Top Five Factors in Our Success Towards Financial Independence (FI/RE)

Here is a short list of the top five factors we feel has contributed to our financial and life balance success over the years.  Most of these concepts are not rocket science. 

As the rest of our blog this is based on our experiences and may or may not be the right thing for you.  We hope this provides some value in your own journey,

#1 – Find a Compatible Partner

I think of all the factors this is my top one.  Regardless of your goals in life, you and your partner should be on the same page.  Mrs. FoF and I have been very aligned with our goals and objectives over the years even as they have changed.  At various times we had to negotiate and debate our plans, but we always got together on the same page.    

Mrs. FoF is awesome and a big part of the reason we are in such great financial shape for Financial Independence.  When we started out our lives together Mrs. FoF brought a level of discipline to our finances I was lacking.  I was a bit of a spendthrift, had too much debt.  I had earned my pilots license and owned a single engine airplane I really couldn’t afford.  I still joke my wife made me sell my airplane, but it was the right financial decision.

Over the years Mrs. FoF was consistent in tracking spending and expenses in a spreadsheet and about four years ago we took it to the next level using You Need a Budget (YNAB) tool for more formal budgeting and allocation of our earnings.  We did come to the concept of FI/RE a little later in our lives but had always lived within our means and saved, though at a more modest rate than we do today.

#2 – Get a Good Education and Find a Job You Enjoy

You don’t necessarily need to go to college but get a good education in a field that offers good wages.  Both Mrs. FoF an myself are degreed engineers in Industrial Engineering and Electrical Engineering, respectively.  My wife still jokes with me you can’t spell geek with “EE”.  We both went to state schools (Iowa and New York) so we got great educations for a very reasonable cost especially back in the 90’s.  We left school with little or no college debt.  It is crazy some of the debt loads new graduates are forced to carry today.  Try to avoid going into too much debt, if possible for your field of study try the state school vs. private or consider a trade school.

When I applied to colleges I really wanted to go to Rensselaer Polytechnic Institute (RPI) but my family really couldn’t afford it.  I was the first in my family to go to college, so we were not prepared for the costs.  I ended up getting my degree from the State University of New York at Stony Brook.  The funny thing is my first job out of school, I was hired to replace an engineer who went to RPI.  I never regretted going to SUNY and saved myself and my family a great deal of money.

Mrs. FoF and I both had employment at companies that offered very good wages and other benefits such as college reimbursement, so we were able to earn our master’s degrees and had it paid for by the company.  In fact, we met at one of these companies!

Find work you enjoy and do the things that bring you value and self-worth.  As an engineer and now a manager I enjoy working on technical challenges and working with a team.  You do not have to love your job, it’s called “work” for a reason and all jobs have aspect we would prefer not to deal with. 

We all spend too much of our day at work to hate your job.  Sometimes it’s better to take a less stressful position that may not pay as well to keep the right balance in your life.   If you are so focused on FI/RE that you give up  years of your life doing something you hate and not having any fun, you may be doing it wrong.  

One neat thing as you approach Financial Independence is you start to have flexibility and options to say no to the things you dislike and yes to more opportunities you enjoy.  It can make work more enjoyable and postpone the need for Early Retirement.

One other key aspect of finding a good company is one with a good retirement program.  We were fortunate for a good part of our careers to work for a company with a good 401k plan with a 6% match plus annual profit sharing.  It helped juice up our retirement savings rate. 

3# –  Live Within Your Means (including, if possible, in a reasonable cost of living area)

I grew up outside on New York City in one of the many suburban areas on Long Island.  It was a fun place to grow up but as I got out of school it was so expensive to make it on your own.  I had a decent job but did not make all the best financial choices like buying a new car right out of school (though, I did keep that Jeep Cherokee for almost 20 years!).  I was in my late 20’s, still living at home since the best apartment I could find was just in another person’s basement, when I finally made the decision to move to the Midwest for a new job opportunity at a larger company.  It was hard leaving all my family and friends, but it was the best decision of my life since this is where I met Mrs. FoF.

Mrs. FoF grew up in the Midwest and was able to start her life right out of school.  She was able to afford a nice apartment (above ground!) and live on her own.  She was also able to save and start building her nest egg.  So even though Mrs. FoF is a few years younger, she was a little ahead in her financial independence (FI) path, way before we knew what FI was.

Regardless of your situation, ensure you live below your means.    It does not mean you need to live on 50% of your income as some people recommend, though that does help achieve your FI/RE goals much sooner.  Ensure you budget and decide how your money will be spent before you spend it.   Make sure your money has a job and it is the best use (for you) of that money.  Use an envelope system or software tool such as Excel or YNAB.

