Category Archives: Parenting

Advantages of Early Retirement With Kids

kids-were-here

Not having a full time job was very convenient the past few months.  Here in North Carolina, when it snows, everything shuts down.  Including the schools.  It snowed a few inches and schools were closed for four days.  Back when I was working, it was always a scramble to figure out who was going to take care of the kids and how we could get to work with icy roads.  During these snow days, all the kids were able to stay at home and enjoy playing in the snow.  What a difference from the working days!

In my previous article, I discussed whether kids will be okay when their parents retire early.  In this article I present the advantages of retiring early with kids.

 

Free Time

Some parents want to home school their children, but can’t find the time because they have to work all day.  Although I don’t think we will home school our children, that’s a great option to have if it ever makes sense.  We have the free time, so it is a possibility if the kids (and us parents!) ever want to give it a try.  So far they are happy in public school.

If you have been paying attention to our posts lately, you’ll know that we hope to do some extensive travel with our kids this summer.  I’ve been following a few other bloggers like Buck at Bucking The Trend who is planning some serious travel.  Much more ambitious than us, he’s moving to Spain for a year with his wife and two kids.  We could potentially do the same thing, and enroll the kids in school overseas or try out home schooling for a year.  Another great option to have if life in the States gets too mundane and we feel like a really long adventure.  It would be hard to not learn the local language of wherever we end up.  Immersion in a foreign language is a great way to gain rapid fluency.

Whether we travel for a month or a year, I’m definitely looking forward to the “slow travel” lifestyle instead of the action packed week long vacation more common for those working full time jobs.  No longer will we rush from shuttle bus to plane to another plane to shuttle bus to hotel to attractions to restaurants.  We’ll have the time to take it easy, relax, and live a little more local.  We can rent a lakeside house for a week or two, explore an area, do some hiking or boating, and make our own authentic adventure.

The biggest benefit of retiring early with kids is that you get to spend lots of time with your kids.  You get to actually know and interact with them as other human beings seven days per week instead of only seeing them for a few hours each day during the work week.  Working tends to cause stress and exhaustion, and that interferes with the ability to establish high quality deep relationships with your kids.

 

After they colored all over themselves with markers, us responsible parents told them we would make a sign that said "We Are Princesses" and then we could take a fun picture.  Except we replaced "princesses" with another word.

After they colored all over themselves with markers, us responsible parents told them we would make a sign that said “We Are Princesses” and then we could take a fun picture. Except we replaced “princesses” with another word.  This also motivated them to learn how to read.

 

I know when I was working, I needed time each day to decompress from the workday.  During the week I wasn’t really “there” one hundred percent in the evenings after work.  Now I’m able to walk to their school and take a nice stroll back home with them, and they get to chat with their friends on the walk back.

I also have way more time to help out at my kids’ school.  I recently visited their school on two different days to help out with their engineering projects.  It’s nice to have the leisure time to pass a few hours with your kids and their classmates and pass on a little wisdom while you’re at it.  And I’m always up for chaperoning field trips.  I love seeing how all the kids are wowed by the different museums and sites they visit!  No more telling my kids “oh, I’m out of town for business that day.  Sorry, can’t be there for your field trip!”.

 

Retire early and cut kid costs?

You can save a lot of money on kid-related expenses if you aren’t working.  The biggest savings come from being your own daycare and preschool.  With monthly prices often exceeding $1,000 for one child, a family with multiple young children can easily spend $25,000 per year on childcare.  As the kids get older, costs usually go down (if you can find a good free public school), but before- or after-school care and summertime care can still cost a small fortune.

Other than day care, there are still more savings to be had from retiring with kids still in the house.  You will have way more time to do things yourself instead of outsourcing to others.  For example, instead of dropping a few hundred dollars on a birthday party at a local entertainment spot, you can spend $50-100 on pizzas and party favors and bake a cake yourself.  You might even have more fun, since you can entertain guests all afternoon instead of rushing through the two hours at the skating rink or jumpy house places (or Chucky Cheese!).

 

A self portrait rendered in cake and icing.

A self portrait rendered in cake and icing.

 

There are lots of free activities during the weekdays that I’m now able to take advantage of since I’m no longer working.  Our local library just up the street offers story time for different age groups two or three times per week.  The community center next door to the library offers two hours of free open play for kids up to age five twice per week.  The community parks, hiking trails, greenways, and pools are also great free (or almost free) places to take young kids during the week.  These places are like ghost towns when all the other parents are at work.

Cooking at home can save a ton of money and tends to lead to healthier cuisine.  These cost savings are available to the early retiree whether they have kids or not, but the savings are multiplied when you have more than two mouths to feed.  You can spend $10 on great ingredients and make your own awesome dinner instead of dropping $40 on take out for you and your kids.  With more hungry fridge raiders, leftovers are less likely to go to waste.  Yesterday’s dinner might make a great snack the next afternoon.

All of these savings are available to any stay at home parent taking care of the kids, just like they are to an early retiree who is also a stay at home parent.  If you are thinking about having one income earner stay at home with the kids, these cost savings are part of the equation.  The loss of income might not be as bad as you think after accounting for these cost savings and other costs avoided by not working.

 

Tax Savings

I wrote about our $150 income tax bill on our $150,000 incomes, and in that article I noted that our three children knocked $5,500 off our tax bill.  The tax savings from kids really add up.  For each kid, you get a $3,950 personal exemption deduction (in 2014) and a $1,000 child tax credit.  If you are still working, you can contribute to a child care flexible spending account pre-tax.

If you plan to pay for part of your kid’s college expenses, then contributing to a 529 college savings plan can lead to state tax advantages.  Our state of North Carolina used to allow up to a $5,000 deduction for contributions to the North Carolina 529 plan.  They eliminated this deduction in 2014, however.

 

Changes in spending patterns with kids: Some expenses go up, others go down

After you have kids, your kid-related expenses go up while your other non-kid expenditures might drop.  When we had kids, we noticed our restaurant expenses dropped.  Instead of packing three kids into the car and trying to keep them under control at a restaurant, dining at home makes meal time much simpler.

Without kids, we would probably take more expensive vacations out of town. With kids, we can’t easily pop off for a quick weekend trip or overseas vacation with long flights.  This summer, we had to tame down our long term travel plans a bit since we have a 2 year old (and a 7 and 8 year old). Thailand and Central America fell out of the plans in favor of a five week trip up the east coast and into Canada.

We won’t be flying this summer, but on other trips, plane tickets for five can add up.  So far we have been able to get free plane tickets through credit card rewards and sign up bonuses.

The kids’ school schedule constrains our travel budget, making it hard to travel nine months out of the year.  We also tend to travel a little slower.  For our trip this summer, we are planning to rent an apartment for a week at a time instead of a hotel room by the night.  The cost difference between a one bedroom apartment and a two bedroom apartment (to accommodate our three kids) is negligible.

Kids tend to consume a lot of time, so we don’t have as much vacant space in our schedules to fill with other activities or hobbies that might cost money.  This may sound like a complaint, but it isn’t, since we generally enjoy spending time with our kids.

I may have painted an overly gloomy picture of the radical lifestyle alterations caused by kids.  But I don’t think it is necessarily a bad thing.  You just have to take life at a slower pace when they are young and admit that you can’t do everything as easily as you could when you didn’t have kids.  It’s a temporary phase of life, and worth the sacrifices in my opinion.  Sure, you’ll spend more money on your kids, but you’ll spend less in other parts of your life.

 

 

Do you see any cost savings related to having kids?

 

 

Will My Kids Be Okay If I Retire Early?

kids-early-retirement

The Question Of The Day:

Is it possible to retire early to a life of leisure while raising kids that understand hard work and success?

My answer: YES!

Some people are afraid to retire early while their kids are still young and impressionable.  They are afraid their kids will watch them do nothing all day then adopt those practices and fail at life.  So far that hasn’t been an issue for me or my kids.

I think the fear of being a bad role model comes from a few misconceptions.

  1. Early retirees are lazy.
  2. Kids must see you go to work everyday.  That’s what adults do.
  3. Kids won’t be good with money if they never see their parents work for money
  4. Other kids might think your kids are suffering because you don’t have a job
  5. Kids will worry about family money issues
  6. Kids will suffer from an entitlement mentality

Just so you know I speak from a position of some authority on kids and early retirement, I have a one year old, a seven year old, and an eight year old.  They get good grades in school and haven’t broken any bones so far.  I’ll go ahead and nominate myself for parent of the year on that basis alone.

1. Early retirees are lazy

This one makes me chuckle a little.  I’m still waiting for a week where there’s nothing to do and I can lay in my hammock nursing a beer all day.  Scratch that – I would get bored after a day or two.

The reality of early retirement is that you tend to stay as busy as you want to.  After spending an hour or two throughout the day on the bare minimum of surviving, you can be lazy or be ambitious.  With kids, you’ll probably be spending more than an hour or two working to get by each day, so laziness is somewhat limited.

