When I first thought about financial independence both as a personal project for our family and subsequently the idea of starting a blog to talk about our process and progress, I anticipated starting everything right at the beginning of 2016 in the new year. While the idea of having an official start date to our project at the beginning of 2016 sounds great, the reality is that we started taking some necessary action and steps to start on our path to financial independence in 2015. With that being said I thought I would highlight some of the things we did this year to prepare and start us down the path towards financial independence.
Jobs and Career
At the beginning of 2015 both my wife and I were working in higher education at two different universities. I was and continue to work as a professor and my wife was working as an instructional designer/e-learning developer. Both of us realized that we did not want to continue working for the next 30 years in these positions regardless of how much we might enjoy certain parts of the job. In January we started discussing my wife going out on her own and decided to start a small business focusing on instructional design and e-learning development. After running the numbers we determined she could actually bring in far more money working for herself rather than continuing in her current job which had a salary of $56,000 a year. This was especially true considering the true cost of her job when factoring in her commute, extended child care, and other work related expenses. Leaving her job would also provided additional benefits, like allowing her a lot more flexibility with her time and giving her more opportunities to spend time with our daughter. In fact, one of the biggest challenges with her job is that she was required to be at work at 8:00am each morning and stay until 5pm regardless of whether she had work to complete. The other frustration is that most of her work did not actually require her to physically be in an office but she was required to be there regardless. In early September she started to acquire a few contracts and she officially notified her current job that she was going to be leaving and go out on her own. Her boss immediately asked if she would be willing to work as an independent contractor for about 20 hours a week at a pay rate that was actually higher than her current salary. The only real loss we have had from this transition is losing access to her 457b plan which we had started taking advantage of in addition to her normal retirement plan. Personally I think she works a lot harder now that she is running her own business, but she has far more flexibility and this move should produce more income for our family in the coming year.
The only real change I made with my job this year is that this the first time in five years that I have not served in an administrative position (Program Director) in addition to my faculty responsibilities. This did lead to a slight decrease in salary (~$4,000), but allowed me to take on additional opportunities including working with my wife to start up her business. It also allowed far more time to spend with my daughter. My current base salary from my university position is $70,143 not including any extra summer teaching contracts, or independent studies.
Spending was an area in 2015 we really tried to start addressing to see where we could reduce our outflows. I will be honest that even though we were doing pretty well with putting away money in our work based retirement accounts, very little of the amount of money in our take home pay was being saved. Like so many people we were guilty of lifestyle inflation prior to 2015, and for us, this was significant, as each year from 2010 (our first year married) we experienced a pretty good amount of yearly salary increases. This past year (2015) was the first year we really started to contain expenses and started thinking about the impact our spending was having on our future.
Some of the specific steps we took in 2015 include:
- Reducing our cable and internet bill significantly. We cut what was once a $190 monthly bill for both our internet and cable service to about $85 a month with $60 of that cost being our internet subscription. While I would like cut that expense more, the reality is that because of the work my wife does at home we need a decent internet connection that can move very large files on regular basis. Still saving over $100 a month is a good start compared to the last several years.
- Reduced our auto insurance costs by shopping around and now pay about 35% less for more coverage.
- Significantly reduced our individual discretionary spending on items like clothes, electronics, and items that we purchased in the past without much consideration simply because we “had the money”.
- Reduced the amount spent on child care in the last part of the year once my wife started having a more flexible schedule by working for herself at home.
- For the child care we did use, we took advantage of a dependent care spending account through work which allowed us to pay for our child care with pre-tax money.
- Significantly reduced our electricity bill by installing more efficient lighting and taking advantage of a tiered rate program from our utility company where the majority of our electricity is cheaper as long as we avoid using large appliances at certain times of the day. Compared to the previous year our bill has typically been 40% less each month.
While many of these steps are a good start we still have significant work to do in the spending area as we move forward with our financial independence goal.
In the housing area, we made two major decisions that will benefit us financially in the future. First, we refinanced our 30 year (25 years remaining) 5.25% mortgage into a 15 year mortgage at a 3% interest rate. The best part about this is we were able to rid ourselves of PMI payments essentially eliminating a wasted $80 payment a month we had on our old mortgage. Our monthly payments are now less than before, even though we reduced our loan term by 10 years.
The second thing that will make a huge impact is our decision to not “move up” to a larger house as our family has grown. When we had our first child a little over two years ago we started discussing whether we needed a bigger house, so you can imagine with another child on the way in a few months that the discussion resurfaced, especially with the need for an additional bedroom. The reality is that even though in our area our house is considered a starter house, it is more than enough for a family of four, even if that does mean we have to have some creative solutions using the rooms we have, especially when my wife needs space to run her business from home. While we may consider moving to a new house or location in the future, it will not be because we need more rooms or space inside the house, but rather find a house that fits our desired lifestyle that includes more outdoor space and is further outside of the city.
Investment and Retirement Accounts
I really did not make many adjustments to our investments this year other than maxing my contributions to my 403b account while significantly increasing my wife’s contributions to her 457b while she still maintained her employment at a state university. Since my wife is now working for herself, we started the process of opening a solo 401k and are making a few other moves to position us to maximize our tax advantaged savings. We also plan to roll her former university retirement plan into an IRA once the mandatory waiting period is complete. Reducing these fees should help us save significantly on investment fees since her current plan has terrible investment choices and high fees. For the plans where we can actually control the investments, we currently invest in a couple of index ETFs through fidelity with very low expense ratios.
That pretty much wraps up our 2015 as it relates to our financial independence project. There is certainly more we could have done both this year and in the past, but since we just recently started thinking and moving in this direction, at least we have made some progress to our future goals. With that, January 1st, 2016 official starts our Financial Independence Project!