That’s one of the less ugly responses you can expect from the typical American if you are bold enough to suggest that financial independence (FI) and early retirement is a realistic goal.
Push a little further and you might get a grudging: “Well maybe. If you lead a perfectly smooth life and always earn a high salary. But not in my messy real world of fits and starts.”
I’ve been writing this blog for over 12 years now and I’ve heard from numerous people who’ve achieved FI or who are well on their way. Not a single time that I can recall were their paths smooth.
We all live in the messy real world of fits and starts.
Today’s Case Study is unique in that a reader of this blog wrote not to seek guidance, but rather to share her story.
At the end of her first note she apologized for writing a “tome.” Not a tome, I replied, but a post if you are willing. Fortunately, she was.
It is a tale of low-paying jobs, low saving rates, divorce, building a career, wandering in the investment wilderness, high savings rates, charity, retiring right into the teeth of the 2008 collapse, a money draining (if beautiful) house, reaching FI and a life of traveling light to be followed with a life of giving back.
I find it a compelling, inspiring story and one that gives me way too much credit. Maybe you will too.
Dear Mr. Collins,
I’m writing to thank you for your educational blog, especially your Stock Series. But really, almost every post you’ve written has been helpful to me.
- I was making an entry-level job salary of around $25,000
- I was married to someone who earned less than I
- My husband’s financial motto was, “If you don’t owe, you don’t own.”
He was no dead-beat, but he was perfectly comfortable living from paycheck to paycheck.
I was in that low-paying job for 10 years, and in that time, my husband and I bought a modest house by borrowing the 20% down payment from my 401(k). Also, my husband started his own business and earned even less money.
In short, we didn’t save beyond my 401(k).
Then in 2000, I got another job (with a 50% increase in salary—going from $40,000 to $65,000) and divorced my husband. He got the house, I got the 401(k) worth under $100,000 with the loan already paid off.
A friend let me stay in a spare bedroom for free until I could find an apartment to rent. But rentals were hot in 2000 in the Washington, DC area and became too expensive for my budget, so I bought a tiny house whose mortgage I could afford.
Then my salary started climbing. In 2001, I found another job paying $88,000. In 2002, I jumped to another firm at $120,000. In 2004, another company recruited me at $140,000. In 2007, I went to another firm that paid $190,000.
Even though my salary kept rising, I continued to live modestly—not buying a car, electronic goods, fancy furnishings, or lots of clothes.
From 2002–2006, I tracked my spending meticulously, relishing in lowering my expenses as much as possible. In addition to maxing out my 401(k), I saved 50–60% of my take-home pay and plowed the savings into Vanguard stock index funds, divided among large cap, medium cap, small cap, emerging cap, international, REIT. And in 2005 when the real estate market got hot, I sold the house for a profit, plowed $170,000 into Vanguard funds, and moved into a cheap apartment.
By October 2007, my net worth reached $1,000,000—70% of it in taxable accounts. My annual expenses were under $35,000, so I quit my job and retired. But by the end of 2008, my net worth had plunged to $600,000 because of the market crash. However, I did not pull out one single cent from Vanguard or change anything in my IRAs. (emphasis mine, jlcollins)
In May 2009, a former boss recruited me back to full-time employment for $135,000 a year. I was still living in a modest apartment and maxing out my 401(k), but this time was saving only 40–50% take-home pay. Worse, I didn’t add the savings to my Vanguard taxable funds, but kept it in a high-interest checking account.
I started taking my eye off the ball.
One morning I woke up and decided to buy a waterfront house on the Chesapeake. Two months later in July 2012, I bought a $480,000 house with 25% down and a 10-year mortgage at 2.75%.
I went from paying $1,250 for a one-bedroom apartment with $25/month electric bill to paying $3,185 for a 3-bedroom, 2.5 bath house with $150/month electric bill—not to mention home & flood insurance, property tax, and quadrupled furnishings. But, “It’s my dream to live on the water!”
