A Real-Life Journey to Financial Freedom

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Last month, I had an interesting email exchange with a reader.  I’m pleased to introduce that reader to you today.  

“Tom” and his wife are on a successful journey to financial freedom, starting from humble beginnings, earning <$100k, and now well-positioned for retirement in less than 5 years. 

How did they do it?  What can we learn from them?

Many of you are on that same journey and may benefit from hearing Tom’s story in his own words.  Since I’m currently on my own journey (a Cannonball Run, to be exact), today seemed a good day to let Tom take the wheel.

There are things we can all learn from each other, and I trust you’ll learn something from Tom’s journey to financial freedom.

Today, a real-life journey to financial freedom, from a reader of The Retirement Manifesto. Click To Tweet

With that…here’s Tom:

A Real-Life Journey To Financial Freedom

Consider this a “case study” of one reader’s journey to financial freedom to help other readers understand the steps we took, with the hope that they can learn from our experience. 

We are early 40’s multimillionaires preparing for retirement in less than five years. We are financial hobbyists.

We aren’t famous, we don’t come from money, we don’t have a blog or a website, and up until a few years ago, neither one of us ever made over a six-figure salary. We did F.I.R.E. by accident. To this day, only one of us makes over $100k. Without going too much into the details, our net worth is in the ballpark of $4.5 million as of the fall of 2020. 

The total amount is broken up between approximately $1.5 million in investments, $800k in real estate (including a paid-for house and some rental properties), the approximate value of a pension (considering what a 4% withdrawal rate would have to be), and a lifetime retirement health insurance benefit.

My journey to The Retirement Manifesto site began a few years ago. Preparing for my own journey, I would repeatedly ask two questions of folks I knew that were retired or nearing retirement.

  • When can I retire, and…
  • When is enough, enough? 

This drew me to search online and ultimately to The Retirement Manifesto series titled “When Can I Retire?”.

This year I heard Fritz on the Bigger Pockets Money Podcast, episode #125, Ready to Retire: The Ultimate Pre-Retirement Checklist.  I am not an impulsive person; however, I stopped in the middle of a walk with my dogs and bought Fritz’s book, Keys to a Successful Retirement,  based on the BP interview. I read it cover-to-cover in a few days and sincerely think it’s one of the top reads for 2020.

I’ve also listened to over 150 podcasts so far this year, and the BP interview is one of the top 5 for me in terms of actionable advice. This led me back to your website for The Ultimate Pre-Retirement Checklist article that was discussed on the podcast.

Great content, all.  And information that’s been helpful on our journey. 

Our Back Story

Our story is one of humble beginnings. 

We were two middle to lower class kids whose parents struggled, and still do, with personal finance. After bouncing from part-time to part-time jobs, we were hired full time in blue-collar fields approximately 20 years ago. I have been with the same employer in the public service sector. My wife has had various jobs in mostly blue-collar industries. Neither one of us had college degrees when we began working full-time. However, through employer-subsidized encouragement, we both went back to school, while working full-time, and obtained advanced degrees.
 
Looking back, the decision to go to school and have our employers subsidize it was one of our first real big wins.

Around the same time, we discovered Dave Ramsey and loosely followed his “baby steps.” We also discovered Thomas J. Stanley’s books, “The Millionaire Next Door and Millionaire Mind” in audiobook format. I listened to them repeatedly. At that time in our journey, there were no blogs, no podcasts, and really no “how-to guide” besides these resources and a few others. In our opinion, to this day, these remain some of the best available. The advice stands the test of time. For those nearing retirement, your blog and book are, by far, some of the best resources!

So, How’d We Do It?

Around 2007, a business owner friend of mine asked if I calculated my net worth. I laughed because I didn’t really think I owned anything. We were loosely on the Ramsey path to pay off the house, and we loosely invested in employer-sponsored retirement accounts. I still have the sheet of paper that showed our net worth that year at $118,528.

However, what I took away from that exercise was that it’s critical to be intentional. Looking back, it was also critical to have part-time work opportunities to help accelerate the goal.

