Why this is a Retire Extremely Early and Paleo Lifestyle Blog

As you have probably seen in a few posts previously the overwhelming direction of Finance and Fitness Dreams entails two distinct directions,  Retiring Really Early and the Paleo Way of Life.

Many of you might think this is pretty interesting or many might think I'm crazy.  Good news is I'm OK with either one.  I don't want to be normal, I have absolutely no desire to be 45 and working in corporate America waiting for the day I can retire and "enjoy my older years".  One of my favorite quotes is "youth is wasted on the young". Why not retire at 30, 40, or 50?  Think of the things you would be able to do with your free time:  visit family, volunteer at a non-profit, maybe travel.  I'm not sure what your dream is but mine is many of these and more.

I'm on my way to retiring in 7 years. The concept is simple, have a passive income(non 9-5 job) that is greater than your monthly spending.  If you have 2K in income per month, well you better not spend a dime over that, whether you are traveling, buying groceries, or making a payment to the IRS.  Make more than you spend.  Crazy concept I know.  As most in there 30's are figuring out this is the  best income producing time you have had, so this is when you pile up savings and pay down debt.  We are currently on our way and our plan looks something like this in terms of year by year:

• Year 1(the next 7 months for us)-Pay off Half of my Student Loan Debt, pay 33% of our Rental House Off, Pay Regular Payments on our current home, Contribute the Matching portion to our Roth 401K and 401K(Year 1-7), Contribute personal savings to a personal Stock Portfolio(Year 1-7)
• Year 2-Pay off Student Loan Debt, Pay 33% of our Rental House
• Year 3-Pay off our Rental House(creating a Passive Income Stream in Year 4).  At the end of year 3, based on a tight budget we would be able to retire, since the income from the Rental House and our Current Home(paid for with rents coming in) would satisfy our current costs.  But to say it would be tight would be an understatement and I don't think that's my dreams to be living on a tight budget, it would take away some of the very things I want to do with my retirement.
• Year 4-Reevaluate our current situation, time frame, pay off schedule, and goals.  Pay 25% of our Owner Occupied Home
• Year 5-Pay 25% of our Owner Occupied Home
• Year 6-Pay 25% of our Owner Occupied Home
• Year 7-Pay 25% of our Owner Occupied Home and be Debt and Mortgage Free

So this puts us in a situation where we would have the option to retire.  We would live off what is considered the average household income in America.  We would need to budget for the every day expenses of groceries, utilities, etc while making sure our taxes, insurance, and health care were included in this.  After those few expenses everything else would be used to do the things we find retirement worthy.

                                       

During these 7 years there will be bumps along the road, but I have put our 7 year plan on a very Ronald Reagan conservative(I'm not political, although I do think Ronald Reagan seems pretty cool for an old guy) approach, especially with the fact that I think this can be done in 3 years and the reason for an evaluation to see what we think is best.  Along the way we may beef up our HSA Savings or Retirement Bonus of our 401K.  The strategy in year 4-7 may lean more towards creating an even larger emergency fund of all cash, possibly switching the investments to a larger portion in taxable versus non-taxable income.  This is the journey this is my path, I plan to retire early by using Rental Income.  Along the way I will read everything I can get my hands on from retire early finance blogs, books, and anything else that I think will bring me closer to my desired location, Retire Extremely Early!!!



I have chosen the Paleo lifestyle for many reasons but mostly because it yields results.  Recently I did the 30 day Paleo Challenge and was able to lose some weight and feel healthier, with items such as my Achilles being pain free, which is an amazing feeling from walking around every morning like you are 65.  Since the Paleo challenge I have been for the most part Paleo(minus Christmas, HoHoHo) along the way.  I am good not having Dairy, Legumes, and Pastas back in my diet.  The one exception is cheese, I'm from Wisconsin, that's against the rules.  I do keep the cheese to gluten free so usually Boar's Head or if I can find a cheese that is from Grass Fed Cow's then I'm in business.  So this week I am starting back with my Sprint and Relax Paleo.

I really believe eating right with Paleo and exercising(Walking my dog a couple times a day) is the way to health and feeling great.  So this week will be the week of the Chicken!  I will have a couple obstacles with work, new year's, and college basketball game, but will be a great test early.  My goal as of January 31st is to have less than 7 items that are not Paleo or at least Gluten Free.

