Disclaimer: All salaries and bonuses in this post -- even those based on real paychecks -- are entirely fictional. All financial information is paraphrased.....poorly. The following post was written by a 23-year old man who lives in a truck entirely of his own volition and holds a degree in something wholly-unrelated to both business and finance. As such, its content should not be viewed or seriously considered as advice by anyone.
Now that that's out of the way, let's begin.
In The Beginning
There's a laundry list of reasons why I do what I do, but one of my bigger goals was to clear out my (fairly unburdensome) student loan debt quickly, certainly more expediently than the 10-year plan my loan servicer was trying to spoon-feed me (with a healthy $3,000 of interest). And despite spending months planning out the various intricacies of truck-life and trying to anticipate all possible eventualities, I had spent virtually no time formulating a proper financial plan. Sure, I had used some broad hand-wavy gestures coupled with the word "investment" before, but apart from a brief experiment using Acorns in college, I hadn't the faintest idea what I was doing. With my loans dwindling with each incoming paycheck, it's time to seriously evaluate what my long-term goals are, and how I plan to reach them.
This post serves two mostly-orthogonal purposes:
- Letting people know what I'm doing with my money. Hopefully, some of the ideas here (which I've
poachedaggregated from a variety of sources) will be useful in some shape or form to one or more people in the future.
- Forcing my own hand in figuring this stuff out. I do a lot of rough-estimate, back-of-the-proverbial-envelope-type calculations, but now I have about six months of my own real-life financial data. I know how much money is coming in, and how much is going to the various things that allow me to live a happy, healthy life…sometimes with less of an emphasis on the "healthy" part.
There's this (distinctly American) taboo concerning salary discussion, which I've never quite understood. I mean I get it, capitalism dictates that your sole source of worth in this life comes from how much money you can rake in (and then how grandly you can dish it out). As such, discussing salaries will always be
very touchy and emotional a colossal dick-measuring contest. Also, knowing the salaries of your peers would give you leverage when negotiating your own pay (which is why sites like Glassdoor exist). But that clearly doesn't interest the bottom line of an employer. Since this is a monologue and not a discussion though, we're going to throw the taboo and stigma out the window: it's counterproductive, especially when trying to do some frank, no-frills financial planning. Not that the taboo-ness particularly matters to me, I'm clearly not a staunch defender of social convention anyway.
At work, I mash keys on my keyboard and swivel my mouse around until the pixels on my screen arrange themselves in a pattern that pleases me and those around me (nod to XKCD). For doing so, I'm compensated by my employer, and this compensation is broken into roughly three categories:
- Salary. My base salary is $105,000.
- Bonus. Once a year, I receive a bonus roughly equal to 15% of my salary (give or take a performance multiplier). 15% of $105,000 is $15,750.
- Stock. Every year, I get a certain number of shares of the company. Because stocks are prone to the whims of a bunch of anxious men in fancy suits, I'm going to take about 10% off of the current value of the stock, which means roughly $40,000 a year in stocks. I know I said we'd be staying away from estimation, but this is one of those inherently nebulous things. If there was anyone who knew where the price of a stock was heading, they'd either be arrested, filthy rich, or some combination of the two.
So my total before-tax earnings are (approximately) $105,000 + $15,750 + $40,000 = $160,750.
Where's The Money Go
It's clear what money I have coming in, but where is it actually going? The way I see it, there are two categories to explore. There's the money that I'm never formally introduced to, because it's absorbed into a vast web of legislation and tax-advantaged accounts, and then there's the money that lives to see the light of
day my checking account.
Death and Taxes
Since bonuses and stocks are distributed yearly on their own schedules, the money I get in my paychecks naturally comes from my base salary. So $105,000 divided over 26 pay periods would mean $105,000/26 = $4,038.46 every two weeks. And sure enough, that's the number I see at the beginning of my paycheck. From there, we have two types of deductions: Death and Taxes.