I’ve recently heard about studies of millionaires that don’t budget. I can say in our circumstance, keeping our eye on the ball has been critical. Just a simple month-to-month calculation of a budget is what really got us rolling. As a result, by 2017, eight short years later, we had a net worth of over $1 million. 

For the nerds like me, yes, that includes the house. 

We consider no home to be a “forever home,” so for us, the ability to pull that money out by selling, downsizing, exercising geographic arbitrage, or not, is an important part of the consideration. Also, we accomplished this while having kids, demanding jobs, daycare expenses, college funds, broken down cars and other curve balls of life.

Fast forward to 2020, and our investments and cash flowing real estate were valued at around $2.2 million.  We have a total debt of $138k (more about that below). We’ve never received a handout or inheritance, and everything we have has been accomplished through consistency and hard work.

It is absolutely possible for anyone to accomplish this feat, we are living proof.

I often hear people say things like, “I don’t want to live like that” when referring to budgets or paying down debt. However, we did “live like that,” and we’ve never missed a vacation (although we do budget), we drive average but reliable cars, and live in a wonderful and affordable tree-lined neighborhood with classic older homes not terribly far from major metropolitan areas in the northeast.

Our Takeaways for Success

Looking back over our journey, the following are our key takeaways:

  • Time management is critical in all areas of life.

  • Side hustles and fun part-time work will get you to F.I.R.E. faster.

  • There were times I was making $10/hr at a fun part-time gig while making $100k at my main job.

  • Living debt-free is a must. This is “playing defense” with your money and offers a good balance to your overall financial picture when investing in other areas.

  • Keeping your eye on the ball by budgeting will help you accomplish your goals quicker.

  • Calculate your net worth once a year. It’s the single best scorecard to determine how you’re doing. 

  • Goal setting is a non-negotiable task. Daily goal setting will keep you on task and motivated. Yearly, and 5-10 year, goal setting will also help you determine what’s important.

  • Daily learning will help you obtain freedom. You can obtain an informal, advanced degree by way of YouTube and podcasts alone!

  • Buy assets, not liabilities. Car payments, for example, will make you broke.

  • Max out retirement accounts where and when you can.

  • If you have employer-subsidized formal education benefits, take 100% advantage.

Based on our experience, the best plan to achieve a high level of success is accomplished in this order:

  • Pay down all debt.

  • Max out investment opportunities such as employer plans and Roths

  • Buy cash flowing real estate

  • To the best of your ability, don’t worry about politics, the government, or things outside your control, certainly when it comes to retirement. 

  • Take time to enjoy the fun stuff along the way. For me, I’m a simple guy, so that includes good beer, pizza and burgers on the grill as a treat.

As I’ve gotten to a point where I’m less than 5 years from retirement, I’ve realized the following:

  • Relationships become more important. Relationships take work, this includes marriage, friendships, work relationships, etc.. Don’t underestimate the value of this. Eliminate your participation in those relationships that bring you no value.

  • Besides money, you realize other areas of wellness matter. This includes, but is not limited to, exercise, sleep, and mental health.

  • Determining your sense of purpose appears on the top of your mind.

  • Cutting yourself a break becomes salient. You realize as you look back over the journey that mistakes happen. For example, one of the biggest mistakes we made in our financial journey was mismanaging our own Roth IRA accounts in terms of not paying attention to fees or allocations. In the grand scheme, it didn’t matter at all.

Finally, my biggest takeaway from TheRetirementManifesto is the advice to spend on big purchases before you retire.
 
A few months ago, we were motivated to make the decision to buy that weekend mountain retreat we always talked about. Although we’ve been very debt-averse through our 20-year journey, we decided to spend a little bit while we’re still working full time and take out a small mortgage at a very low rate. That amount accounts for the small amount of debt mentioned above. Given the financial principals we’ve exercised and mentioned above, we have a plan to pay that debt down in a very short time. In the meantime, we’ve been loving the fall of 2020 at our new retreat.

Like TheRetirementManifesto and Keys to a Successful Retirement has done for us, we sincerely hope something we’ve written resonates with you on your journey.

Thanks, Fritz for all you do and the opportunity to share part of our journey.