I can't suggest enough to read up on eating Paleo.  If I could sum up Paleo I would say it's eating like your Grandma and Grandpa used to eat,  just more natural products, not processed or with a bunch of ingredients you can't pronounce.  Have you tried Paleo or thought about retiring early, let me know with a comment.

401K, Sounds Like a New Steroid Cereal

Good Morning FFD(Finance and Fitness Dreams),

As the year ends and we start thinking about Christmas, New Year's Resolutions, and Taxes  I thought it might be a good time to run down my thoughts and directions on a 401K and Roth IRA, two of the best investment vehicles around.  I don't pretend to be an expert and despite my stays at the Holiday Inn, I am not any smarter on the matter because of it.  But what I can do is give a brief common sense picture of what each one is and how I use them in our investment strategy.

First let's start with the 401K.  This is the definition from Investopedia, it's a little wordy but it gets the job done.

Definition of '401(k) Plan

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.


So a 401K is a place where you keep your investments, depending on what your company offers as a selection it's usually mutual funds and index funds.  What happens for most people is they make a selection when they first start working to take out a % of there pay.  The good news is this is all done pre-tax before the government takes out Federal, State, and Social Security.  So for example if you get paid $1000 each pay period and you have elected to have 1% taken out this would take out $10 from each paycheck and be put into the mutual fund or index fund you have chosen.   By taking this out before taxes it also decreases your tax bill overall since the government has less to be able to tax .   The 401K part is really just a way of saying this is how we are going to tax or not tax your investments.

Your 401K is for the long term, we are talking retirement and when I say retirement this time I mean the earliest you can take this money out is 59.5 years old, otherwise they penalize you and we don't want that.  I won't get into to many specifics on each rule because that's not the purpose of this little blog.  The main points are this money is growing from your pre-tax money so it's a little larger % then if it would be taken out if Uncle Sam got a hold of the pay check first.  Your investment grows tax-free, so when you pile up all this money it's growing and growing and you are adding more and more, which allows it to become a huge monster snowball along the way.

One of my favorite features that a lot of companies utilize is what they call the company match.  I like to call it my Retirement Bonus, they give it to me every year as long as I promise to not spend it till I get to be old and don't want to work anymore.  What they say is OK if you put in 3% of your money all year, you know what we will match that and put it in your 401K account at the end of the year, free of charge.  So using the example of someone who makes 50K, you would have put in 3% or $1500($300 for every 10K), they would then put that same amount of $1500 in your account and congratulations you just got a Retirement Bonus!!!  They most commonly put this in as cash or some form of the company stock, but either way it's yours.

Here's a little summary of the Pro's and Cons of 401K so far:

PRO

• Money is taken out pre-tax allowing you to save a little extra(this also decreases your tax bill)
• The investments grow tax-free
• Company match or Retirement Bonus
• Automatic way of Saving Money

CON

• This is a retirement account and you will be penalized if you take out this money before you get old and want to retire
• You do have to pay taxes on the money(Death and Taxes people), so whatever your current tax rate is when you retire, you have to pay Uncle Sam
• Limited Choices of Investments and Not very much guidance from investment professionals on what you should invest in

Here's another option becoming more and more available with employers, but first a definition from Investopedia.

Definition of 'Roth 401(k) 


An employer-sponsored investment savings account that is funded with after-tax money. After the investor reaches age 59.5, withdrawals of any money from the account (including investment gains) are tax-free. Unlike the Roth IRA, the Roth 401(k) has no income limitations for those investors who want to participate - anyone, no matter what his or her income, is allowed to invest up to the contribution limit into the plan.

So the main difference between the 401K and Roth 401K is the money is funded after tax money, which limits the initial investment, but like the 401K this is allowed to grow not only tax-free, but when you decide to take your withdrawls after 59.5 these are also taken out tax free!  For me on this one it's a horse a piece as an old saying goes, since you are contributing to a retirement investment account, I would worry less about which one you are investing in and instead rather that you are investing period.

So what do I do?

Currently I invest 4% of my salary, which is what my company matches as well, I have no plans of changing this now or in the near future.  This is my retirement account, so I treat it like an old man, quiet, nice, and a little boring.  I invest in index funds, which are low cost funds that mimic the stock market.  I have them spread over a broad range, but I have them split between 3 or 4 investments, including the S&P 500, International, Small Cap, and a Target Fund(this overlaps some of the previous index funds).  These funds are low cost, boring investments just how I like it for my retirement.  I don't plan on touching this money until I am at the earliest 59.5 and if my plan goes as I have it drawn up, this will actually be money that I do not rely on and instead is more of a bonus account when I get to when the world thinks you should retire age.