Most early retirees I know tend to be pretty ambitious, energetic, curious, and interested in learning or trying new things.  Not the type that could sit on a couch all day watching Oprah and Judge Judy (or whatever airs on daytime television).

My kids see me doing a wide variety of different jobs and pastimes around the house.  They watch me repair things (often things they broke…).  My oldest daughter often comments, “Daddy, I’m so glad you are an engineer”.  I assumed knowing how to repair electronics and appliances is common knowledge, but to my kids it is something special.

I always explain what I’m doing as I’m working and let the kids help out whenever it is safe and feasible.  They see me watching youtube videos on roofing, appliance repair, and electronics troubleshooting.  I have always taught my kids that they can do it when they try.  They see me putting that advice into practice as I try to fix stuff around the house.

Outside of being a tinkering engineer, the kids also see me playing with my spreadsheets and taking care of our finances.  “That’s how we keep food on the table” I tell them.

They look over my shoulder and watch me knock out foreign language lessons on Duolingo and improve my fluency gradually.  The kids even started their own Duolingo lessons for a while.

I recently joined a Coursera course on financial markets.  I explain how I’m taking a college class just because I’m curious and want to expand my mind.

They observe me learning new skills, and I have already seen them pursuing their own learning.

 

2. Full time job = hard work?

My kids don’t see me working hard at a full time job.  Not that kids ever see their parents working at their full time jobs since the kids are in day care or in school, or at home with a non-working parent caretaker (and not sitting in the cubicle next to mom or dad).  From a kid’s perspective, their parents disappear when they go to work.  Working in an office is something rather abstract to a kid.  In contrast, seeing you creating, fixing, and learning at home is very concrete.  Whether I write a blog post, prepare a nice family dinner, or fix something that’s broken, they can see me applying intellect, skill, and experience to accomplish a goal.

So really, my kids see me working even more now than they did when I was working full time at my old job.  Now they see me spending a lot more time doing useful things like fixing broken electronics and appliances, managing our finances, and having fun.

 

This is the kind of hard work I like these days.  Toilet paper forts don't build themselves after all.

This is the kind of hard work I like these days. Toilet paper forts don’t build themselves after all.

 

3. Kids won’t learn how to earn money if they don’t see parents working

My youngest child is almost two and he probably won’t remember his parents working full time.  Even though he won’t see us earning money through full time employment, he will still see us working at different pursuits (that don’t always earn money).

We always explain to our kids how the household finances work.  We go to work, we get paid.  Part of the paycheck pays for the house, the cars, and the food on the table.  The rest of the paycheck goes into our savings account and investment account.  They know we saved a lot so we wouldn’t have to work forever.

In early retirement, the explanation is a little different.  Now we are spending small amounts of the money we saved up over the years.  I say “spend small amounts” because that’s how you live off an investment portfolio in early retirement.  The kids already understand how investments work on a conceptual level.  We own tiny bits of lots of different businesses.  Our businesses make money and pay those profits to us in the form of dividends.  The businesses get more valuable, and we can sell some of the businesses if we need more money.

Right there, in two paragraphs, I have summarized how to work for money, save money, grow wealthy and live off of investments indefinitely.  In kid terms.

In addition to our investment income from our portfolio, the kids also know about our other sources of income.  My older kids watch me sell a couple of things on eBay and then see the $20 or $30 per item I earn.  I show them how the advertising on Root of Good works and how lots of visitors arrive, then a few might click on a link to a product or service and an even smaller subset might “convert” into an eventual sale that actually pays some revenue.  My oldest daughter decided to start her own blog and perhaps one day we’ll walk through the steps of monetizing her content.

Even if the kids don’t see me working full time, they still see me working my “hustles”.  I’m going to steer the kids toward some form of college and a “regular” career (it’s what worked for me!) but I definitely hope they pick up a hustle here and there if they want to earn a little extra income, or turn a profit from a hobby.

Our older kids will definitely remember our full time career days.  We scrambled to get them ready for school or rushed to pack them up to spend the day with grandma so we could go to work.  And then in the evenings, we repeated the process in reverse.  Pick up the kids, rush home, figure out dinner, rush to make sure all the homework is complete and correct, get them through the bath and bedtime routine, and then maybe have a few minutes of peace and quiet before bedtime for the adults (knowing the process would be repeated in another 7-8 hours).

Even if us parents don’t work, they still see other examples of working adults all around them.  Their aunts and uncles, parents of their friends, characters on television and in books, and their own teachers.  Everywhere we go people are working.  Restaurants, stores, the community center, and the library are filled with employees working.  Just because they don’t see us pulling out of the driveway at 7:00 am Monday through Friday doesn’t mean they won’t get the concept of what full time work entails.  They still see the cars pass by our house during the morning and evening rush hour.

 

4. Other kids (or their parents) might think your kids are suffering because you don’t have a job

People think all kinds of crazy things.  As long as you take care of your kids and provide food, shelter, clothing, and attention, you are fulfilling your parental obligations.  Parents should have a wide latitude to raise their kids however they want, and if your lifestyle is a little different from those of other families, that is okay.

Early retirement itself deviates from the norm of mainstream culture (go to school, go to work, retire when old, die).  I bet you don’t really care what those other kids or parents think.  Live an awesome life on your own terms and let others take you for who you are.

Most other families won’t know much about you or your finances anyway.  Even if you publish a blog for the whole world to read, odds are none of your kids’ friends’ parents are reading your opus magnum.  No one knows (or cares) you read Root of Good and that you are secretly plotting an early retirement at a deviously young age.

Plot away, and retire whenever you want to.

5. Kids will worry about family money issues

If you keep your kids in the dark about family finances, then this might be a real concern.  At some age, kids understand that working at a job equals money.  If they see both parents without jobs, then they might conclude (absent any other information) that their family might lose their house or not be able to buy groceries (or they might lose their video game system or not be able to buy new games for it).

The best antidote to this problem is open and consistent communications about money and how family finances work.  I just quizzed my eight year old on her fears of whether we would run out of money.  Here’s her response:

No, I’m not worried.  I know that we live off one of your incomes and you have your life savings, too.

 

When asked what will happen when Mommy quits her job and neither of us have jobs:

Then we will have two life savings that we can live off of forever.

And if we spend it all?

We can always make creations and sell them.

And there you have it.  If we hit really hard times and we need more money, we can always find ways to earn more money (making things, part time work, or freelance work for example).  I suggested that we could sell her little brother and she didn’t like that idea, claiming him as her own.  Then he chimed in with one of the twenty or so words he knows and kept saying “mine” and pointing to himself.  So he’s not for sale.

My eight year old gets it.  She knows we’ll be okay in early retirement and won’t run out of money if we stay a little flexible.  She knows we don’t spend that much, and we can always make a little money to get by if we need to.

Kids are also focused on so many other things during childhood that it’s unlikely they will worry about their parents’ checking account balance as long as they have a roof over their head, cookies in the pantry, and the occasional hot meal on the table.  Kids just don’t think about the big picture adult concerns all that much.  Mine are focused on fighting with each other, maximizing television consumption and dessert consumption and avoiding homework.  They think about their school work, their friends, and the books they are reading.

If I had to estimate the odds of my kids worrying when the Dow drops 5% in a week, I would say zero.

 

6. Kids will suffer from an entitlement mentality

This might be a concern if you live an indulgent lifestyle and your kids don’t have a good perception of money.  Our kids know you have to earn money.  They know once you spend money, it’s gone.  And they know you can save it and invest it and turn it into more money.  But you can’t save it if you spend it, so you must always make choices.

If kids are raised in an environment where money gets spent without any thought, then they might learn you don’t have to be careful with money.  They might assume money grows on trees and mom and dad are an unlimited source of the green stuff.

From what I have seen of other early retirees with kids, their families tend to be responsible with money.  They make smart spending choices and treat themselves to something nice on special occasions.  They communicate with their kids about money and making smart choices.  It’s hard to imagine a kid developing an entitlement mentality when raised in that type of environment.

 

 

Closing thoughts

If you have the financial means to retire early, don’t stick with a day job you don’t love just to appear busy to your kids or to fit in with the other working families in your social circles.  Don’t be afraid to retire early and spend more time doing whatever makes you happy.  You’ll be a lot less stressed out and will definitely have more quality time to spend with your children before they grow up.

 

In my next post, I talk about the advantages of retiring early while your kids are still in the house.

 

 

Do you have kids and plan to retire early while they are still young?  Concerned?

 

 

Summer Plans – Travel The World?

old montevideo

Summertime, Fun Time

The Root of Good family has already started planning big summertime activities.  We just signed the older kids up for summer camp for one week in June and two weeks in August.  We preserved a big five week block of time in the middle of the summer for potential long vacations.

The only scheduling issue for the summer is Mrs. Root of Good’s job.  Even though I’m retired, Mrs. Root of Good is still employed full time.  Why is she still working if we are financially independent?  One big reason is the three month paid sabbatical her company offers to high performing employees.  The sabbatical combined with vacation days and holidays means she only has to work around seven months out of the year in 2014.