- Death. This portion consists of my 401k contribution ($1,200), my HSA contribution ($293.75), and my downright ruthless dental and vision insurance ($3.57). These things go under the "Death" portion because they're health-related and I can't access any of that money (without penalty) until I'm 59.5/65 (as of the present day's legislation for the 401k and HSA respectively). And who knows what I'll be like when I'm 60 (assuming a truck-related incident doesn't take me out of the game before then)? I can only assume I'll be dead inside, hollowed out from years of engaging in such soul-sucking adult activities as sitting in traffic and having mindless conversations about the weather.
- Taxes. This portion consists of the money I distribute among various government cubicles: a Disability Tax ($36.31), State Income Tax ($164.34), Medicare ($54.34), Federal Income Tax ($412.93), and Social Security Tax ($232.33). I've capitalized all of these terms because they sound Very Important™.
After both Death and Taxes, my biweekly take-home pay is $4,038.46 - ($1,200 + $293.75 + $3.57) - ($36.31 + $164.34 + $54.34 + $412.93 + $232.33) = $1,640.89.
Woah woah Brandon, hold on for a second. The yearly contribution limit for a 401k is $18,000, and $3,350 for a personal HSA. Crunching the numbers, your paycheck contributions are way too high!!
You'd normally be correct, over-eager eagle-eyed finance-savvy reader. The discrepancy is that I started working in May. I didn't start contributing to the 401k until June, and I didn't get my act together and start dumping small fistfuls of money into the HSA until September. The great thing about this is that starting at the beginning of next year, these two contributions are going to drop pretty dramatically (because they're spread over a full year), adding about $900 to my bi-weekly bottom line.
We've established that 60% of my salary is gone before I see a cent of it (which is fine for reasons we'll get to soon), where does the rest of it go? If I were living in an apartment and paying the rate of $2,180 I estimated here, >65% of my after-tax money would go to that. But that, as we're all well-aware at this point, is not the case. So where is that money going? I was actually kind of curious myself, so I opened up my various credit card/bank statements and have itemized everything that cost more than $100 and was purchased on or after May 26th.
Non-Exhaustive List of Big Expenses
|Speeding Ticket||$470||I'm pretty sad that this is my most expensive "purchase". For someone who hates burning money on things with absolutely no return or value whatsoever, this one is tough to swallow. Oh well, maybe I'll be less of an idiot in the future.|
|Truck Insurance Round 2||$421.88||A necessary evil, made more palatable by the recent cost reduction.|
|Bike||$380.60||Worth all 38,060 cents. In the two weeks I've had it, I've logged well over 100 miles. And for the person who asked what kind of bike it is, it's a Raleigh Misceo 1.0|
|Expensive "Art"||$334.24||Long story short, I thought it would be funny to pretend to buy an expensive piece of art that a friend was looking at. Well the joke is on me, Hautelook has a strict "No Returns" policy.|
|Motorcycle Gear||$330.44||Helmet, gloves, boots, jacket, etc. I don't have a motorcycle, and I don't have any plans to get one until I'm debt-free and I can buy it in cash. But I needed the gear for the lessons (see three items down). The gear is pretty nice, and inexpensive for what it is.|
|Projector||$329.45||I haven't talked about this yet (I'll write a post eventually), but I did purchase a small, battery-powered projector for watching truck movies. Sure, it goes against my philosophy of minimizing time inside the box, but it's mostly for facilitating truck hangout sessions. I think that's a valid exception to the rule.|
|Rental Car||$269.80||My partner in crime the fateful night I received my half-grand speeding ticket. Necessary for a week of driving between Amherst and Boston.|
|Motorcycle Lessons||$258||I can't remember what originally motivated me to take the lessons in the first place, I think it had something to do with the electric bicycle. While learning to ride a motorcycle wasn't exactly a necessity, it was a ton of fun. It's all the fun of a bicycle, but faster (and louder, more expensive, worse for the environment, worse for your body, etc)!|
|Bike Gear||$249.39||Helmet, lights, glasses, etc. The benefits of investing in quality cycling gear are twofold. Firstly, the gear is going to last and save you money. Secondly, the gear is nice and safe and comfortable and pleasant and just makes you feel all warm and fuzzy inside, which makes you want to ride more frequently.|
