My Path to FI: Part 7, Moving Forward With Intensity

My Path to FI: Part 7, Moving Forward With Intensity

This blog post will bring my My Path to FI series of posts up to the present time.  Over the last six blog posts in this series I have tried to tell you my story, both my life story and my experiences with money.  In my last post in this series I shared my experience of discovering the concept of financial independence (FI) and the FIRE movement.  Needless to say, this had a huge impact on my life and how I look at our finances.  In this post, I’m going to share the specific changes we have made in our personal finances since discovering FI. 

I have thought about different ways to share the many changes we have made in our personal finances over the last 2 years.  There are many different changes, and a financial concept/reason for each specific change.  While it would be ideal to give a detailed explanation for the rationale behind each decision, the blog post would go on forever.  Plus, I’ve already written about most of the financial principles behind these changes in various other posts.  So, what I’ve decided to do is list these changes as bullet points with very brief explanations and, where applicable, a link to one of my blog posts discussing the thinking behind it if you’re interested in a more detailed explanation.

These changes are just a list of what we have done.  IT IS NOT what I am recommending everyone else do.  Everyone’s situation is different, and it’s important that you do what is right for your situation.  However, by outlining how we have transformed our personal finances over the last two years, hopefully you’ll be able to better understand some of the principles behind those changes that can help you on your own journey towards financial independence.  

As you’ll see from the following list, I practice what I preach.  If you have been following my FI Step by Step series of posts, the steps we have taken in changing our personal finances should look pretty familiar.  We’ll start in mid-2018 when I discovered financial independence and end today, in the middle of the coronavirus global pandemic.  

Disclaimer: Please remember that I am not a financial professional. This blog post is for informational and entertainment purposes only.  Please consult a financial planner, financial advisor, certified public accountant, or other financial professional before making decisions regarding your retirement and finances.

2018

• After I discovered financial independence, I asked myself why I was so intrigued with the concept?  Why did I want to pursue something that would require significant life changes and likely take many years to achieve?  For me, the answer was simple: freedom.  Freedom to do things because I want to do them, not because my finances dictate it.  I began making major financial changes in pursuit of this ideal.

• I calculated our net worth.  I had never done this before.  It wasn’t pretty.  It was on the positive side, but barely.  Most of the cash savings we had went towards building our new home.  We had been maxing out my 403(b) at work, but whatever we had saved for retirement was canceled out by the more than $200,000 I owed in student loans.  What little equity we had in our new house was canceled out by our credit card debt and what we still owed on our vehicles.  

• I started to diligently track our income and expenses to better understand how money was coming into our lives, and how it was leaving.  I used both Mint, and later Personal Capital.  I still use Personal Capital every day to track our net worth and recent transactions.  

• After better understanding our income and expenses, and after an extensive amount of research, we developed a written financial plan to reduce expenses, pay off debt, increase savings, and invest wisely.

• We continued to contribute the maximum amount (divided among my biweekly paychecks throughout the year) to my 403(b), which was $18,500 in 2018, getting my full employer match.

• My employer sponsored retirement plan is through Fidelity.  For the first time, I really looked into our account details.  What were we investing in?  What were our returns?  How much were the fees?  It turns out that a company called Financial Engines was managing our investments, which we were automatically signed up for when our accounts were opened.  I learned that we were earning less than the market was averaging and paying a significant fee to do so.  I made the decision to fire Financial Engines and changed our investments to primarily low cost, well diversified index funds.  We also changed our asset allocation to 80% stocks and 20% bonds, which felt like a good fit given our risk tolerance and time horizon.  

• I reviewed our insurance policies.  I canceled my individual disability insurance policy with Northwestern Mutual since I also had disability insurance  through my employer’s group policy.  Like my individual policy, this policy also had “own occupation” coverage, meaning it would pay out of I could no longer work as a neurosurgeon.  Since I was very happy working for Mayo and never plan to leave, I canceled the individual policy, which saved us ~$450 per month.

• We also canceled my wife’s $250,000 term life insurance policy with Northwestern Mutual.  Through my employer, I was able to get a $1,000,000 term policy for her at a significantly lower rate.  