My suggestion is if you have a 401K option at your place of employment  that includes a company match, start it today and put your investment percentage to receive the maximum your company offers.  I believe the 401K is a great tool to help you in retirement.  Even better ask a few people you know who are in the retirement age and see what they did.  Are they living off Social Security?  401K?  Real Estate?  Still Working?  Pensions?  Annuities?  Would they have done things differently if they knew what they knew now?  I'm a believer in the 401K I don't think it's the answer to everyone's retirement problems, but I certainly think it should be apart of everyone's and it's apart of mine that's for sure.    Here is a link to a short video that encourages you to invest as well, take a look it might get you excited to start one today!!

http://www.investopedia.com/video/play/understanding-your-401k/

What Do You Want to Hear? Dumb Decisions

Good Morning, 

I can honestly say I love writing about money and personal finance, it might be my new passion right up there with sports, I think, read, and listen to this stuff every day.  I usually write about many things that involve my every day life for personal finance, but maybe there is something more.  I guess the better question is "What do you want to read about"?   

My personal adventure includes credit cards, student loans, investing, starting my own side business, corporate America, and everything in between.  For many of us we are hard working, who came from a small town.   Some have chosen to stay, some move into a bigger city, and others get as far away as possible.  While I don't know how each and every person is doing that I grew up with, I do know many of you have stable jobs and make a good living.  I know there are outliers on both sides that don't make 30K a year and others that make well over 100K.  Either way whether you make a small amount or a large amount the numbers are the same with personal finance.  Because I think that relating to some of the "Dumb Decisions" I've made over the years, this might get the ball rolling  for "What do you want to read about" and these are just a few of mine: 

1. I took out Student Loans to pay for every cent of college.  
2. I paid for my first spring break with a credit card, once again every cent.
3. My first car that I bought with my own money was a Mercedes Benz.
4. Moved to Florida without a job and minimal savings.
5. Pursue my passion of coaching by taking an unpaid position 80 miles away
6. Pay for my time in Florida with credit cards after my savings ran out

So these are just a few "Dumb Decisions" that I have made over time, I have learned from them which is the most important.  They are also correctable in a short period of time, of course I am paying for many of them today and that's what happens if you notice almost every decision that was made had to deal with debt or was one step away from doing so.  Student Loans, Credit Card, Car Loan,  No job and minimal savings lead to more Credit Card debt.  I cannot blame anyone but myself, I mean what am I going to do, blame my parents for not paying for my college or not buying me a new car for college graduation, come on that's not the way things work.

It's great if you are currently standing debt free it makes many of your decisions much easier, but so many of us have made these not so bright decisions.  The key is stop making these "dumb decisions"  this blog is to point out some of the things that you and I are doing and at the very least think twice before doing them.  I have an example and it can really show the difference in choices and decisions in your life. 

This person does not have a full-time job and when this person does it is often considered low income.  Here are some of the things that I hear that make me believe this person is not going to change or become wealthy or be very far above the poverty level. 

• I need a new car, I saw this vehicle and it's only 10K, I just need someone to loan me the money
• I need a new phone, mine is crap, I saw this new one and it looks amazing, I'll just have to wait till I get paid next
• I'm so glad I don't have to dress up at my job, I'm so glad I get to wear jeans and a t-shirt

This is another list that could go on and on, but when I hear these things I know this person is not going to dig themselves out of this hole, if anything they are going to go further into that hole.  Here's a couple things I wish I heard instead. 

• I want this new vehicle, but the only way I'm getting it is if I pay cash, otherwise I'm just going to drive my car until it dies of old age.
• New phone, no thanks, I was considering cancelling my service or just getting one of those pre-paid phones, because I'm trying to get ahead
• I prefer not to dress up at my job, but I'm working towards a higher position with higher pay so I can have that choice

Do you catch yourself saying things that sound like what a poor person would say?  Or do you find yourself saying some things that the wealthy or this guy  might say? 

