to receive dividend raises. At least that’s the plan. Thanks for sharing!
I couldn’t agree more with your comment. The key is to start and have a PLAN. If your plan is working, and you’re making steady progress toward FI, keep doing it. If you plan isn’t working, and your progress toward FI has stalled or reversed, make adjustments. I love it, Graham. You’re doing better than most Americans simply because you have a plan. And I bet the odds of you reaching FI in 10 to 15 years are extremely good. Thanks for stopping by, my friend.
Inspiring. I love these kinds of posts because they show and prove that you can do it even on an average salary. It’s a very Millionaire Next Door kind of a thing. Thanks for sharing.
Also, I had to look up the word “sagacious”.
You’re not the only one! I had to look up “sagacious” too.
Thanks for commenting Derek. You’re right, we’re proof that a software engineer’s salary isn’t necessary to pull off this FIRE thingy. Although we did have quite a bit of luck in selling our condo before the bubble burst.
Thanks for sharing your story. It drives me crazy when I see all of these recommendations on major media sites recommending that 10% is what we should be putting aside in our 401ks. Nope, try 50% or higher if you really want to accelerate your progress.
Thanks for sharing your story. It drives me crazy when I see all of these recommendations on major media sites recommending that 10% is what we should be putting aside in our 401ks. Nope, try 50% or higher if you really want to accelerate your progress.
Thanks, DJ. I totally agree with you. 10% might just be a starting point for some but you gotta raise the ante if you want to get out of the rat race sooner.
My previous employer matched 8% in our 403b if we put in 5%. And still many coworkers left free money on the table. Sad.
Fantastic post. We have just started our journey to FI but the thing I have learned in the first year is don’t trust your spreadsheet. The universe seems to smile favorably upon focused and determined people. Our original goal was to save $50,000 in the first year and we have already surpassed that with 2 months to go and it feels like we are still picking up steam.
Sorry I missed your comment. You’re killing it Grant! Excellent job on the savings.
There are so many things to think about along the way to FI. Mr. Groovy didn’t mention it in this post, but had we remained in NY and he kept his job, we’d actually be in a BETTER financial position right now, but not a better life position. His current pension would be around $75K/yr, more than 3 times what it is now. We’d never need to be concerned about social security or our investments. BUT, he would have been trapped in a govt job and I’d have gone through 5 or 6 jobs. We’d have bought a crappy home for over $300K on Long Island and put all our earnings into a mortgage and remodeling. The southern lifestyle, slow living, less stress, more travel – none of that would have been available to us over the past 11 years.
Hi Mr Groovy,
So nice to know thar you have gotten out from the rat race.
I am not rich. However, I have achieved FI with the minimalist lifestyle. Currently, I still hold a full-time and have been ploughing the monthly remmuneration into the stocks which will in turn generate passive income. The feeling of being FI is thrilling. I do not fear the retrenchment with the knowledge of the back-up plans in place.
I have seen a lot of my co-workers inflating their lifestyle with new properties, cars, exotic fine dinning etc when the promotions occured. They encouraged me to do likewise the same to boast the status. I do not buy into their ideas and prefer my simple lifestyle which matters to me most.
I am looking fwd to more posts from you.
Ben
I love your sentiment and feel the same way, Brian. It’s easy to ignore the peer pressure when you realize how broke your friends are (and will probably forever be). Thank you for your kind words. If you have a minute check out my groovy site. Cheers!
(And thanks, AE, for hosting my post. We knew you had a great following and it was fun being part of it. Looking forward to returning the favor.)
Ooops, sorry Ben. I accidentally wrote Brian. I just read Brian’s post from Debt Discipline and conflated the “B” names. My apologies. Don’t hate me!
Great advice for millennials, what we got is time. I’m still struggling with the price tag and why some people still pay for it. $130K for U of Wisconsin sounds like a terrible idea! I don’t care what he studied, it’s not worth it.
And yeah kids are expensive. That could be a post in it of itself. We’re 29 with enough money to retire but we’re too new. Things are still happening and we’re not totally sick of it justtt yet. The magic number is 3 million, then its toodles to traffic. Toodles to parking. Toodles to 11% sales tax.
Hey, Lily. I got good news and bad news for you. So far the $130K is working out for my friend’s son. He got a degree in finance/quantitative analysis and got a job right out of college for $90K. But the kid was bright to begin with. He probably could have went to community college and still landed a finance job making excellent money. Now here’s the bad news. Because of a divorce, there’s no college money for my friend’s two remaining kids. If that $130K was split three ways, each kid would have had $43K to pursue higher education. And in a rational world, $43K should be enough to learn a worthwhile skill and get a worthwhile credential. Meh.
The lower your expenses the more you can save AND the least you need to accumulate so that is a double whammy. The other great thing is that you cannot decide to make more money but you CAN decide to spend less. Triple whammy.
For those of us over 40 (I took a look at your blog) or 50 (Mr. Groovy and me) it’s even harder to earn more. But at any age, earning more is not an instantaneous proposition, whereas spending less can be, if you make up your mind to do it.
Thanks for your comment KoL!