• We changed our umbrella insurance policy to a plan through my employer.  I was able to get $5,000,000 of coverage at a lower rate than the $3,000,000 policy we had previously.  

• The insurance policies we were canceling with Northwestern Mutual were purchased from one of their financial planners.  We had not yet paid for financial planning services, but that was the tentative plan moving forward.  I let him know that we would no longer be needing his services.  He was a nice guy, and I felt like he had our best interests at heart, but I wasn’t about to pay him thousands of dollars over the years to do something that I now felt completely capable of doing primarily on my own.  

• During open enrollment at the end of the year, we switched our health insurance to a high deductible health plan so we could qualify for a health savings account (HSA) in 2019 (learn more about HSA’s here and here).

• In the words of Dave Ramsey, we started to get “gazelle intense” in our efforts to pay off our debts.  We used the debt snowball method, starting with high interest credit cards that had smaller balances compared to our auto loans and student loans.  During the first part of 2018 we had made decent progress in paying off our credit card purchases for our new home.  But after discovering FI, we took it to the next level.  By the end of the year we had all of our credit cards paid off.

• As we worked hard to pay off our debts, I made myself a promise.  I promised myself I would NEVER buy anything on credit ever again, no matter what.  I would never purchase a vacation, a computer, a car, or a home, or anything else in my life ever again that I couldn’t pay cash for.  So far, we’ve stayed true to that promise.  

• We also broadened our investment portfolio.  I opened five new accounts with TD Ameritrade.  Why did I choose TD Ameritrade?  The main reason was I liked their user interface on their mobile app and desktop platform.  Why five accounts?  I opened 2 traditional IRA accounts (one for me, one for my wife), 2 Roth IRA accounts (one for me, one for my wife), and a taxable brokerage account.  

• With these new accounts we did our first backdoor Roth IRA conversions.  We contributed $5,500 to each of our traditional IRAs.  Then, we converted this to our Roth IRA accounts a few days later.  We also put $1,000 in the taxable account (we didn’t invest more because we didn’t have much extra money left).  

• We also started saving for our kids’ college.  We opened four Edvest 529 accounts, which is the Wisconsin state sponsored plan.  We only invested $200 in each because, again, we were running out of extra money with our other financial goals that year.  

• Finally, at the end of the year I purchased a Subaru Outback for me to drive as my primary vehicle.  This would allow my son to drive our truck to school and help taxi our other kids around.  This was a symbolic purchase for me for 2 reasons.  First, I changed from looking at expensive luxury cars to something more practical that would meet my needs.  Second, I was true to my promise and saved money throughout the year, paying cash for the car instead of financing it.   

2019

• Our 2019 financial goals continued with plans to maximize our tax advantaged accounts.  This included continuing to contribute the maximum amount to my 403(b), which was increased to $19,000 in 2019.  We also elected to contribute the maximum amount to my non-governmental 457(b) through my employer, which was another $19,000.  I had contributed to this in previous years, but had stopped based on some poor financial advice I had received before increasing my own financial literacy.  You can only opt-in once a year, so we started again in 2019.  Contributions for both these accounts were through paycheck deductions throughout the year.

• We elected to contribute the maximum amount to our new HSA Account, which was $7,000 for a family in 2019.  This was also done with paycheck deductions throughout the year.  

• We used our tax return for our backdoor Roth IRAs and 529 plan contributions.  In 2019 the Roth IRA contributions were increased to $6,000.  We also contributed up to the maximum amount for the state tax deduction for each of our kids’ 529 plans, which was $13,120 in 2019 ($3,280 x 4).  

• I changed our checking account to a high yield checking account, earning 2% in interest each month on a balance up to $10,000, so long as we use online banking and make 15 debit card transactions per month.  I always keep at least $10,000 in that checking account to earn the interest, to make sure our account is never overdrawn, and it serves as part of our emergency fund.

• On Memorial Day 2019 I launched this blog, Freedom Through FI.  I had been working on it and learning about starting a website/blog for several months.  

• We continued working on our debt snowball and finished paying off the auto loans for both the vehicles we already owned.  This only left my student loans and our home mortgage as our remaining debts.  