If she is approved for her sabbatical, that is.  Apparently there are approvals required by the boss, the boss’s boss and the boss’s boss’s boss.  So far the first two levels of bosses agreed to the three month sabbatical request.  The uppermost level of approval is still pending, so we are in summertime fun time limbo at this point.  Possible outcomes for Mrs. Root of Good are a full three month sabbatical, a partial approval for a month or two, or an outright denial.  In the latter case of a denial, it might mean Mrs. Root of Good exhausts her vacation time this summer and then quits.

What might we do this summer?  We have five weeks between the kids’ summer camps.   Or we could cancel one or more weeks of camp and stretch our time off to seven or eight weeks.   Five weeks should be plenty of time (or maybe too much time!) for a grand adventure.  There are three big possibilities:

  1. Asia – probably Thailand and Cambodia at a minimum
  2. Latin America – Mexico?  Central America?  Peru or Ecuador?
  3. Driving trip up the east coast of the US and into Canada

We’ll be traveling with a 2 year old, so that impacts our choice a little.  The flight to Asia would be painful at roughly 24-30 hours.  Driving up the east coast or flying 3-5 hours to somewhere in Latin America sounds much more appealing.

Between Mrs. Root of Good and I, we have the language skills necessary for long term stays in Asia or Latin America.  Since we will be traveling with our three kids, we will probably be looking for weekly rentals (or longer term) for most of our trip regardless of where we end up.  We will have around five to eight weeks for our trip, so we can travel a little slower than a normal vacation.  I like the idea of setting up a base camp at an apartment or house we rent for multiple weeks, and then traveling around the area where we are living.

Riding a real live* elephant in Thailand.

Riding a real live* elephant in Thailand.

 

I don’t think we can do any kind of worthwhile “around the world” trip in eight weeks or less, so it makes sense to focus on one area of the world and not spend every third or fourth day traveling from city to city.  If it was just me and Mrs. Root of Good, we might take on a little more adventure, but with a two year old and two other kids under age ten, I think we’ll be aiming for a little less ambitious journey!

In our retirement budget, we have $5,200 per year devoted to vacations.  We might set aside $1,000 for a week at the beach in late summer, which will leave us $4,200 or so for our big adventure.  Is it possible for a family of five to travel for a month or two on that tiny sum of money?  Our friends at Go Curry Cracker manage to live it up in Mexico for around $2,000 to $3,000 per month that includes rent on a sweet 3 bedroom house.  We could comfortably live on the same amount (or a bit more) for a month in Mexico or elsewhere in Latin America or Asia.

To help hold costs down, we could use some of the Starwood hotel points and airline frequent flyer miles we accumulated in 2013 and earlier.  Just like we did when we got free airline tickets to Uruguay and Argentina.  I have also been thinking about getting a pair of Barclay’s Arrival cards for me and Mrs. Root of Good.  The Barclay’s Arrival card offers a bonus of 40,000 miles that you can redeem toward any $400 travel purchase.  A Barclay’s Arrival Card for me and Mrs. Root of Good would mean $800 off flights on any airline or rooms at any hotel brand.

Between the frequent flyer miles we have on American, British Air, and United, we could get to and from Asia or Latin America for almost free.  And with the Starwood hotel points, we can spend a few nights here and there at nice Sheraton, Four Points, or Aloft hotels across Thailand, Mexico, Central America and South America.  We actually have enough points to spend up to fifty (!!) nights at any of the Category 2 hotels in the Starwood Preferred Guest hotel program.

We could probably free up even more money for our big adventure by cutting some other areas of expenditure.  After all, when we are traveling far away from home, we won’t be at home spending money on groceries, dining out, entertainment, gas, or most utilities.  While traveling, we will still be buying groceries, dining out, and having fun, but I would categorize those expenses as “vacation” expenses.  Checking out our budget, I figure we will avoid around $1,000 in home based expenses while on the road.  So our $4,200 vacation budget grows to a little over $5,000 if we skip a month of expenses at home in the U.S.   Or $6,000 if we are able to get away for two months.

Angkor Wat

Angkor Wat, Cambodia

 

This whole trip is just a loosely outlined idea right now.  The timing isn’t perfect.  Who wants to travel the globe with a two year old?  But the timing will never be perfect.  Even after Mrs. Root of Good quits her job, we still have schedule constraints like the kids’ school calendar and other optional summer extracurricular activities.  We have considered homeschooling for a semester or a year but the kids don’t seem interested and us parents aren’t that interested either.  And we like being at home, too, so we aren’t quite ready to adopt the nomadic lifestyle of a perpetual traveler.  Yet.

As cool as we are as parents, eventually our older kids might not want to explore ancient Khmer or Mayan ruins with us or lounge in a beach front hammock in Thailand or Mexico.  What teenager would want to do any of that boring stuff when they can sulk at home and text their friends all day?  This summer is as good a time as any for our big adventure.  It won’t be our last big adventure, after all.  Two year old Mr. RoG Jr. won’t remember any of this trip, but he’ll have another chance to see the world on a later trip.

I’ve been following two other families that are into adventuresome travel with their kids.  Buck at Bucking the Trend is planning on moving to Granada, Spain for a year with his two kids that are about the same age as my daughters.  We aren’t up for a full year abroad right now, but if he can make a year overseas work, surely we can swing a month or two.

Ali and Pat at Bumfuzzle have trotted the globe for around ten years now, and they had two kids along the way.  For a while they lived in Mexico with their kids.  And it seemed to go well overall.  How hard can it be for a month or two, right?

As you can tell, we are pretty excited about the trip.  Hopefully we can make it work with our schedules (and three kids).

 

Are we crazy to attempt a month or two of traveling with a two year old and two other kids?  Does anyone remember taking a long trip like this as a kid?

 

 

Five Blissful Months of Early Retirement

snowy lake

Five months into early retirement and I have to say I’m loving it.  I’m not sure why, but I think January was my favorite month of early retirement to date.  Maybe it was a lack of holidays which means more free time.  Maybe I’m simply getting more comfortable with the laid back lifestyle.

 

Early Retirement: Month Five

If you want to see a full chronicle of my early retirement adventures, I produced summaries at one monthtwo months, three months, and four months.

Here’s the five month update of what happens when a 33 year old guy with a few kids doesn’t have to work any more:

  • French language studies at duolingo.com – Last month I reported how I slacked off for all of December and didn’t complete any lessons.  January was the opposite.  I’ve been knocking out a lesson or two on most days, and only occasionally missed a day.  I’ve now completed 9 subsections out of 60 or so.  The difficulty is picking up, but I seem to be retaining knowledge.  I’ll occasionally find myself going over French words or phrases while I’m waiting on the microwave or trying to go to sleep.  The individual duolingo lessons don’t take a lot of time to complete, but the daily exposure keeps my brain percolating in the French language.
  • Blogging – My time devoted to blogging seems to be trailing off compared to a few months ago.  However it’s an activity that I still really enjoy.  Sometimes I’ll get this idea or concept in my head and I have to develop that idea into a full blown article.  Like the “reaching the summit of financial independence” article or the summary of our $22,300 in dividend income.
  • Exercise – January is usually the coldest month of the year here in North Carolina.  In spite of that, I’ve continued the routine of walking the kids to and from school.  That equals a 2 mile walk almost every day.  They claim they like to walk better than drive (on most days).  It gives us a few moments of peaceful time away from the ordinary distractions of daily life to chat or just walk quietly and watch the wildlife.
  • Social – Another fun month of lunches out with old friends, play dates for the kids, birthday parties, and meeting some new people.  Still zero feelings of isolation in early retirement.  I managed to have lunch with some old coworkers that I consider friends to catch up on the latest gossip of the old workplace.
  • Oven update – If you read my November 2013 retirement update, you might recall that our 41 year old oven broke in November and we bought a new one.  We received the new oven in early January and it fit into the existing wall opening perfectly.  After a little wiggling and sliding, that is.  Our kitchen is back up to full operating condition, although we did have a ton of other repair jobs around the house in January.

 

Enjoying a nice snowy day.  In the official Root of Good hammock.

Enjoying a nice snowy day. In the official Root of Good hammock.

 

More Fun Times

In addition to fixing a bunch of things in January, I also spent a beautiful winter day clearing out a few hundred feet of waterfront along the lake that abuts our backyard.  It was a beautiful day.  Sunny and sixty degrees.  Just the right weather for working outdoors in winter.  After a long day of cutting down trees and saplings, hauling the felled timber, and slashing through briers and undergrowth, I was wiped out.  The end result is a beautiful cleared waterfront and a renewal of unobstructed lake views from our house and yard.  We also generated a nice pile of firewood.  Since I’m mostly a city boy these days, clearing all this brush and foliage left me feeling like I was George Bush while he was president.  Like I was passing a long weekend on my Crawford, Texas ranch wielding a chainsaw on some unruly branches and unfortunate tree trunks.

Lakefront all cleared up!

Lakefront all cleared up!