Sincerely,

Your humble fan

33 comments

  1. What a great recounting!

    I share the same background in that my family had no money. Your “fan” absolutely nailed the things that can make you successful.

    I believe this post should be required reading for anyone who claims “I can’t do it”. Those who say “my family/background/location/education limits me” would benefit from this person’s insights.

    Good job.

    1. A lot of hard work, lots of disagreements and some tears shed along the way went into the culmination of this journey. Life still happens, and some days feel heavy, and some feel light. Even in 2020, there’s no one that should be saying, “I can’t.” Unfortunately, “I can’t” is often, “I won’t.” Thanks for the note.

      1. Unfortunately, “I can’t” is often, “I won’t.”

        Quote of the week right there….

        Inspiring story. Agree with everything you say and right there with you on the journey. Keep up the great work…

  2. Loved the article – the principles and stick to it mentality you had while having normal “life happens” stuff along the way is inspiring and very relatable! Ditto that this should be required reading ! More proof that being intentional over the long term works ! Impressive and thanks for sharing.

  3. never thought of counting a future pension as my current net worth, since i don’t have it for another 6 years. please advise: what would one add to their NW if they could expect a pension of 63k?

    1. Cheryl,
      For the pension value, I assume they just ran a simple calc to figure out how much money they would have to have saved to be able to withdraw from it at a 4% rate to earn the annual pension value.

      So, for a $63K pension, I’d say: $63,000/.04 = $1,575,000.

      I suppose whether that amount is really countable part of “net worth” is arguable, but makes sense to me on the level they are describing their assets. 🙂

      1. thanks, makes one feel better as long as can stay with the program/job. i do consider it as retirement fixed income so i have 90% of my investments in stocks, until i retire – since i’m confident i can get by on 64k in a down market, for a couple years

        1. We’re in the same boat: we’ve have kept our stock allocation at least a bit more aggressive than we would have without that that pension amount as a baseline income. Good luck to us all! 🙂

      2. Hi there, I’m “Tom” the author. The net worth calculation is spot on. The 4% rule was applied. Although I agree it’s arguable, I think no one can rely on a pension, hence the other “buckets.” Debt freedom and other investments are a must to make the overall picture work.
        Most folks aren’t fortunate to have a pension; however, there are some sacrifices that come along with being eligible for a pension. The pension is icing on the cake, but certainly worth a lot in terms of being a “lifetime” benefit, especially when survivor benefits and free medical are included.

      3. Another way to value the pension is to figure out how much it costs to buy an immediate annuity that creates the same cash flow as the pension. In todays low interest environment, that pension is worth quite a lot.

      4. I usually value a pension by how much it would cost to buy an immediate annuity for the same monthly payout. At 65, $100k will get you a bit over $500 a month or $6000/ yr. much less if you are younger, but it’s a decent rule of thumb since a pension is essentially an annuity.

    2. Another simple way to estimate a present value of a future retirement annuity is to check out a few websites and see, what would it cost today to buy an annuity that pays $63K annually in XX years in the future? XX equals the number of years before you expect to retire. The only cost to doing this would be possibly having to put up with some sales calls that you probably don’t want. Just say you’re no longer interested but thanks for the info.

  4. Four full years into retirement and I couldn’t agree with your reader more! It was not always easy but the payoff is well worth any short term sacrifice made – only one of us has a college degree and only one of us ever earned more than $100K and that was only for a few years.

    1) Pay down all debt – we paid off our mortgage and all rental properties the year before we retired at 63
    2) Max out investment opportunities – I’d add to not forget maxing your HSA if appropriate
    3) Buy cash flowing real estate – we have five rental properties and the income is appreciated
    4) Don’t worry about things outside your control – it’s why having a spread in real estate, investments, pension/SS and cash is so important
    5) Take time to enjoy life – yep, everyday with a grateful heart

    1. Well stated! I’m not yet 50, do I plan to add a little bit more debit in the next five years to acquire some assets and then aggressively pay it down while still having positive net income from my rental properties. I’ll follow your lead and have it paid off by 65. I’m retiring in 2022 from my first career and starting my second immediately following. Exciting times 😊

  5. Excellent sage advice. I’d add that living beneath your means while increasing your means has meant a lot to me. And to foot stomp your advice, acquiring income generating assets while pay dividends for years to come! Thanks 😊 Bryan

  7. HSAs are a critical component for the younger readers. Even in our case with medical included, we max our HSA through the employer for the past few years. Given the benefits of those accounts, younger readers on their way to FI have the benefit of time. Time in an HSA, along with the other factors to consider in this post, will result in an even greater net worth and likely an even better overall financial picture after 20-30 years.