|Truck Wash/Detail||$158.49||I try not to outsource work that I can do myself, but it's not like I have hoses or, you know, running water around to wash the truck myself. And the interior was in rough shape when I got it: from the few clues available to me (a receipt, some strange stains, and some stranger smells), I think the previous owner was really sticking to the script as far as trucker stereotypes go. Plus, my preferred parking place periodically pretends it's the Midwest during the Dust Bowl, so the truck gets pretty filthy.|
|New Clothes||$154.37||I took a trip to JCPenny (I think?) when I first moved out here and picked up a few shirts and a few pairs of jeans. I hadn't brought much with me when I moved out here, and it seemed reasonable to look the part for my new job and disguise my inner homeless person.|
|Seven Hills||$150||Fancy dinner with a few friends. Ordered one of everything on the menu and split the tab, each of us paid $150.|
|Townshend||$140||Dinner date, catching up with a friend while I was back in Boston. I like to sip cocktails and discuss professional development over ambient candlelight, also known as "pretending to be a well-adjusted member of society" for a night.|
|Passport||$136.75||Necessary for my eventual travels. What sort of eventual adventurer would I be without a proper passport? A domestic one, that's for sure.|
|Gochi||$135||Another dinner date, ate a bunch of things I wouldn't dare attempt to pronounce.|
|The Boiling Crab||$120||One more dinner date, this time featuring the merciless pulverization of pre-killed sea creatures slathered in fat and spices. Fun for the whole family.|
That accounts for most, if not all, of the big things, but naturally there are hundreds of smaller purchases that paint the picture more vividly: the (slightly) more reasonably-priced meals out, the movie tickets, the too-frequent Starbucks visits, the weekly Home Depot trips, etc. It'd be silly to have gathered all this information if we weren't going to draw some meaningful conclusions from it though. One thing I noticed is, though I haven't included the dates for the expenses, most of my earlier expenditures can be characterized by one mindset, while the later ones subscribe to a different school of thought. When I first adopted the truck life, my financial thinking was along the lines of, "I don't have to pay rent, that's ~$2,000 a month I can blow on whatever I want!" That mindset, as I'm slowly figuring out, is the wrong one to have. The new mindset is, "Consumption alone doesn't make happiness. Find what really brings you happiness, and invest your resources into that." I know, I know, I sound like a damn fortune cookie, but let me explain how that maps to my real-life plans.
Like I said at the beginning of this post, I didn't really know what I wanted aside from freedom from debt. It wasn't until the Internet became privy to my life and started feeding me new perspectives and resources that it really clicked: I'm in the perfect position to retire early, and it aligns precisely with my goals. The more I thought about it, the less I could believe I hadn't seen it earlier. My motivation for all of this had always been "to travel the world", but what I didn't realize was how that was only a small piece of the bigger picture.
Making it a Reality
It's easy to say, "I want to retire early". But we all know talk is cheap, so let's start acting. More than a few people had pointed me towards Early Retirement Extreme, Mad Fientist, and Mr. Money Mustache, none of which I had ever heard of before. Mr. Money Mustache (MMM), in particular, has tons of ideas and philosophies that I'd been applying to my own life totally independently. His concept of "Mustachianism" centers on how to think about happiness, conscientious consumption, and life-hacks to cut unnecessary expenses, which normally circles around to his love of bikes. One thing that MMM had that I did not (aside from 20 years of extra life-experience) was a solid investment plan.
How early you can retire correlates with how much of your money you save. When you save money such that you can live on ~4% of the principal balance a year, you can retire. And by "save money", I mean take it and invest it in things that appreciate in value by, on average, >7% a year. This is something that was missing from my original plan, because I had banked (no pun intended) on maxing out my 401k for the next 35 years and then retiring on that money. Getting started with this huge shift in plans was surprisingly easy. My company uses Vanguard to manage our 401k accounts, so it was dangerously easy for me to open up a personal investment account through them and throw some money in there.
But Brandon, you know nothing about investing, how could you possibly have made a reasonable, balanced portfolio?