After the day’s work was over, we built a small fire ring in the backyard and then lit up some of the day’s cuttings.  Since we are in the city, we are allowed to have a fire for “warming purposes only” with a width no greater than two feet and a height no greater than three feet.  No cooking fires allowed.  No burning yard waste.  Don’t tell the fire marshal, but I interpreted these rules to allow roasting marshmallows and hot dogs.  That’s barely cooking in my recipe book.  And I assume yard waste is an acceptable fuel as long as the purpose of the fire remains warming and not yard waste disposal.

I don’t know why we have never built a fire in the back yard before.  The kids loved the fire.  They begged for the fire the next night and we obliged their wishes.  It was amazing.  The heat from the roaring (two foot by three foot) fire, the cold, crisp winter air, the expansive sky, stars scintillating in a silhouette against the inky black sky.  Even though we were only 80 feet from our house and a couple hundred feet from our neighbors’ houses, we felt like we were in the middle of the untamed wilderness.  The geese on the lake and the owls in the trees kept us company along with the crackle of our fire.  Both evenings by the fire were completely without expense (save a handful of matches), but it was a very memorable experience for us adults, and I can imagine the kids were equally impressed.

There’s something transcendental about huddling around a fire under the wide open sky on a near-freezing winter night.  There we sat, using the radiant heat of the fire (as required by city ordinance) to keep us warm.  We are lucky to have ample material wealth and financial resources to do almost anything we want, yet we chose to pass the evenings in a way that transcends eons.  I could imagine a family similar to ours sitting around the fire 100,000 years ago watching the flames swirl and caress the logs while warding off the evening chill.

Occasionally the sirens from far off fire trucks (not headed to our backyard blaze) or the rumble of the traffic on the interstate would gently remind us that we were still in the middle of the bustling city.  But it was mostly a whole lot of quiet and tranquility infrequently punctuated by urban noises.  As my kids proclaimed, “Best Weekend Evar!!!!!!1”.

 

Looking Ahead

Well, that’s what happened in month five of my early retirement.  Coming up in February, I’m signed up for a college course on Coursera.  I’ve never done a course through Coursera before, so I’m curious to see how it will go.  I honestly can’t believe how open the educational environment is today.  I’m taking a course in Financial Markets with Robert Shiller, the Yale University professor, noted economist, and Nobel Laureate.  From my home.  Getting an Ivy League education for free?  Don’t mind if I do!

University of North Carolina Law School Graduation (clandestinely wearing my rival NC State University shirt)

University of North Carolina Law School Graduation (clandestinely wearing my rival NC State University shirt)

The fact that anyone can sign up for a course of this caliber amazes me.  But it brings into question whether a traditional four year college education will be the gold standard when my oldest child is college bound in another decade.  I hope to investigate these free or cheap online learning opportunities some more and figure out whether there’s something viable enough to replace a full college experience for my kids.  Right now, a bachelor’s degree (at a minimum) seems to be the gold standard to get all kinds of jobs.  From working in government, I know there are plenty of fairly entry level jobs that don’t require many skills but still require that piece of paper proving you completed a four year degree.

With automated resume screening in most large company HR departments, it can be hard to convince a computer algorithm that completing dozens of courses online from top flight universities around the world is superior (or at least equal) to a degree in Pottery Arts from Middle Southeastwestern Podunk State University.  One day, a formal four year university education might be one of many paths to a successful, high paying professional career.

In other big news, I’m sort of coming out of retirement for at least a few hours per month.  Sam the Financial Samurai is returning to the daily grind to handle the Daily Capital blog at Personal Capital.  Sam invited me to do a little freelance writing for the Daily Capital.  I’m thankful for the opportunity since I’ll be getting paid handsomely to do something I already enjoy (writing blog articles).  And I’ll be reaching an even wider readership than here at Root of Good.  I also love the investment management and expense tracking tools that Personal Capital offers for free to everyone (review here), and I use these tools almost daily to manage my investments and spending.  I’ll be supporting a company I already know and appreciate.

 

The Daily Capital freelance gig might turn into a long term opportunity to do a few articles per month.  In return, I will potentially receive enough compensation to offset a quarter to a third of our monthly retirement expenses.   I’ll share more on the freelance writing gig at a later date.

I hope the Internet Retirement Police don’t revoke my license to call myself “early retired” while still working a few hours per week (when I want to).

In the next couple of months, we have some big decisions to make regarding our summer plans.  I’ll get into those exciting plans in my next post.

 

I Can Do It When I Try

Lucky

“I Can Do It When I Try”.  That sounds like a self help book’s trite advice on success.

It is actually one of the choices I offered to my daughter a couple years ago when she was starting kindergarten.  The other choice was “I Can’t”.  I recall we were working on something relatively simple: writing the numbers one to ten.   The details of the discussion with my five year old elude me today.  However the main idea remains clear.  Throughout life you must make a conscious choice many times.  You can choose to say “I can do it when I try” or you can choose to say “I can’t“.

I kept trying to teach my daughter different ways to write the numbers.  I repeatedly asked her to practice writing the numbers.  Nothing was working and both of us grew increasingly frustrated.  I did some version of the “if you are mad, count to ten before yelling”.  That’s when I realized I was focusing on the wrong issue. Taking a step back, I understood that my daughter wasn’t trying to write her numbers at all.  I can’t blame her – the exercise was pointless to a five year old.  She didn’t care to write her numbers because it fulfilled no purpose in her five year old’s world.

That’s when I (temporarily) gave up working on the numbers exercise with my daughter.  Instead I focused on one of the best life lessons you can learn at any age.  You have to decide to care about something.  You have to decide to try.  If you don’t decide to try, it’s the same thing as deciding you can’t do something.  You might as well make a conscious choice to do one or the other.

I can do it when I try

I laid out the options on the dry erase board we were using for our numbers practice.  There were two options: “I can do it when I try” and “I can’t”.  I asked my daughter to think about which one she wanted to pick.  She had to check the box next to her choice and say her choice out loud.  Just in case she decided to get clever and choose “I can’t”, I wanted her to have to say it out loud and admit that she can’t do something as simple as write ten numbers.

It sounds pretty ridiculous when you say you can’t do something, when you haven’t even tried it.  Particularly if the task is something that could be learned or accomplished after some practice.

After flashing a little smirk and eliciting a smile from me, my daughter questioningly said “I can do it when I try”.  At this point I realized we had something big.  This was a saying one could chant!  “I can do it when I try”!  “I can do it when I try”!  “I can do it when I try”!

She really got into this self motivational chanting.  After repeating that phrase a few times, she was smiling, laughing, and confident that she could actually write her numbers from one to ten.  Now that she made an affirmative decision to try.

She successfully completed practicing her numbers that day, and has gone on to great academic success. By that I mean she’s doing well in second grade right now.

 

Others Trying Hard

In the last week I have seen a few noteworthy articles on the importance of trying hard.

Nick at Pretired.org writes about football teams and those deep in debt facing similar obstacles.

Most people when faced with seemingly hopeless adversity simply give up. Sure, they may keep going through the motions. They may keep “trying.” But deep in their hearts, they haven’t adopted a winning mentality. A championship mentality.

You have to adopt that championship mentality if you really want to excel.  You have to say “I can do it when I try” and mean it.  Commit to it.  Not just go through the motions.

Tom Corley at richhabits.net (and author of the book Rich Habits) writes about why you should never quit on a dream.  Tom lists all the ways he has tried, but failed to gain media attention over the years.  After tens of thousands of unsuccessful attempts, he finally makes a breakthrough.

If you were to add up all of the failures I’ve had, it would number close to 30,000 over the years. 30,000 failed attempts and four successes (NJ Star Ledger, Yahoo, Dave Ramsey and CBS). 4 for 30,000. Yet, I’m doing it. I’m succeeding. I’m making it happen.

Tom could have said “I can’t” many years ago, and he would have been absolutely right, had he given up trying.  Instead, he persevered in the face of repeated failures.  In the end, he has reached amazing success and continues to pursue his dreams.  He can do it, when he tries.

In his article entitled “17 Things That Will Push You From Middle Class To First Class“, Johnny Moneyseed lays out 17 great ways to make your life better.  Method #5: “Challenge Yourself.  Set Goals.  Plan.”

When I started this site my intention was to be able to retire within a 7 year period, by age 35. As time went on my cash flow has significantly increased, and my plans have been accelerated more than I could have imagined.

What type of voodoo sorcery pushed me toward success? The simple application of goal-setting.

Create a plan for the next year, next 5 years, 10 years, 20 years. Once you write out a finite list of things that you want to accomplish, and make those goals a priority, you’ll find that you’ll become unstoppable.

Johnny is well on his way to retiring about the same time as I did.  And with three kids like me (many think this is unpossible)!  How often do you think Johnny Moneyseed said “I can’t”?  He figured out all it takes is making a plan and trying hard to accomplish your goals.

 

Not long after I started blogging, I made a quick comment on someone else’s blog where they were discussing individual effort and hard work. I said

Failure is temporary. Giving up is permanent.