• I started automatic contributions from each paycheck to our taxable brokerage account at TD Ameritrade.  It wasn’t a large amount, but I wanted to establish the habit of investing regularly.  

• The rest of the year we continued with “gazelle intensity” to aggressively pay down my student loans.  

2020

• As 2020 began, I could see the light at the end of the tunnel in paying off our student loans.  If we continued using nearly every extra dollar we had to aggressively pay them off, I calculated that we would have them completely paid off with our expected 2020 tax return.  

• In anticipation of paying off my student loans, I started looking ahead to the future.  Part of the beauty of the debt snowball is that once you pay off your last debt, you can continue with your same habits and lifestyle and simply shift the money you were using for debt payments each month to saving and investing.  Accordingly, I had been researching the benefits of real estate investing for some time.

• With our plans to make real estate a key part of our investment portfolio, we changed our asset allocation.  I don’t plan on selling any of our current assets to achieve this.  Rather, I plan to aggressively save for real estate investing until we meet our goal.  Here is our plan moving forward:
  • 50% Stocks
    • 40% US Stocks
    • 10% International Stocks
  • 25% Real Estate
  • 20% Bonds
  • 5% Cash

• My paycheck deductions are set to contribute the maximum amounts to our 403(b), 457(b), and HSA accounts over the course of the year.  In 2020 the maximum amounts for the 403(b) and 457(b) were increased to $19,500, and the HSA remained the same at $7,000 for a family.  

• With this year’s tax return, everything worked out and we finished paying off my student loans.  We are now debt free with the exception of our home mortgage.  

• For our third year in a row we completed backdoor Roth IRAs.  In 2020 the limit remained the same at $6,000.  

• Then the coronavirus global pandemic hit.  Like everyone else, our portfolio took a hit.  But I’m happy to report that we didn’t panic and sell anything. We stuck to our written financial plan and have kept investing.  With our current asset allocation, the upward trend of the market since the March 23rd low, and continued investing, our portfolio is close the value it was at its high on February 19th.  

• As I’ve mentioned in previous posts, this pandemic has instilled in me the importance of having an adequate emergency fund.  Since paying off our student loans, we’ve shifted the money we were using for debt payments to bulk up our emergency fund.  After next week we should have enough to cover 6 full months of expenses without having to tap into any of our other accounts.  Our emergency fund is held in a high yield checking account with our local bank, and a high yield savings account with Ally Bank.  

• Our next goal for the year will be to contribute up to the maximum state income tax deduction to our kids’ 529 plans.  In 2020 in Wisconsin this is $3,340 per child.  

• We will continue to invest a small portion from each paycheck in our taxable brokerage account.

• For the second half of the year, our surplus income will be used to both make extra mortgage payments, and also save for real estate investments.  I will be writing more about both of these things in the next couple of weeks.  

Reflecting on the Past, Looking to the Future

This is a summary of all of the financial changes we have made since discovering the concept of financial independence.  This brings us up to the current date.

It’s been a fun exercise to review the last two years of financial changes and see our progress.  We’ve gone from a barely positive net worth with multiple debts and little financial literacy to getting our financial house in order.  It’s amazing what you can accomplish when you have a clear direction and goal you are working towards.  

Our ultimate goal is freedom through financial independence.  We aren’t there yet, but we are well on our way.  And even though we haven’t reached our goal yet, I have found significant freedom and joy in the journey.  Every time we pay off a debt or invest our money for the future, I feel a little bit more of that freedom.  

Moving forward I plan to give an update of our financial moves and progress at the end of each year.  
As I wrap up this post today, here are some take home points to consider:

• The most important thing is to start.  If you haven’t made the decision to get your finances in order and begin your journey towards financial independence, there is no better day than today.  Check out my FI Step by Step series of posts to get you on the right track.

• Once you have made a few financial improvements in your life and increased your financial literacy, it is very empowering.  You start to gain momentum and begin to taste some of the freedom that comes with financial independence.  So even if you feel like you are only doing small things right now, keep going.  I promise those small things will add up over time as they have for us in our journey.

Thanks for reading.  I hope you are doing well in your progress towards reaching FI.  If you have any questions or comments that might help other readers, please list them below.  In the meantime, keeping working towards Freedom Through FI!

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