Warren Buffett

 I hear it in myself but for me it often relates to food and eating.  Yesterday I heard myself say I'm having a bad week eating, while I ate an Italian Beef sandwich and a soda.  I think the same thing can be said about fat and skinny people, a better word choice of people might be healthy and unhealthy.  These are things that can be controlled, its our decisions.  I make a decision every day to walk up either an escalator or stairs on my way to and from work, I also make that same decision to walk from the train station home.  It was 10 degrees yesterday, but I knew that if I didn't walk home I wouldn't be doing any exercise and that's the decision we have to make to get healthy or wealthy.  People sacrifice for there money, we are not children of the Hilton Family or Kardashian's and were handed money from family.  We need to make sacrifices and better decisions and that's what I'm doing here. 

Please leave comments on decisions you make or made that were good or bad(bad are more fun today), whether it's for health or wealth, It's great to hear them.  Also side note in the upcoming year I'm contemplating taking my blog to Wordpress and getting a little cleaner and more professional looking so be on the look out for that. 

Emergency Fund Why I disagree with Dave Ramsey, Suzie Orman, and Everyone Else

Let's be clear I absolutely think you should have an Emergency Fund, this should be part of the beginning of every road to debt freedom, early retirement, or Murphy's Law that's around the corner.

What I think is dead wrong is where you should place your money.  Dave Ramsey recommends a Money Market account, Suzie Orman says a Checking with Interest account, guess what I totally disagree. There is a few factors that in this,  but I believe the best place to keep your emergency fund is in an individual stock that you know and trust.  Here's how I got here.

When first starting out to build your emergency fund, whether it's the initial $500, $1000, or arbitrary amount that you see fit, this should go to an account that you have limited to no access, whether it's only online at a separate bank or you have to physically step into a branch to get your money, play Hide and Seek with your Emergency Fund.  So you are building up your emergency fund on a weekly, monthly basis congratulations and you have to climb up Mt. Everest to get those funds, not make a transfer from Savings to Checking.

I'm quite sure not everyone is going to read this article and say this guy is brilliant I'm listening to every word this guy's the smartest man alive.  Ok now here's the risk tolerance for your Emergency Fund, Las Vegas Style, see where you are at, since as of right now you have already made the Hide and Seek choice.

• Low-You think going to Las Vegas involves going to see a show and eating  the Buffett(non-seafood)Open a Checking or Savings at a Local Bank/Credit Union that's separate from your main account, you might not even do that your probably just putting it over to your savings you already have, less risky that way.
• Medium-You go to Vegas with ready for a show, some slots, and maybe even a drink at the casino, who knows I might be feeling crazy.  Chances are you are still going to put it a money market of some sort and probably online after you checked out the best online accounts available.
• High-You go to Vegas with cash in your pocket and only the clothes on your back, because you will be buying new ones with the money you will be making.  This is me in a nutshell, I have a little gamble to me, I'd rather double down than and risk it then take a small win.  I suggest and use investing in direct company stock, here's GRS read on How to Invest Using Direct Stock Purchase Plans.  

I started many months ago and found I was able to set aside $50 month towards my emergency fund into a company I felt comfortable with and in this case absolutely love, Nike.  I have since upped my contribution to a little over $100 month.  I find that having money in an online account that is separate from my everyday expenses and automatically drawn monthly from my checking is the best plan for me.  It gives me that little gamble of a my stock purchase going up or down(my money is on up, literally).  This also gives me the liquidity to sell my stock and receive the funds in about 3 business days.  There's a small risk in every aspect of my choice, but if you used to play poker online, enjoy fantasy football or a good survivor pool, or even buy a lottery ticket when it's 350 million dollars you probably agree with every word I'm saying.  I can't be boring, I have to have some risk and if this is the most risk I'm taking, I think I'm going to be just fine.  

Here's something to think about if you think I'm the craziest man alive after reading the last paragraph(also possible).  Here's a quote from Insurance Industry Basics: Float  and Motley Fool "The great thing about premiums is that the insurer collects the money up front but doesn't have to pay out claims until later down the road. In the meantime, the company "floats" these unpaid premiums. This float is invested in stocks, bonds, and other securities, and the insurance company pockets the profit."  

So let me get this straight they use the Insurance Premiums or Emergency Fund equivalent and try to make a profit off of this money until they have to pay it out?  That's exactly what I am suggesting, run your emergency fund like you are an insurance company!!!!

Why I Hate Mr Money Mustache

Why I'm Jealous of Mr Money Mustache and Hate Him at the Same Time Part I of Many. 



Let's keep it simple I think retiring at 30 is amazing and I'm jealous.  Now here's why I think many of the concepts used don't work for the majority. 