Big time personal finance blogger “J. Money” at budgetsaresexy.com noticed the quote and tweeted it to his followers.  Then a number of his followers, including a Senator, retweeted the quote to their followers.  At the time I made the off-hand comment, I didn’t really put much thought into it.  But it is certainly true.  You can fail over and over, but still succeed in the end, or at least learn a lot on each successive attempt.  But once you give up, once you say “I can’t”, you resign yourself to defeat.

Repeat after me.  I can do it when I try.  When you are thinking about doing something difficult, or setting out on a new challenge, recite that little mantra to yourself and I bet you can actually do it.  Maybe not on the first try, but eventually you will succeed.

You can apply this new-found “can do” attitude all over your life.  You can try.  Even if you fail once or multiple times, you can keep trying.

If you are unhappy in your job, don’t say “I can’t”.  Get a new job or ask for a promotion or change of responsibilities at your current job.  What’s the worst outcome? You are stuck in the same job you already dislike.  The best?  More money, different responsibilities, exciting opportunities.

Thinking about starting a new business or turning a side business or hobby into something you could pursue full time?  Don’t immediately say “I can’t”.  Put together a business plan, run it by your friends and contacts in your industry.  Think hard about it.  Refine your plan.  If it still makes sense, pursue your dreams!  You can do it when you try.

I decided to start this blog mostly on a whim.  My goals were to have a little fun writing about subjects I find interesting, and make enough money to cover the hosting fees.  I have certainly had fun writing and researching a number of articles here.  Financially, I have far exceeded my revenue goals.  Instead of Root of Good being a hobby that costs me money or barely breaks even, this blog might be something that can actually make money.  In my first full month of blogging, my revenue was high enough to pay 13% of my household’s ongoing living expenses during retirement.  When I started the blog two months ago, I didn’t know anything about the technology, what to write about, or how to promote my blog through social media.  However, I can do it when I try.

Now that I’m retired, I have plenty of free time to pursue all kinds of interesting things.  For example, I’m trying to get proficient in a few foreign languages.  I decided to start with French to see how that goes.  I’m using an online program to help me learn.  Each module I complete gets progressively more difficult.  The first 15 or 20 modules I completed successfully on the first try.  Then I hit a brick wall and failed the same module over and over and over.  It was frustrating, but I never said “I can’t”.  That would be silly.  Five year olds in France can speak French fluently after all.  I kept practicing the difficult module until I passed it and then kept moving through the next few modules.  Even as I failed the same module repeatedly, I learned the material better and better on each attempt.  Even in failure there is success.

My own journey to financial independence and early retirement at age 33 wasn’t easy.  It wasn’t exactly hard either.  I put together a solid plan that would get me to retirement at a relatively early age and stuck to it.  I knew where I was headed but not exactly when I would get there.  I knew I could do it if I tried.  I also knew that the downside of failing to reach my early retirement goal was pretty awesome.  If I didn’t reach early retirement (or decided to keep working forever), at least I would have a really large investment portfolio that would definitely make life easier.

Trying to reach a goal and coming up a little short is still way better than not trying at all.  Not trying means you fail.  If you aren’t going to try, you might as well say “I can’t”.  Make it explicit.  You have to make a choice, and I personally favor “I can do it when I try”.

 

Readers, has anyone managed to overcome adversity and reached success when it seemed impossible?  

 

Be Your Own Insurance Company

Risk black and white

Understand Risk

This past weekend was a very busy one at the Root of Good household.  We were hosting play dates, lunches, and dinners for a few friends at our house throughout the weekend.  Add to that a birthday party on Sunday at a nature preserve (with hiking after the cake-eating), and watching fireworks at the State Fair.

The weekend started early on Friday.  Around lunch time the kids were released from school around noon so their teachers can participate in a half day of intensive training on new instructional methods and techniques.  I call B.S.  I really think it was a pretext and all the teachers sat around commiserating with each other while taking tequila shots and singing drunken karaoke over the intercom.  That’s what I would do if I were a teacher, which partially explains why I’m not a teacher.

After school, I walked home with my two daughters as well as about 10 other elementary school kids who belonged to an assortment of other parents.  Two of those 10 other kids were headed to our house (along with my two daughters) for an afternoon play date.  The other 8?  They went to their respective houses without anyone running them over or abducting them in a big creepy white work van.

Some might argue that the parents of those eight other children are guilty of child abuse.  If I were those allegedly negligent parents’ criminal defense attorney, I would argue they are actually very astute statisticians who know how to ignore the media hype over child abductions by strangers (a little more info on avoiding media hype here).  The best statistic I could find was in this eleven year old report that says there were around 115 children kidnapped by strangers in 1999.  For reference, there were 72,000,000 children in the US in 1999.  In other words, 99.99984% of children walking home from school made it home just fine.  Put another way, for every abducted kid, there are 626,086 other kids that are completely safe from getting kidnapped by strangers.  They will live another year to take their shot at the “abduction lottery” the next year.  As my kids say, “Stranger Danger!”.

The odds are so firmly stacked in favor of NOT getting abducted, that parents could arguably be called negligent for NOT allowing their kids to enjoy the outdoors and get some much needed exercise while walking home from school with their friends.  But I don’t want to judge, since I almost always walk with my kids to and from school.

To put the risk of a kid being abducted into perspective, it is roughly as likely to happen as it is to die in a car crash over the long Thanksgiving holiday weekend.  The odds of dying in a car crash over Thanksgiving are 1 out of 697,917 (for a period of 5 days), just slightly less likely than being abducted by a stranger (1 out of 626,087 over the course of an entire year).

Feeling Lucky

Would anyone really be deterred from visiting grandma’s for her delicious turkey, stuffing, and gravy over a piddly 1 out of 697,917 chance of dying on the trip?  Of course not!  We all take risks every day, even when there are serious consequences due to our choices.  The odds of a negative outcome may be tiny, but the result of a negative outcome can be fatal.  In spite of the known dangers, we willingly take on risks.

I don’t have reams of annual statistics on child abductions over the last half century, but I would imagine that child abduction rates have remained relatively constant or even declined over the decades.  There were crazy, messed up, despicable, sick people in the 60’s, the 70’s, the 80’s, the 90’s, the 2000’s, and today.  There were no good old days of 100% safety and security, just the good old days when TV’s only had 3 stations and they were in black and white.  You didn’t hear about child abductions because they were so rare.  Today we have 24-7 news cycles and internet headlines and facebook newsfeeds to keep us informed of the 0.00016% of children that are abducted every year.  Rapidly evolving technologies accelerate the rate of information dissemination.  Bad people doing bad things haven’t changed their ways.

Mr. Money Mustache (a fellow blogger) talks a bit about how much we focus on the risk of something really bad happening, when in reality the odds of that bad event occurring are nearly zero.  It’s a good read and helps put things in the right perspective.  I would call Mr. Money Mustache and myself an optimist, but I think we are both just slightly above average at math and statistics.

 

Analyze Risk

Thinking critically about risk and putting particular risks in perspective can help you navigate every day life.  The insurance industry exists to help people and businesses manage risk.  It’s a trillion dollar industry in the US alone, and employs over 2 million people.  This also means there are huge amounts of money being spent on insurance company operations, overhead and profit.

Why such a large insurance industry?  People don’t like risk.  The unpredictable nature of random events bugs us.  Insurance steps in to spread the risk to a large number of people.  If you are insured against a particular risk, you share that risk with all the other insureds, so your risk of significant loss is limited.

Many of us have experience with life insurance, health insurance, auto insurance, and home or renter’s insurance.  The truth is that insurance is offered all over the place:

  • extended warranties on electronics and appliances
  • travel insurance
  • vacation rental insurance
  • Roadside assistance

With the major types of insurance like home, auto, and health insurance, the Root of Good household tries to keep our premiums as low as possible by having a high deductible and only covering risks we want to protect against.

For health insurance, a high deductible plan has served us well during most years.  We did switch to more comprehensive coverage for a few years to save us money on the delivery of our children.  I’m not worried about a $100 doctor’s visit or a small $1,000-2,000 procedure.  I’m worried about a catastrophic medical emergency that could cost tens or hundreds of thousands of dollars.  I really consider health insurance to be asset insurance, since a major medical issue probably wouldn’t bankrupt us, but it would seriously deplete our assets.

For auto insurance, we also kept the deductible high.  A $1,000 deductible isn’t a problem when you have plenty of money in the bank to cover unexpected expenses.  Insurance acts as a forced savings account for many.  Instead of handing over more money to the insurance company each year to cover insurance we don’t need, we just pocket the savings.  We also got rid of the comprehensive and collision coverage once the cars weren’t worth that much ($3,000-$4,000 value seems like a good level).  If one of our cars were stolen, vandalized, or destroyed, a $3,000 hit to our net worth isn’t that severe.  We would just buy a new(er) car or get our busted up car fixed.

On our home policy, we set the deductible at $2,500.  In ten years owning our current home, we have not filed a single claim.  We look at home insurance as something that would be used primarily in the case of major catastrophes.  If our house burned to the ground or we suffered a direct hit from a tornado, the insurance would come in handy.  If a thunderstorm knocks a few shingles loose, we aren’t filing a claim.