My savings rate plummeted.
In March 2013, I met your blog, learned that a house is a terrible investment (oops) and which Vanguard index funds to own. I slowly sold REIT, international, and emerging funds—the ones that didn’t make money; I didn’t sell the other funds because of tax implications. My net worth then was $1,200,000, thanks to the bull market.
I wasn’t psychologically ready to sell the house yet, but your blog put me back on track, so I aimed to retire in 2020 with $2,000,000 (or $1,500,000 if the market didn’t cooperate). The market cooperated big time. By Thanksgiving 2014, my net worth shot up to $1,575,000. I decided that it was enough to retire earlier than planned.
By Christmas 2014, I started getting the house ready for the spring 2015 market. In June 2015, I sold the house for $515,000 and quit my job. After paying off the loan and expenses, I had $200,000 in cash—40% went into VTI, and 60% went into Vanguard’s Prime Money Market Fund, waiting for a crash and buy more VTI. I’m still waiting!
With the house sale, I sold or donated all of my furniture and other furnishings, most of my clothes, and the 16-year-old car. The remaining things—1 small box of important papers/documents, 1 small box of miscellaneous items, and 4 office-size boxes of clothes/shoes/boots—are stored in my mother’s spare bedroom closet.
In mid-July 2015, with 1 carry-on suitcase and 1 under-the-seat suitcase, I boarded the plane and headed for Europe for 3 months, booking VRBO apartments as I went.
So far it’s been 2 weeks in Paris, 1 week in Nice, 1 week in Venice, 9 days in Florence, 1 week in Cinque Terre, 9 days in Rome, and now 1 week in the Amalfi Coast.
Venice. As good a place as any to ditch stuff.
In Venice I ditched the carry-on suitcase and one useless skirt, and packed everything in the under-the-seat suitcase. In Florence I shipped 1/2 of my clothes back to Mom.
In Cinque Terre, I shipped more clothes back to Mom.
Later when I get back to Mom in Texas at Thanksgiving, I will transfer my travel belongings into a nylon 25-liter backpack (size of a day pack) and continue with my world travels—combining expensive and cheap locations to keep my yearly expenses under $40,000 (2.5% withdrawal rate).
Once briefly my net worth shot up to $1,700,000 but these days it hovers around $1,570,000. Nothing the market does bothers me. I use your withdrawal advice as a guide (thank you again!), and I try to understand Go Curry Cracker’s posts regarding tax strategies.
Thank you. You’ve given me knowledge, courage, and confidence. I have referred many people to your site.
When I quit work, some of my colleagues asked how I retired early, so I gave them a dumbed down PowerPoint presentation, which included links to your site’s various pages.
I tried to send them links only, but the twenty and thirty-somethings said they didn’t want to read—they just wanted to be shown. And since marketing was my profession, I gave them slides with lots of pictures and few words.
One woman my age said it was too late for her to start, because she and her husband were used to living from paycheck to paycheck. I told her to impart this information to her children instead.
A year ago I had a waterfront house with enviable views, but it came with high costs—upkeep labor, maintenance expenses, taxes, insurances, utilities, etc.
Today, I’m enjoying a water view of the…
…Amalfi Coast from the terrace of a house I’m renting.
It’s Sunday, and I’m not worrying about raking the leaves, mowing the lawn, or preparing for the work week ahead.
Hmmm, I guess I’ve written you a tome. I just want you to really know how much of a difference you’ve made, at least to one person’s life.
I’ve read every single post you’ve written, and some of them many times over. I’m always sad when you pause writing for the summer! Now that I have more time, I’ll try to participate in the comments.
Again, thank you!
In my reply I observed that she seemed to have done just fine before ever finding jlcollinsnh and said, “I love your story, the victories, challenges, setbacks and recoveries. With your permission, I’d like to make this into a case study post.”