We started out saving about 15-20% of our income for many years and slowly grew this over time.  In the last few years we really latched onto the FI/RE concept and now have increased our savings rate to over 50%.  Allowing us to reach FI/RE sooner as well as practice living on our FI/RE income.

#4 – Invest Early, Often, and Wisely

Disclaimer: We are not financial advisors, these are just our opinions and what we have done that has worked for us.  This may not be the right approach for your situation.

Start early as possible –   Mrs. FoF started funding her 401k with a 6% company match in her first job out of school.  I started a little later but still in my 20’s.  This alone has made a huge difference even though initially we were not saving a huge amount compounding over the years has allowed our deferred retirement accounts to be the largest part of our savings. 

If you have a 401k (or other deferred savings plan) take advantage of it at least up to the company match but ideally to the allowable IRS limits.  Don’t let this discourage you if you are starting a little later in life, the best time to start is now!

Invest Regularly – Make regular recurring contributions to your investment either through your payroll deductions for your 401k or through your own investment accounts.  Don’t wait for the right timing, just get in the habit of investing consistently regardless of the current market conditions. 

Invest Wisely –We take a simple approach to investing.  Use index funds, invest regularly and consistently, and don’t chase the latest fads, or try to time the market.  We have learned the hard way so maybe you can avoid some of the early mistakes we made.

In JL Collins,  “ A Simple Path to Wealth”  he recommends a simple approach, invest in Vanguard Total Stock Market Index Fund (VTSAX).  As you get older and as needed balance with their Vanguard Total Bond Market Index Fund (VBTLX).  These give you access to the whole US market.

JL Collins advises that most large cap US companies provide plenty of global exposure and recommends this is all you need.   Others advise to have a more international diversification so you can add in Vanguard Total International Stock Index Fund Investor Shares (VGTSX).   These two or three funds are all you need to make a solid portfolio.  There are tons of resources on investing on the internet and we have compiled a few of our favorites on our resources page.

Another option, which we personally use, is a company such as Index Fund Advisors  who provides an Indexing approach with a small cap value slant using Dimension Funds.   These are still index funds but curated for truly total global market exposure with a risk tolerance you determine.  There is a management fee associated with IFA, so it may reduce you returns below what you could achieve otherwise.  A key benefit is you do get access to an advisor who is a fiduciary to help you navigate your risk tolerance and investment strategy.

A recent study from Vanguard “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha”   suggests having an adviser does bring value beyond the advisor fees, including some intangibles such as having someone to keep you invested and not making poor decisions.  Many studies have shown individual investors may be their own worst enemy.  Having someone to discuss investment plans and strategies back in 2008 was helpful to me to not make any rash decisions and sell during the downturn.

Who you chose to invest with and how is your choice, just make sure if you are using an investment advisor they have your best interest in mind and are not taking more than their fair share for their effort.  Understand all fees and expenses.  The lowest cost approach will be investing directly in very low-cost Vanguard funds but that not may be your best option depending on your situation and comfort level.

#5- Have Fun and Enjoy Life

Last but not least, regardless of your financial goals, never forget to live your life and have fun today.

Schedule that vacation, expose yourself to new experiences, get a certification for a new skill such as scuba diving. Learn to fly a plane (ok this one is a bit expensive, but it is fun!)   Get out of your comfort zone.   We find we get the most long-lasting value from new experiences. 

We love food, so when we go to a new city we look out for fun, good food that represents the area we are travelling.  I also like whiskey so finding that cool speak easy with good food is a double win! 

Try to avoid chasing material things.  As much as I would love to have a Tesla Model S, the expense would set back our plans too much and the tradeoff is not worth it.  In my case, I opted for a used 2015 Chevy Volt we paid for with cash.  It gives me 80% of the benefits of driving electric for about 15% of the cost and it’s fun to drive.   That said, don’t be cheap.  If you need a tool and you are going to use it regularly buy the best quality tool you can reasonably afford.  

A few years ago, I took up smoking various meats and learned how to make a mean pulled pork and recently perfected my baby back ribs.  We decided to buy a more expensive smoker with digital controls to ensure we get good quality results (plus being an engineer I do like the precision).  We have gotten many years of use out of this smoker and have no regrets spending the extra money on it. 

Note:  If you are into smoking I highly recommend Jeff Phillip’s website  I don’t get any benefit from this recommendation, it’s just my go to reference.

Some of these are common sense but hope our perspective provides some additional insight in your own FI/RE journey.

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