Extended warranties seem to provide peace of mind.  At a steep cost.  I took a quick peek at the bestbuy.com website to see the going rate for “peace of mind” these days.  I found a nice 50″ TV similar to the one we bought a few years ago.  The extended warranty for a 50″ TV is 18% of the purchase price if you opt for two years of protection.  For a five year extended warranty, you will pay 31% of the TV’s purchase price.  Do 31% of TV’s really die within 5 years?  We haven’t experienced failures this frequently, and we usually buy just about the cheapest tech toys we can find!

We occasionally rent a house at the beach for family vacations.  They always offer “vacation rental insurance” to cover your rental costs in the event of family illness or death, or in the event of a hurricane or tropical storm (they infrequently hit the east coast of the USA).  Without doing any research or analysis, it seems like a good deal to pay an extra 7% of your rental cost for this valuable insurance.  But it isn’t that simple.

The extended warranties and vacation rental insurance contracts are worded very carefully against the consumer.  Pick up one of these contracts some time and dig through the fine print (because that sounds like so much freaking fun!).

The Best Buy extended warranty contract says you may have to pay a diagnostic fee to the technician to determine whether the repair falls under the terms of the extended warranty.  They will refund the diagnostic fee if the problem is under the warranty.  Otherwise you’ll have a busted TV and a bill for $100.  I can’t think of a time when any extended warranties would have worked in our favor.  Eventually something of ours will die just outside the manufacturer’s warranty, and we will be on the hook for repair or replacement.

Vacation rental insurance wouldn't have helped us avoid this tropical storm.  I'm glad we didn't waste money on it!

Vacation rental insurance wouldn’t have helped us avoid this tropical storm. I’m glad we didn’t waste money on it!

On the vacation rental insurance contract, “illness” and “death in the family” are defined very narrowly to make it difficult to use the insurance policy.  Hurricanes only trigger the insurance coverage if your rental house is under a mandatory evacuation for at least four days during your seven day stay.

Situations where the insurance pays you nothing: A mandatory evacuation lasting less than four days.  A mandatory evacuation of a few days at the beginning of your stay or a few days at the end of your stay. Merely a voluntary evacuation (not mandatory), and a hurricane or tropical storm makes landfall a few hundred miles away and makes the ocean extremely turbulent and dangerous, floods the roads near your house, and you lose power to your house for half the stay.  Those scenarios are more likely than the only scenario actually covered by the insurance (four day mandatory evacuation).

In other words, the insurance is almost useless to protect you against the biggest risk you face – loss of use of the rental house when a big tropical system makes life on the coast really crappy.  In all our years of renting houses at the beach, we have never experienced a situation even close to triggering the terms of the vacation rental insurance policy.

 

Embrace Risk, Self Insure

We embrace risk by self insuring for small risks that we can absorb without significantly impacting our finances.  By self insuring all of our small risks, we save a huge amount of money on reduced or avoided insurance premiums.  Occasionally we have slightly higher out of pocket costs to cover an incident, but it all averages out in our favor over time.

Here is roughly what we save each year by keeping deductibles high and forgoing various types of consumer insurance:

Health insurance: $2,000

Home insurance: $400

Auto insurance: $200

Extended warranties: $250

Vacation Rental Insurance: $100

Roadside assistance: $50          

TOTAL: $3,000

Understanding risk can save you a bunch of money.  The past decade of buying too much insurance would have cost us $30,000.  We have definitely paid out of pocket for a few things over the years that we could have insured against, but nowhere near $30,000 (probably $3,000).  Most of that $30,000 is sitting in our investment accounts and is probably closer to $40,000 or $45,000 since amounts saved ten years ago have more than doubled in the last decade.

Some might be reading all this and think “yeah, but Root of Good is rich and we aren’t.  We can’t afford to pay a thousand or two out of pocket if something really bad happens.”  You can’t afford not to self insure.  Save a few thousand extra dollars in your savings account and call it “self insurance money”, “rainy day fund”, or some other useful name.  Then you can save thousands of dollars every year by right-sizing your insurance purchases.

 

Closing Thoughts

My philosophy on insurance is that it should cover catastrophic risks primarily.  We do pay extra for higher coverage amounts for liability insurance on the home and auto policies.  The additional coverage is incredibly cheap (around $100-200 per year for hundreds of thousands of dollars of additional liability insurance).  I strongly hope it will continue being a complete waste of money while protecting us against the exact kind of risks that would destroy our assets and would cause a major change in lifestyle for us.

To save money by self insuring, you have to be mentally okay with losing out occasionally when bad stuff happens.  Imagine paying $500 for a new TV or computer and having the device die the day after the manufacturer’s warranty expires.  You face a $200 repair bill (but you avoided an $80 extended warranty).  Does it feel okay losing $120 (the net cost after discounting the extended warranty price)?  If not, you should keep wasting money on insurance since it buys you peace of mind.

 

 

Readers, do you think you have just the right amount of insurance, or are there areas where you need more or less?

 

One Month Into My Early Retirement Adventure!

Sitting around like bumps on a log

Yesterday marked the one month anniversary of my early retirement.  Where did the time go?  Why didn’t I accomplish more?  It seems like just yesterday I was working, yet it also seems like an eternity ago.

I guess I’m a motivated person, and can’t turn the need to be productive off like a switch.  Immediately after retiring I made a quick action plan that I wanted to focus on during the first month of retiring.  The list is a mix of things that I want or need to do, but haven’t really had much time for while working full time.

 

Keeping Busy

Here was my list of goals for the first month:

  1. Ebay a bunch of stuff
  2. Learn a foreign language or 3
  3. Investigate starting a blog and/or a Youtube channel
  4. Get more exercise
  5. Cook even more than I already have been, and perfect some new dishes
  6. Hang out with more people more often
  7. Play more video games
  8. Read more books

 

How did I do?

  1. Ebayed a couple things, but not the 8-10 things I wanted to.
  2. Learn a foreign language – I’m diligently working on French language at Duolingo.com, and trying to do one module per day at least.  The last week I have been pretty successful, but I need to focus more.
  3. Investigate starting a blog and/or a Youtube channel – You are reading this, so obviously the blog is up and going.  No progress on the youtube channel.  The blog is an incredible time suck and an addicting hobby.  I regret I never spent any time before on a project like this!  But I plan to back off the time investment a little bit in month #2.
  4. Get more exercise – Big check on this one!  I have managed to walk the kids to and from school (total 2+ miles per day) and walked to the grocery store, other shopping, library, and community center with our one year old in tow.  This is a great way to get exercise and spend time outdoors.  The weather has been very cooperative here in North Carolina, and hopefully I can keep this up as winter approaches.  Pork Carnitas
  5. Cook even more – Check!  Plenty of time to cook now that I’m retired. I have been working on some new recipes and techniques.  Tamales and french bread have been two recent successes, and today I made some awesome jambalaya and fondant (not for the same dish!).  Now that I have ample free time, I don’t feel guilty that it took me almost all day to make tamales (instead of knocking out other honey do list items).
  6. Hang out with more people Check!  I have set up many play dates with other kids and their parents, and we hosted our daughters’ first sleepover.  Ample lunches with old buddies and reconnecting.  So far I am getting good vibes from everyone on the retirement, and no “complainypants”.
  7. Play more video/computer games – I’m a little disappointed in myself, I thought I would do a better job.  I’ll leave this on the list for month #2 and subsequent months.
  8. Read more books – I have slacked off here as well.  This will be a higher priority next month.  I love to read, and I’m pretty sure the weather will be perfect for some porch sitting and book reading.

I also had the time to keep up with one particularly interesting and rewarding volunteering gig that led to a little bit of impromptu political activism and speech-giving.  Hobnobbing with politicians is more fun when you do it on your terms and for your own good purposes.

Of course, our three kids keep me running ragged.  I have so much quality time with our one year old everyday.  We have a recurring weekly play date with another little boy his age, and our little one loves these trips.  The very early childhoods of my two daughters passed by so quickly, I never had time to realize what I was missing.  Now I’m getting a chance to relive those early days of childhood through the experiences of our little one year old boy.

The thing that is keeping me busiest these days is Root of Good.  It is very rewarding to watch traffic grow each day, and see the visitors continue to rise.  The last few days have seen hundreds of visitors each day, and almost 1,000 page views per day.  The global nature of the internet amazes me, as I watch visitors trickle in from all over the globe (every continent except Antarctica).

As I reflect back on my first month in retirement, the biggest thing that I learned is that you have to intentionally make time for leisure activities that are important to you.  Even if you aren’t working, time can still mysteriously wander away, and it can still be hard to accomplish everything you want to do.  Let’s hope month #2 is more productive in a leisurely way!

 

Hello to all my new friends from around the US and rest of the world!  Drop me a line in the comments below to say “hi” (or hola or bonjour).  If you want to keep in touch, follow me at @rootofgoodblog or on Facebook.  