After a few days, I received her reply:
Hi Mr. Collins,
I was without wifi for a couple of days. Finally it’s back and I can respond to you.
Thanks for your words of confidence. Actually, your blog did make a difference to me—it guided my decision to sell the house, even though I had just bought it, giving me “permission” (for lack of a better word) to cut my losses and put the equity to better use (buy stocks).
Most important, your words gave me confidence (and thus, peace of mind) about some of my past financial decisions (buying only index funds, using Vanguard, eschewing financial advisers—one guy I interviewed said his “fee” was 1% of his client’s investment portfolio!)
I think probably the only place we differed was that I never held any bond funds—it’s either stock funds or cash, and I intend to keep it that way even in retirement. Anyway, when it comes to financial matters, peace of mind is gold to me.
How I conducted my financial affairs was a culmination of gathered information from many sources over many years. I didn’t really know if I was doing it “right”…until you came along and wrote your stock series—now my financial bible, and I felt that your posts blessed my financial decisions up to then, except for the house buying mistake.
By the way, my favorite line of all your writings is this: “Avoid fiscally irresponsible people. Never marry one or otherwise give him access to your money.” I put that as bonus advice (and credited it to your blog) in my PowerPoint slides I give to others.
My ex-husband and I are still very good friends, and he now says that he’d never be able to afford the house he’s in now if it wasn’t for my income when we were married, and that if I had stayed married to him, I would not be as well off as I am now.
If you think my story could be of use to others, especially women, I would be happy to share it.
The idea of making my story public caused me to double-check my figures and years listed. I know how critical people can be.
Speaking of critical people…
Because I was writing for your eyes only, I didn’t think to mention that over the years, even when I was being super frugal, I’d always given thousands of dollars away every year—one year as high as $30,000—to family, friends, and charity. I mention it now, because once the story goes public, some people will say they don’t want to be frugal if it means they have to be a Scrooge. My situation is proof that one can be generous to others and still do well for oneself.
However, I don’t want to list the money I gave away, because family and friends who received money will be wondering who got more than they did—people are funny that way. I don’t mind bragging privately to you, though, that sharing is my top value and I try to live up to it by being generous.
As for my current plans, after 2 years of travel, I intend to return to working on projects involving orphans and senior citizens in a developing country where I had done vacation-volunteer work before.
I mention this last part because a couple of friends were worried that I’d be idle and eating bon-bons for the rest of my life. I guess some people think that retiring young means a life of drifting uselessness.
Well, MP… While I can imagine a lot, I can’t imagine you in a life of drifting uselessness. I am honored my site has helped. But it sure sounds like you’d have been just fine without it.
Ordinarily, I follow these case studies, with my advice. But in your case, no advice is needed. I’ll just say, “Well played!” and hope that somewhere out there our paths cross and we can linger over a coffee in some picturesque plaza.
BTW, last I heard, she’s here:
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In replying to a comment below, MP had the occasion to share her mother’s equally amazing tale…
My mother came to the USA at 30, widowed, with 3 young children 8 years old & under, an elderly mother, $250 ($50 per head given to us by the United States government), and no other assets.
She started work with minimum wage as a nurse’s aid. Our family was on welfare for 3 years, after which she was too proud to continue applying for federal assistance. I still remember the moment she made that decision.
We lived in the cheapest neighborhood in the city. My grandmother had a garden, producing so much vegetables we had to give some away. We never ate out or bought new clothes.
After 7 years of renting, my mother bought us a tiny 2-bedroom house for $5,000 (yes, five thousand dollars) in cash in the fall of 1982. That property had another house—a standalone studio apartment—that she rented out for something like $100 a month.
By then she worked in housekeeping at a nuclear plant. Even though she didn’t have even a first-grade education, her children went to college on scholarships/grants/loans. When the last of them went to university in a big city, she sold the property/houses (for $5,000) and moved to the big city too.
She rented a studio apartment and found work in housekeeping at a large department store, and then for the state government.