  8. Great advice! So to clarify, net worth is in the ballpark of $4.5 million, correct? You later state: investments and cash flowing real estate were valued at around $2.2 million with a total debt of $138k as of the fall of 2020. I’m assuming you factor in the pension value and home into the $4.5 figure? I’m one of the few lucky ones who will receive a pension. I didn’t think about including it in my net worth, but it makes sense!

  9. 100% included, conservatiively, the pension value (4% rule) and health insurance included in retirement (entire family if you can believe that!)

  10. Also, main (paid for) home value and rental properties (paid for) are included. My argument about including the main home is that you can always cash out if you choose and move to a lower cost of living area, so why not include, right?

  11. The thing that jumps out at me most is the lifetime health insurance benefit. The writer says not to worry about things you cannot control, but if I were to retire circa age 45, health insurance premiums 80% covered by an employer plan vs 100% paid out by me would create a cool $500K to $1million swing in (retirement) medical care costs across 40 years at current rates.
    If I were to tell my 20 yo self something, it’d be that on top of all of the great financial lessons I learned and employed re. finding low cost schooling, keeping debt free, living frugally, picking a smaller house, etc… I should also have been looking for a government/public service job that still offered a pension and health benefits for a finite number of years of service. Those benefits could mean huge swings in cost of living (under current terms) and I had no idea back then.

    1. Loved this comment. Given I’m a twenty year dinosaur of this benefit, many municipalities, including some of the best funded by tax payer dollars have gone away from these benefits, and rightfully so. However, in places where taxpayer’s money has been handled wisely (often by the employees that are beneficiaries — yes they do exist), and institutional knowledge has been valued, these benefits have stood the test of time. The other side of this is that the employer also has the upper hand in attracting the best quality candidates to remain competitive and continue the success of the community. Without going too much in detail, the employer is also rated as one of the best places to live in the U.S. as a result.

  12. RJH in Silver Spring Maryland says:
    Using a reasonable longevity age number, our birth date, an Excel formula using the ‘now’date, I calculate the value of both our SSA’s and my pension in our net worth summary, knowing that the amounts are guaranteed only while above the dirt.
    It’s fun to see how the number shrinks over time, motivating me moreso to use the limited ‘candle life time’ remaining more fruitfully and generously, gaining contentment along the way in this mature phase of our lives.

  13. I really like these real-world success stories. The blogger ESIMoney (ESImoney.com) has over 200 millionaire interviews that give more insights. These are great reads too.

  15. I love examples like this! I have a large number of flags all over my screen to remind me daily of the goals! It helps me remember that while the journey is long and hard especially this year it is worth the wait! Hubby is finishing the final few years of a pension grab job change. We made a decision that a bit of defined pension payout would be a great end to his working life. While we will not reap the benefits of free health insurance the stability of another source of monthly income feels like a win. Wish we had him jump sooner but moving forward is all one can do. Life without regrets!

  16. Thanks for the inspiration. I am trying to find my fourth rental property. I need one more cash flowing rental to be able to retire, and yes, I am more than ready to retire. If not for the first three rental properties, I would never have been able to retire at all.

  17. Love it! Great inspiration!

    I hear all the time: “I don’t want to live like that” and it always makes me think… okay, well if you spend all your money today, you’ll HAVE to live like that (or worse) later.

    1. The health insurance benefit is beautiful and adds piece of mind for sure. Moreover, it makes planning retirement expenses it bit easier. However, it came with tradeoffs in the form of having to stick with a single employer and likely forgoing higher salaries as a result over that 20yr stretch.

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