 

Early Retirement at 33: An Overview

Sunset over the sea

One of the most popular page at Root of Good is the “I Retired at 33!” page where I introduce myself and talk a little about Root of Good.

I assume that means people are interested in the story of how I retired at 33.  In this post, I’ll give a quick summary of how I managed to pull off retirement at a very early age.

 

Early Years

I started finding ways to make money at an early age. Buying candy in bulk and selling individual pieces for a quarter each at school.  A newspaper route.  Mowing the neighbor’s yard.  Tutoring kids after school.

During high school, I had a few different after school jobs, and found full time positions over the summers.

Of the money I earned, I saved a large proportion of it.  I was a self-made thousandaire before I even left high school!

College

College

I decided to go to the nearby state university.  It was a very good school for engineering, and very inexpensive ($3000 per year back in 1998).  My SAT scores could have gotten me into a more prestigious school somewhere else, but in hindsight the local state university was the best choice.

I took more than the normal 15 credit hours each semester and graduated in three years.  Not only did I save a year of tuition, I also made working and earning a (hopefully) good salary one year closer.

During my three years in undergraduate, I had a series of jobs that were interesting, paid well, and/or provided useful experience for my career – civil engineering.  I also managed to win 11 academic scholarships and a few research grants.

By the time I finished undergrad, I had a nice bit of savings accumulated.

I’m planning on using many of these same tactics to help my own three kids get through college without spending several hundred thousand dollars.

Instead of heading into the difficult job market of 2001, I went to law school.

Lucky for me, the law school was also in-state, which made tuition relatively affordable.  Around this time my wife and I bought a condo together where we lived during my law school days.

I worked a few summers at law firms and various governmental legal employers.  Eventually I figured out I didn’t really want to practice law for a living.  The hours sucked big time if you wanted to make the big six figure salaries!  I was all about making some money, but not at the expense of a life outside work.

At one of these summer jobs, there was very little actual work to do, so I decided to start my own business.  I ended up making over $30,000 in the next couple years with relatively little effort.

Figuring a Juris Doctor might come in handy one day (or at least look cool on my office wall), I finished up law school and immediately started a great job at an engineering consulting firm in Raleigh.

We tried (but failed) to sell our condo when we moved back to Raleigh, so we rented it out to some PhD students at the university.  A year or two later the California property boom sloshed some excess money our way when a nice couple from Santa Clara bought our condo sight unseen for a third more than we paid for it.  More money for our portfolio!

 

Optimal Spouse Selection

Mrs. RootofGood and I married right before I finished law school.  She is obviously perfect in every regard.  She also obviously reads this blog, so I have to say that.  Our similar outlooks on personal finances have been a huge wealth generator.

It may come as no surprise that we are both very frugal about virtually everything.  We agree on saving a large part of our incomes.  We take vacations off season because crowds are thinner and our wallets get fatter (er, less thin).  Our furniture might be uncharitably described as dorm room chic.  Our kids wear hand me downs alongside inexpensively purchased new clothes.  We live in a modest neighborhood and drive modest cars.

We made these frugal choices so that one day we can retire early and not have the stress and time demands from a regular job burdening our daily lives.  There is more to life. 

 

Work

Good Job With Benefits

I found a good job straight out of college that paid well and had a really good set of benefits like a low cost 401k plan with a nice 6% matching contribution and an Employee Stock Ownership Plan.

Mrs. RootofGood found a job at a great company with even better benefits, although the pay wasn’t the highest at first.  Her 401k plan was better than mine and had an even larger matching contribution!  The health insurance plans offered at her firm were excellent and almost free, even for family coverage.

During our careers, we both focused on expanding our skill sets and increasing our responsibilities in the hopes that our salaries would rise over time.  My salary jumped big time once I earned my Professional Engineer’s license.  Mrs. RootofGood earned a number of promotions and raises.

This is almost certainly un-American, but we dumped raises into investments instead of buying more crap.

 

Maxing Your Savings

As soon as we started working right after college, we immediately started contributing the maximum to our 401k’s and IRA’s.  It made our paychecks artificially tiny.  Puny.  But maxing out savings options is like putting your net worth on steroids.  There’s muscles popping out all over the place!

Eventually we had to seek out more places to stash money.  Enter the Health Savings Account, the 457, and after the kids were born, 529 college savings plans.  After filling up those accounts, brokerage accounts held the rest of our investment contributions each year.

 

Don’t Pay Taxes

That’s a typo.  Pay as little as possible!  Contributing to 401k’s, traditional IRA’s, health savings account, 457, and a 529 college savings account kept our taxable income low.  We also paid for child care through the Childcare Flexible Spending Account offered by Mrs. RootofGood’s employer.

Our tax strategies have been so successful that we ended up with a federal tax bill in 2012 of $600 in spite of gross earnings over $140,000.  I consider an average tax rate under 0.5% to be pretty good!  2013 is even better.  Our tax rate is 0.1% ($150 tax on $150,000 income).

We didn’t do anything sneaky or illegal.  In fact, I do our tax returns on paper and one of my rules of investing is to keep it simple enough so it doesn’t make our tax returns insanely difficult.

 

Home Sweet Home

A Permanent Starter Home

Right as I was finishing law school, we took our cash from student loans, summer jobs, and profits from business ventures and dumped them into a house (along with a small loan from my parents that helped us both out).

We investigated buying land and building a house, and eventually rejected that option as it would be very expensive to custom build a house compared to buying a “used” house.  Plots of land close to town were more expensive than whole houses (and the land underneath them!).

We bought the house thinking it would be a starter home.  Ten years later, and after ample fix ups, we are still here.  Now it is a permanent home, since it meets our needs well.  It still needs work, but what house doesn’t?

Houses can be expensive.  Of course, we weren’t silly enough to pay full price for the house!  The City put the house up for auction and we were the winning bidder at a price 20-30% below similar houses.  There was a little more research, due diligence, and risk taking on our part, but it has worked out well with no surprises.  Except the lake the City rebuilt for $2 million right behind our house soon after we moved in.  Somehow I concealed this awesome fact from Mrs. RootofGood.

We have been lucky to refinance the house more times than I can remember, pushing the mortgage rate down to 5%, 4%, 3%, 2.5%, and now 1.99% (for 3 more years until it is paid in full).  Each time we refinanced, we tended to make the loan term shorter to help pay off the house quicker.

 

Smart Investments

I started out investing with Edward Jones, a full service brokerage firm.  They “fully serviced” me by providing expensive investment products.  I’m lazy, so I stuck with them for a couple years and paid high fees.  Eventually Mrs. RootofGood’s compliance department gave me the kick in the butt I needed, and made me switch to an approved brokerage firm, so I had to leave Edward Jones.

Switching brokerage firms to Fidelity and Vanguard cut our investment costs and hidden fees (expense ratios) to almost nothing.  In addition, the online access was far superior at both firms.  Now I could manage and automate my investments from the comfort of my own couch.  In the middle of the night.

We have saved close to $40,000 on investment expenses by switching to a low cost provider like Vanguard and Fidelity.  That’s a year or two of living expenses!

The kids

 

Kids

Yeah, we had them.  Lots of them.  Three to be exact.

Recent really scary news reports indicate it costs like $300,000 to raise each kid.  I can’t figure out how they spend so much money on little creatures whose favorite things to play with are cardboard boxes and shiny pieces of plastic up until age 7 or so.  And that $300,000 figure didn’t even include college (which probably won’t cost more than $20,000-30,000 per child)!

The truth is, you don’t have to spend a ton of money on your kids, and they will still love you at least 94% as much as if you had spent $300,000 on them.

Moral of the story: don’t spend excessive money on them.  Spend time with them.

 

Know What You Spend, Budget If Necessary

Until four years ago I never closely tracked what we spent.  We have never had a budget.  “Save money on everything” is a reflex, and keeping expenses low comes automatically for us.  Apparently this is not true for everyone, so budgets could be a good thing if you have a spending problem.

I started out with a simple spreadsheet where I copy/paste all credit card and checking account transactions for each month.  The spreadsheet automatically summarizes the expenses for each quarter and each year.

Income Summary

Personal Capital looks beautiful!

 

I use Personal Capital to track all spending as well as all investments.  It provides a summary of all income, expenses, and investments in one screen.  Incredibly easy to set up and even easier to use.

This is a great tool for figuring out exactly where your money is going.  Knowing how you spend lets you determine whether you get value for your dollars, and where you might be able to focus efforts to reduce expenses further.

After I started tracking expenses in very fine detail, I realized we weren’t spending as much as I had assumed.  Core expenses were around $24,000 per year.  This meant we were even closer to early retirement (lower annual expenses = smaller investment portfolio required to fund those expenses).

Bahamas

Almost Free Vacations

We like to travel, but we don’t like to spend a lot of money.  This is one category of spending where we have paid very little over the years, yet enjoyed some pretty amazing vacations.  I have never sat down and figured out how many countries we have visited exactly.

Ok, a quick mental count says about ten, but all the Caribbean islands quickly blend together with their white sandy beaches and crystal clear blue water.

How did we save money?