Eventually she bought (on mortgage) a property with 2 very modest houses—larger one to live in, smaller one to rent out. She got the landlord bug and bought a nicer house in the next town to rent out. Eventually, she sold the property with the 2 houses in the big city, moved into the nicer house in the next town and paid it off before she retired at 67 in 2012.
According to her Social Security reports, the most she’s ever earned in one year was $22,000+, and in the few lean years when she was laid off, she earned almost nothing.
And yet, she has accumulated hundreds of thousands of dollars (she won’t tell me exactly how much!), which she puts in a regular savings account. (She doesn’t believe in stocks, saying she doesn’t want to put money into what she doesn’t understand.)
Many times she has given loans to her 3 children—to help with mortgage down payments, etc., once as high as $120,000.
In retirement, she receives monthly Social Security checks and pensions, totaling more than her monthly wages before she retired. (Funny story—one of those pensions had to hunt her down to get her address because she had moved away; she didn’t know she had a pension!)
Even now, because she doesn’t spend all of her income (probably not even half of it), she continues to save toward her nest egg.
So, if a young widow—with 3 young children and an elderly mother, no education, limited English in a foreign country, working as a housekeeper, earning minimum wage (or less in lean years), doesn’t touch stocks or bonds—can achieve FI in 37 years, so can the average and below average American in a shorter time if they desire.
As the saying goes, FI is not so much about what you earn, but about what you save. And my mother is the perfect poster child for this saying.
- Vanguard.com (unfortunately Vanguard doesn’t have an affiliate program)
- Empower* is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you’ll see what’s working and what you might want to change. Here’s my full review.
- Betterment* is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
- Tuft & Needle helps me sleep at night. Unfortunately they are no longer an affiliate, but still a very cool company and a great product.
*These are affiliate links and should you chose to do business with them, this blog will earn a small commission.
Unrelated, but here’s what I’m currently or have just finished reading and enjoyed:
If you are interested in income inequality, this poorly titled (should have been Unfettered Capitalism – more accurate and more descriptive) is a great discussion of the pros and cons of our current system. Luttwak clearly has his own biases, but is remarkable evenhanded in presenting both sides.
Written in the late 1990s, it is a bit of a time capsule and fun to see how the past 20 years have actually unfolded.
Leave it to Psmith
“Crime not objected to.”
One of my favorite characters from a favorite author. If you like it, here are a few more:
Jack Reacher roams around the country carrying only a folding toothbrush. When his clothes get dirty he buys new ones. Oh, and he kills lots of bad guys. “Make Me” is the most recent in the series, but not the best. That might be this one:
First line: “People do not give it credence that a fourteen-year-old girl could leave home and go off in the wintertime to avenge her father’s blood but it did not seem so strange then, although I will say it did not happen every day.”
Last Line: “This ends my true account of how I avenged Frank Ross’s blood over in the Choctaw Nation when snow was on the ground.”
How we came to be what we are, behave the way we do and believe what we believe. My favorite in this group.
Where people who live to be 100+ live, how they live and what they eat.
Bad monkeys are Sapiens that need killing, and Jane is on the job. If you are already paranoid, you might want to skip chapter: white room (iv)
Why the future might be incredibly good. Unless the grey goo gets us.
This might be the most enlightening and entertaining take on American history I’ve yet to read.
And here are some of my all time favorites:
The book that has most influenced how I live my life.
“The Fall of Edward Barnard” is very possibly my all-time favorite short story.
Perfect for the readers of this blog.
“Bartleby the Scrivener” is very possibly my all-time favorite novella. Don’t be put off if you struggled with Melville’s “Moby Dick.” This is a much better and easier read. Plus it will teach you the most important phrase in the English language:
“I would prefer not to.”
*If you click on the books you’ll go to Amazon, an affiliate partner. Should you choose buy them, or anything else while you there, this blog will receive a small commission. This doesn’t affect what you pay.