Now that we’ve bought a new home and we’re taking on two mortgages, I have become laser-focused on our finances. Here’s my guide to controlling your finances and saving money on the path toward early retirement.
You know the mantra, “Live within your means.” How much you earn controls everything else. If you want to increase your standard of living, you have to make more money. The simplest way to do this is to find a higher-paying job or to negotiate for more with your current position. I have successfully negotiated for more a handful of times in my career so I will touch on that. Choose a time when your services are critical to the company (i.e., pre-IPO, pre-product launch). Let’s say 6 months from now your company is going to launch a new product and you are the product manager. BAM! SHOW ME THE MONEY! Having 1-2 offer letters for other positions or other companies would be ideal. Tell your boss that your services are wanted elsewhere and you are thinking about other career opportunities. Do you think they want their product manager to leave during this critical phase? Hell no. They are going to match whatever you are requesting.
Best thing you can do to improve your finances? Make more money!
Save for Retirement
The #1 thing you want to do with the money you’ve made is to sock it away for retirement. You shouldn’t even see it. It automatically gets deducted from your paycheck and grows and grows until you’re ready to tell your employer Sayonara, it’s beach time! Max out your 401k which is currently $18k for 2015. Typically employers match a percentage of your 401k contribution, so make sure you at least contribute that matching percentage. This is what I did when I was straight out of college making peanuts.
Maximize Pre-Tax Accounts
In addition to our 401ks, I maximize our medical, commuter, and daycare spending accounts. That’s tax-free money right there!
Mortgage / Rent
Now let’s talk about expenses. The highest expense for most people is housing, which is either mortgage or rent.
We’ve all rented at one time or another. I am predisposed to finding the cheapest possible rental to accommodate a basic standard of living. If you are a single person, you do not need to rent a 2-bedroom apartment. WTF?! I have never understood people who feel they need to have extra space for all their crap. Kondo that shit! For those of you who don’t understand the Kondo reference, please read the international bestseller on decluttering by Marie Kondo. One of my biggest pet peeves is clutter. I go berserk when I see people buying these big homes just so they can fill it with more shit! Crap is cluttering their lives and their minds!
Rent is simply wasted money, so do not set aside an exorbitant amount of your precious wages toward rent. Rent = flushing money down the toilet.
Of course there are exceptions. Before we become parents, Dean and I were in a San Francisco rent-controlled apartment with parking and all utilities included and I did not want to give it up!
If you can buy a home, all the better because you are building equity. Also buying real estate can be a huge wealth creator. Most of the wealthy people I know own real estate. Buy that dump in the best neighborhood, fix it up, and you will be on your way to early retirement.
Love this calculator: Is it Better to Rent or Buy?
Another expense is insurance which is kinda mandatory. Car, home, life, and umbrella insurance. We have car, home, and life insurance and I am looking into umbrella insurance. Shop around. I shop around every year for the cheapest insurance, yet appropriate coverage. Our son is protected with 15-year term life insurance, with coverage that is more than enough to pay off our mortgage should anything happen to me or Dean.
Expenses for cell phone, cable, internet, car, gym, utilities, garbage should all be analyzed and negotiated. We save by not having gym or club memberships. We don’t have car payments. Our employers cover our phone bills. Everything else needs to be negotiated often! Call back until you find a representative who is willing to deal.
We have an amazing CPA, introduced to me by Dean. Before we had Franco, I would tell Dean that our CPA was the best thing he brought to our marriage. Our CPA is a tax strategy guru and I can always count on him to minimize what we pay to Uncle Sam. Find yourself a tax guru. Taxes are a major expense and if you can find yourself a tax guru who understands what tax vehicles to use on your behalf, then you are golden.
Those are the basics. I could go into more detail with savings (should also be automatic), credit cards (pay down highest-interest debt first), investing (excess cash in a checking or savings account is not ideal), but I will leave that for another day or for a professional.
Meet with a Financial Advisor
I highly recommend meeting with a financial advisor if you are not comfortable managing your own finances. I’m very comfortable managing money, but I elicited the advice of a financial advisor to make sure we are on the right track. She confirmed that we are, contingent on the following:
- Dean and I both max out our 401k each year.
- We save an additional $1,000 every month.
- When we retire, we will net $2,000 every month from our rental properties.
- While our financial advisor is not modeling in any college education expense for Franco, she has modeled private school expense for Franco from kindergarten through senior year in high school.
If all of the above holds, then we will both have enough to retire when Franco is 18 years old.
I can provide a referral for a financial advisor if you need one. No cost involved for running the analysis and putting together the plan.
Now go forth and plan for your early retirement. We’ll see you on the beach!