We really enjoy going on cruises, too.  They aren’t always the absolute cheapest form of vacation but you can get a good taste of luxury for rock bottom prices if you can swing a cruise during the low season between September and February.

Fun times in the Bahamas on our January 2016 cruise.

Fun times in the Bahamas on our January 2016 cruise.

 

Weathering the Great Recession

Boy howdy, some people lost a freaking ton of money during that little economic blip called “The Great Recession”.  We lost a boat load too.  And then made it all back.  In fact, I switched up the investments to a more aggressive allocation in the middle of the 2008-2009 crash and it has paid off well (I’m retired after all).

It truly hurts to hear stories of people who lost half their investments in the Great Recession, then sold everything and stayed out of the market during the recovery in 2010-2013.  We basically did the exact opposite and piled money into risky investments during the 2008-2009 market crash.

Sure, it was a little scary seeing the market crash 7% in a day.  But I call those “buying opportunities”.  The money we were “losing” was long term investments, so why did I care if one day it went down 7%?  I care what these mutual funds will be worth in 10 or 20 years.

 

The PlanMake a Plan

We made an early retirement plan right after I started my post-college job.  We had all this money coming in the door.  Way more money than we had before.  I knew back then that this was a powerful force that, if harnessed, could lead to something big one day.

Over the years the plan changed and our ideal amount of investments changed numerous times.  These changes are unavoidable, since knowledge of finances and investments increases over time, and your interests and desires also change.  We kept fine tuning the plan as our investments and our family grew.

 

Embracing the Unknown

I would be lying if I said we have a 100% certain plan to be retired early forever and there is no chance we will ever have to work again.  There is always uncertainty.  The best you can do is plan for it, and understand that flexibility will get you a lot further in uncertain times than rigidly holding to a plan.  However, I don’t think we’ll ever run out of money in early retirement.

 

Securing Affordable Health Insurance In Early Retirement

Everyone (in the US at least) worries about finding and keeping affordable health insurance in retirement.  With the Affordable Care Act, those concerns are largely moot.

Our family obtained insurance coverage with $0 deductibles through the Healthcare.gov exchange for $125 per month.  Though heavily politicized, the Affordable Care Act is hugely beneficial for early retirees because it provides guaranteed issue health insurance for everyone.  Those with incomes under 400% of the poverty level will most likely qualify for tax subsidies to help pay for monthly insurance premiums.  In our case, because our income is much lower while retired, we qualify for subsidies over $900 per month.

 

Reaching Our Goals

Over the last six years the stock market produced a lot of wealth.  We went from having “lots of money” to having “enough”.  Having enough money to live comfortably for the indefinite future is a big deal.

After my job ended, I pulled out The Plan and quickly figured out we have “enough”.  Now my days are free and I can do (or not do) whatever I want.  Mrs. Root of Good tried (but failed) to retire in 2015.  She switched to part time work (for full time pay) and eventually joined me in early retirement in early 2016.  The last two years she worked, she had two paid summers off so we could travel to Canada for two and a half weeks and to Mexico for over seven weeks.

From the cruise ship

Accessing our 401k’s and IRA’s without penalty

We have approximately 70% of our investment portfolio in traditional 401k’s and IRA’s.  Withdrawals from these types of accounts usually incur a 10% early withdrawal penalty.  However, there are two methods that allow early retirees to withdraw significant sums from these tax deferred accounts without paying the 10% early withdrawal penalty.

The first is the “72t rule” that requires “substantially equal periodic payments” from the commencement of early withdrawals until age 59.5.  Not wanting to lock myself into a fixed series of withdrawals for the next 25 years, I chose to go a different route.

The second method of accessing tax deferred accounts without paying a 10% early withdrawal penalty is the Roth IRA Conversion Ladder.  Through this method, I am converting small parts of my traditional 401k and IRA accounts to Roth IRA each year.  After a five year waiting period, I’m able to withdraw those amounts converted penalty free.

 

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In a nutshell, this is the story of how I went from a thousandaire to a millionaire in about ten years.  The rest of our early retirement story continues to be written every day.

 

To keep informed of the latest posts at Root of Good, make sure to subscribe on Facebook, Twitter, or by email or RSS reader (in the column to the right).

 

If you want to find out more about any particular area of our lives or finances, please share with me below!  

5 Ways Living Near Family Saves You Money

Family

Yesterday started out as a typical Saturday morning in our house.  The kids woke up early, went downstairs, and watched cartoons like zombies.  The parents stayed upstairs and slept in.  Eventually I crawled out of bed and went downstairs to have my coffee and a bagel.  Then came a sudden persistent knocking at our side door.

It was around nine a.m. by this point.  Who is at the door?  It isn’t the postal service.  UPS and Fedex never come that early.  Those inviting me to convert to their particular blend of beliefs usually anoint my front door with their touch, not the side door.  As I rounded the corner to the kitchen, I saw the smiling face of my sister in law outside the glass door.

She came bearing gifts.  Delicious, fried egg rolls.  Why would my sister in law drop by at 9 a.m. with a plate full of egg rolls?  She makes large batches at one time because a large batch isn’t much more work than a small batch.  Then she shares the treats with family and friends.  The end result is the Root of Good family having an awesome mid-morning snack without running down the street for Chinese take out.

This is one small (but delicious!) advantage of living near family.  Egg Rolls

The egg rolls were of course yummy, but over the years we have received so much more from our families that led to ridiculously huge financial savings.

1. Equipment and Vehicles

With family nearby, we can borrow a pickup truck whenever needed.  And if necessary, the truck can be staffed with a couple of strong guys to help with tasks at our house.  We have also borrowed expensive tools that we don’t need very often such as a power washer, power tools, and long ladders.

2. Construction Work

As a homeowner, there are some do-it-yourself tasks that are easy to tackle.  For bigger jobs, having family that works in construction is a huge help.  We graciously accepted help with all sorts of repairs and remodels when we bought our 30 year old fixer upper house.

This list of work over the last ten years would have been very expensive if we paid contractors:renovation

  • tile flooring
  • drywall replacement
  • interior and exterior painting
  • custom fireplace and built-in shelving
  • carpet installation
  • roof repairs
  • gutter replacement
  • storage shed
  • roof for deck
  • plumbing
  • cabinetry
  • hot water heater installation

We didn’t get all this work done for free, but what we paid family was much less than the going rate for contractors.  We also paid actual costs for construction materials instead of markups contractors often charge.  As an added bonus, we can trust our family to do good work and not rip us off, unlike some unscrupulous contractors.

3. Free Furniture

Our house is decorated with furniture that our family didn’t want any more or acquired for free from their jobs.  We haven’t purchased a piece of furniture in ten years.  Our home will never be featured in Architectural Digest, but it is cozy and functional and works for us.

4. Childcare

With three young children, we have been able to save significant amounts on childcare by having Mrs. Root of Good’s mother watch them while we were at work.  We still paid her, although the rate was hundreds per month less than market rates at preschool or daycare.  This was a win-win-win.  My mother in law made some money, we saved some money, and our kids spent their toddlerhood with family instead of strangers.

We have never paid for babysitting.  Our families are always interested in keeping the kids so we have an endless supply of babysitters whenever we need a break.  In fact, there is an oversupply of babysitters!  We have bidding wars over who gets to keep the kids.  Equitably allocating babysitting time with each of our families is challenging.

5. Saving on Travel

In addition to “trading” services and possessions, we also save on travel expenses and stress.  At Thanksgiving, Christmas, and other holidays where you usually gather as a family, we are always thankful that we don’t have to drive more than 20 minutes to see our loved ones.  We don’t spend anything on plane tickets or hotels since all our close family live near us.

We also enjoy our holidays because they are relaxing.  No sitting in airports or in cramped planes.  No weather delays, and no missed connections.  No marathon car trips with kids screaming in the back seat.  The avoidance of stress is more valuable than the cost savings!

What We Give In Return

It sounds like we are constantly mooching off our families, but generosity is a two way street!  We try to help out family whenever possible, and over the years have provided help by:

  • representing family in court in a construction law dispute
  • securing an immigration visa and green card for our new sister in law
  • advising on financial, business and tax issues
  • navigating the complexities of medicare and social security for parents
  • drafting real estate deeds and contracts
  • repairing broken appliances
  • troubleshooting and repairing computers, VOIP telephones, and home networks

I can’t even begin to tally up the total value of assistance we have given or received, but it has been a huge financial help to our household and our families’ households.  Living near family has literally paid off. 

 

There are downsides to remaining close to family. 

Staying in one place can put a damper on careers.  Many occupations are focused in a few large cities (such as New York and LA for acting) and employment can be limited in other areas.  It can be difficult to pursue better opportunities if you are unwilling to relocate. You may miss out on new experiences by staying in one place.

 

Overall, I think our decision to live near family has proven to be a good one.  We probably sacrificed some income by limiting career options to those available locally.  But the financial and non-monetary benefits have been very significant.

 

Have you made a choice to stay near family for financial or non-financial reasons?  Has it worked as planned?

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