Half a lifetime ago I developed a financial independence plan before I knew anything about financial independence and early retirement. My 17 year old self scribbled out a poorly refined plan to never work again and live off of savings from a minimum wage job. The bottom line: I thought I needed $120,000 to fund a perfectly adequate lifestyle forever by living on $600 per month in interest.
The year was 1997, the place was North Carolina in the wonderful United States of America. The federal poverty level back in 1997 was $657 per month, which meant that I was planning on living below the poverty line (before I even knew what a poverty line was).
My First Financial Independence Plan
My rough plan as I originally sketched it out on the back of a napkin:
- Save up $120,000 by working extra shifts at a minimum wage job (you get paid time and a half for overtime!)
- Invest the $120,000 at my credit union in a CD earning 6% interest
- Earn $600 per month ($7,200 per year) from that CD
- Live on $600 per month forever
How could I live on $600 per month? Easy! Rent a three bedroom apartment and get my two best friends to move in with me so we can split the rent and utilities three ways. Having my two best friends living with me would also mean plenty of free entertainment in the comfort of my own home. And we could split video game purchases three ways, too.
I had a rough idea of utility costs and an exact idea of rental prices thanks to those free Apartment Finder books at the grocery store. The other budget items were educated guesses based on my 17 year old self’s consumption habits. Groceries meant frozen pizzas and tater tots. Entertainment included video games and computer games, coffees at the independent coffee shop near the university, fast food with friends, used paperback books, playing pool at the pool hall and everything else 17 year olds bought in 1997.
Gas was about a buck. Taco Bell still had decent menu items under a buck. Times were good as a 17 year old. To put costs in perspective, a dollar in 1997 buys $1.46 worth of stuff today. Or put another way, a $1 burrito today would only set you back $0.69 in 1997.
The perfect budget for a 17 year old
From my vague recollection, here’s the monthly budget I developed for the future adult me (try not to laugh):
- Housing – $200 ($600 rent split three ways)
- Utilities – $50 ($150 split three ways)
- Groceries – $100
- Car and gas – $50
- Dining out / Entertainment – $100
- Miscellaneous – $100 (pretty clever of 17 year old me to include some wiggle room!)
That comes to a grand total of $600 per month ($876 in 2015 dollars) to live in my own totally awesome bachelor pad with my totally awesome best friends and drive my very own totally sweet car and do anything that I could imagine as a 17 year old. Pretty avant-garde stuff.
The perfect FI plan, deconstructed
Ah, the misguided plans of my youth. At 17, I figured I wouldn’t need to go to college because it wouldn’t take that long working extra shifts at my minimum wage job to save up the $120,000 required to fund a lifetime of Cheeto-fueled video gaming. Yep, that’s the mind of 17 year old me.
I also had a dream of moving to rural Mexico and growing my own beans at my little finca in the countryside and surviving on the rough. I blame the Guide to Mexico I ordered for free through my parents’ AAA Auto Club membership plus whatever classic lit they made us read in high school English class.
Moving to Mexico to become a farmer is a worse idea than retiring on $120,000 here in the US. However, dreams of Mexico led me and the future Mrs. RoG on an interesting six week odyssey through Mexico once we were in college. Although I never grew a single bean while there. Mrs. RoG doesn’t even like beans, so staying in North Carolina was probably a good move for our marriage.
Back to my $120,000 FI plan. Would it work? No, probably not for a number of reasons:
I failed to account for inflation. If I earned 6% in a CD and spent all of that interest each year, then the $120,000 would lose its purchasing power over time. I would have to reinvest 2-3% of the interest to counteract the impact of inflation. Or invest in something that pays a better return (like stocks!) that tends to keep up with inflation.
My $120,000 nest egg in 1997 has the same purchasing power as $82,200 today. Phrased another way, I would need $876 today to live as well as I could have on $600 per month in 1997.
I didn’t account for taxes. Who knew you had to pay taxes as an adult? Go figure. In this case, $7,200 wouldn’t incur any federal tax but I might have owed a small amount of state tax in some years. With such a small budget, losing even a few hundred dollars per year would be rough.
I didn’t account for lifestyle inflation. This is really where I would have failed. At 17, the world is your oyster. I was single, unattached, and full of piss and vinegar (to borrow a line from John Steinbeck). As it turns out, adults do things like get married, have kids, and buy houses with yards. Those things cost money.
But there are also benefits to growing up and getting married. Spouses bring a second income to the household.
I didn’t budget for replacement costs. I didn’t even budget for purchasing a house since I included $200 for rent. But once I bought a house, it became an ongoing liability. Appliances, the HVAC, the roof, and exterior finishes occasionally need replacing. I figured out I needed to budget around $1,500 per year to cover a routine replacement program for my house.
Cars don’t last forever either. I figure another $1,000 per year to replace a worn out car with a new(er) car. As you can tell, 17 year old me didn’t think years into the future to budget for routine things like car replacement or major house maintenance.
I ignored important costs like healthcare and dental care. At 17, we’re invincible. As we get older, we need the occasional check up for our bodies and teeth. Once the invincibility wears off, we can get sick and our teeth might decay.
How close was I?
In terms of expenses, my $7,200 per year budget would be $10,500 per year today. Let’s be generous and assume we each combined our $10,500 FI income streams once we got married.
$21,000 wouldn’t afford us the lifestyle we enjoy today. In fact, we would have to make some very serious sacrifices to get to that level of spending like move to a much smaller house in a crappier neighborhood. Next we would cut vacation spending and switch out fresh veggies and fruits for more ramen and beans. No thanks. I’ll stick with our $32,400 per year retirement budget!
Ignoring my 17 year old self
I’m pretty fortunate that I never executed on my plan to skip college and room with my best friends and scrape by on $600 per month. That would have grown old pretty quickly. Eventually my friends would move on with their lives, leaving me to fill my apartment with strangers for roommates or admit defeat and get a real job.
That initial hastily sketched financial independence plan gave me a very loose outline of how early retirement and financial independence is feasible for a regular person like me.
The bigger lesson is to think and dream big, and refine those dreams as you gain experience and wisdom. Lucky for me, I never abandoned the sense of exploration from boyhood. Nor did I abandon the desire to live differently and achieve financial independence – the ultimate freedom.
I’m looking for the most revolutionary money idea you came up with as a kid. OK, go!
photo credit: Kevin Thai @ flickr
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