Because index funds are magical. I have no interest in buying individual stocks, I'm no Warren Buffett. I want something that averages out the market, smoothing over dips in different sectors and provides fairly consistent returns over long periods of time. But which index fund do I pick? I have no opinions on what direction the dividend market is heading (price-earnings ratios and their meaning are complete voodoo witchcraft to me), so I didn't put any particular emphasis on whether or not the index included dividend-paying companies. I didn't want to get too fancy with international companies, that's another area where I'm not nearly well-versed enough to make reasonable, informed decisions. I also knew that I wanted something with a low-expense ratio, so that my returns actually make it back to me and not to some hotshot banker putting a down payment on his third Lambo. All of these things led me to VOO - Vanguard S&P 500 ETF, an index fund from Vanguard that tracks the S&P 500 Index. It has a super low expense ratio (0.05%), and there's nothing too crazy or exotic about it. So I took $1,000 that I was going to use to pay down my loans, and I used it to buy a few shares of VOO.
But Brandon, I thought the goal was to pay down your student loans quickly so they don't accumulate interest?
That was (and still is) the goal, but there are a couple things to consider. First, I've paid off all of the higher interest (6.8%) student loans I had, the remaining loans all have a (dirt-cheap) 3.4% interest rate. And though past performance is not an indicator of future results, VOO has had annual returns of >10%. Even accounting for inflation, throwing my money at VOO and letting my loans accumulate interest is likely a profitable plan. That said, it's hard to put a value on the peace of mind you get from being debt-free, so my plan going forward is to split my savings-money between investing and loans, with about a 60/40 split leaning towards Vanguard. Once I get my bonus in a few months, I'll likely use that to put the final nail in the coffin of my short-lived student loan debt.
But Brandon, if you plan to retire so early, why bother with your HSA and 401k at all? It's not like you can use that money.
Good question, straw man alter ego. There are a couple perfectly valid reasons, but the biggest one is free money. My company matches 50% of my 401k contribution up to the $18,000 limit, meaning they hand me $9,000 a year extra just because I'm looking out for future me. Similarly, they drop $1,000 into the HSA every year as part of my health insurance plan. Another good reason is that I'm putting before tax money into these accounts, so they decrease my tax burden as well. On top of that, I learned that I can invest my HSA money, effectively turning it into a second retirement fund. One of the options for HSA investing was VIIIX, which is basically the same thing as VOO above, just in a different type of account. All of this means that even when I retire early, both of these funds will continue to (hopefully) earn money and compound, and I get magical cash windfalls for my 60th and 65th birthdays. Plus, with a trick I learned about here, you can actually take tax-free money out of your HSA before 65.
Lifestyle and Looking Forward
I'm already on track to make this a reality, and retire at 30 (or earlier, who knows), but going into it with the right mindset will make it even easier. I've been on my soapbox talking about how true happiness, for most people, isn't hiding in shopping malls or the crevices between the fresh leather seats of a new car, but I haven't been living my own credo to the fullest. Looking back at the past six months and my expense list above, I had more than my fair share of expensive nights out that only served to fatten me up and slim my wallet, leaving me with a few fuzzy memories and a productivity-ruining hangover. I get so much more lasting happiness from taking quiet bike rides down the Bay Trail, or even just sweeping out the truck on a lazy Sunday morning, opening the back gate to let the sunshine in and the gentle breeze twirl my dust pile around. It's just a matter of training myself to look in the right places.
As for my actual "early retirement", I probably shouldn't even call it that. When I say "early retirement", I really just mean the freedom to do what I want, and not have to work to survive. It's very unlikely that I'd actually stop working; I have sketches for grand plans that involve spending months on beaches in southeast Asia coding up whatever projects cross my mind. The only tricky thing for me now is figuring out how much money I'd need to retire on. My current life is heavily subsidised by my employer, and retiring would necessarily take that away from me. Luckily, I have a few years to figure it all out. For now, I'm just going to enjoy the interesting technical challenges I'm presented with on a daily basis, and watch my future unfold.