Have you ever considered that early retirement is within your reach? I didn’t. However, financial independence and early retirement might be closer than you think
On July 3rd, 2020 while driving to Six Flags in Georgia, Ryan and I were listening to the BiggerPockets Money Podcast. In this episode, they interviewed a couple who managed to retired early after 12 years of working hard. They paid off their mortgage, saved a ton of money, created multiple income streams and acquired two investment properties. While we had previously thrown the idea of retiring early, it seemed so far away that it was not even worth getting excited about.
Part of our plan was to build a real estate empire and then eventually in about 15 years quit our jobs. That would still be early retirement. However, this podcast just lit a fire in us and made us questioned whether we could actually retire earlier.
In our ride home, we began seriously consider the idea. We were already taking the steps to improve our financial position. We had just substantially decreased our living expenses and increased our savings rate by moving to Georgia. We already owned 4 investment properties with one more in our way.
If we stuck to our budget (which is hard) and lived well below our means, we could be putting $5,000 into debt repayment and investments.
When we got home that day, I calculated the impact that making this additional debt payments would have and it was then when I realized that we could reach financial independence in 7 years.
What I did was use my current budget and simulate what it would like if we paid off all our debt. This is what they call the freedom number which in our case is $3,500. This means that we need our investments to generate this amount monthly to allow us to quit our job.
Next, I estimated what the monthly cash inflow from my investments in 7 years.
Here is what we concluded and our action items within the next 7 years:
Save $15k to cover for emergencies
Pay off the personal debt we had.
Sofi Personal Loan $75k
WF Personal Loan $12k
Amex Credit Card$5.5k
Student Loans $48k
Total Personal Debt $141k
All of our bonuses, income from our accounting business, coaching and real estate would go towards debt repayment.
We would also sell our worst performing property and use that cash towards buying an additional 4 units to increase our monthly cash inflow.
Once the personal debt was paid, we would begin paying down our mortgage and the mortgage of one of our properties with the lowest debt.
Our primary home mortgage $175k
(1) investment property mortgage $82k
Total Mortgage Repayment $257k
In total we had to pay off $398k which would be 56k/ year for 7 years. This means we would need about $5k month towards debt repayment. Boom!
In the sake of full transparency, Ryan and I are lucky to have high paying jobs and I am fully aware that not everyone is able to have $5,000 extra a month. However, keep in mind that we are starting with a significant amount of debt. There are also ways that you can decrease your housing expenses with strategies like House Hacking and increase your monthly income by leveraging real estate or other investment vehicles which I will discuss at some point in this blog.
Even though we are accounting nerds, we didn’t actually realize how possible it was for us to retire in less than 15 years because we were thinking in terms of how can I make enough money to cover my expenses rather than, what happens if I were to decrease my expenses to get there faster.
Yes, in order to accomplish this we will have to live a frugal life. It is a sacrifice we that we are willing to make. While we won’t need to work full time, we’d still have to supplement our income in a part-time basis while investment portfolio continues to grow.
The beauty of this is that we can work on anything. We can choose something that makes us happy and that we are passionate about rather than having a job that makes us miserable for the sake of paying our bills.
Financial Independence does not come easy. It also does not always mean not working at all, sometimes it’s just about being able to have a choice.
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