Riding a bike to save $10,000 just doesn't happen.  Here's how this scenario works for someone who lives in Chicago.  I like 8 miles from work, I jump on my bike and ride to work sweating like a mad man in the 20 degree weather.  I get to work after my hour long trip, take of my coat and drenched shirt, well I don't want to spend any money so I go to work and smell like I haven't showered in days.  This doesn't work!  What do you expect people to shower in the sink?  Move closer to my place of work.....Great idea I just raised my 
rent/mortgage by about $1000, new article would how I spent $12,000 year but Bike to Work.  I'm not even going to mention people who live in the Suburbs or Rural Area. 

Here's a better article title and one that appeals to the every day person.  How I Saved 1 Million Dollars Riding the Train, Walking to Work, Driving a Beater!!! 


Here's the 3 options you will run into and here's how we can save some money doing it. 

1.  You live far enough away from work and public transportation that you have to drive, not peddle 30 miles to save $10,000 and die of frost bite on your way to work, your not Lance Armstrong, this ain't happening.  


So in my eyes having a car payment is just about one of the worst things you can do to get stuck in a rut for probably the rest of your life, check out my decision and pros and cons of selling my Benzo de Lorenzo).  So I had the luxury of living in the city and selling my vehicle, most people don't.  So if this is you we need to downsize, sell your car and get a beater, like a 1997 Mercury Tracer perhaps, a fine vehicle if you ask me.  In my Blog(http://financeandfitnessdreams.blogspot.com/2013/05/money-mindset-owning-nice-car.html)  which says that if you have a car loan that it should be only 10% of your income, so if you have 1 car and make 50K(average American Income), you are allowed to have a $5000 loan, the rest must be paid for in cash.  If there are 2 members and 2 cars are needed this would still be the same since there are 2 vehicles, assuming the house hold income is 100K, the total car loan allowed would be 10K.  But that's my criteria if you were to buy today.  If you want to really WIN, you can't have a car payment, I don't care if it's 0%, you owe some rich guy at the bank money, period.  Sell your car and get a cheaper one, that's it 1 sentence.(Side note I'm not including Van or Car Pooling but also great ways to save money)

2.  You live in the City, but you can't or won't Ride your Bike or Walk to Work.  That's cool, you are going to save money and be almost as cool as Captain Planet. 



So you are most likely taking Public Transportation, train or bus or fairy for those really cool people you are saving money and the environment.  Using Chicago as an example it costs $100/month for  a pass to ride every in the entire city of Chicago, which is amazing in itself.  But get this my work says we like the environment and want to save you a couple extra dollars we will give you $30 month to get to work.  That's crazy I'm now down to $70 month to get to work, but wait there's more(Insert Realllly Cool Infomercial Here), any money that is taken out is taken out pre-tax which is not only reducing my overall taxed income but lowering the cost of the monthly pass.  Based off the criteria I filled out on rideshare.com( I have no idea what tax bracket I'm in, 25% just felt correct.  So I'm paying $52.50 month to travel in the city and if you live in Chicago this covers pretty much everything.  So what you spend on a tank of gas I spend on getting to work, it's worth hanging out with strangers for 45 minutes while I listen to a podcast or read my book. 

 

3.  You Do Live Close Enough to Work to Bike or Walk, and apparently save $10,000 a year, spend this on Twinkies and Malt Liquor please. 

Being able to walk or ride your bike is pretty exciting, it doesn't work for everyone, but if you have the option to make that choice consider yourself in a good place.  It can certainly save you a few dollars in expenses and get you a little exercise which is what FFD(Finance and Fitness Dreams people, getting the FFD tattoo tomorrow?) is all about.  I would not however pick up where you are living now and move closer to work, but if it's an option to consider in your purchase or rental decision.  For example when I first moved to Chicago I had 2 options, both similar places in nice neighborhoods, 1 was a 10 minute walk and the other was a 20 minute bus ride, made my decision so much easier, but remember that every one's work can change from year to year, which it did for me, less than a year later.   

So in Summary I think Mr Money Mustache is correct that you can save some money by riding your bike to work or wherever, but that's just not a reality for 99% of the population.  Henry Ford and George Stephenson invented cars and trains, whatever mode of transport you are using let's make sure it's paid off or is a low number on the budget.  Comments are appreciated even if you think I'm crazy or agree with me completely.  Thanks for reading.