Too Much Cash: A Good Problem to Have

The pandemic of 2020 has had many unexpected effects on everyone’s finances. One way or another, I’m guessing your financial life has changed since March of 2020.

Unfortunately, many people lost their jobs, their businesses, and their ability to pay their rent or mortgages. It’s been devastating to hear these stories. Thankfully, there’s been relief over the last year in the form of higher and extended unemployment benefits, moratoriums on evictions and foreclosures, stimulus money from the government in the mail, and help from several charitable organizations. I know there are many people still struggling, for whom I pray and have added more in our personal giving budget to go toward.

For many others, though, this past year has allowed them to reassess their spending habits and make major changes toward saving. It’s allowed many to sell their homes for significant profits and/or finance a home with unprecedented low interest rates. Additionally, after its initial fall, the stock market has left many people with realized gains far beyond what they’d imagined.

Because of these significant changes in 2020 that have carried over into 2021, many Americans are finding themselves with a really good problem to have: too much cash and what to do with all of it. Most personal finance experts believe that keeping extra cash under your mattress or sitting in a simple checking/savings account for a long period of time is equivalent to losing on an investment or burning a percentage of that cash in your fire place.

Due to inflation, your dollars today will be worth significantly less than in the future … and I’m not talking about the distant future. According to the rule of 72, at an average 3% rate of inflation, your cash today will be worth HALF its value in 24 years (72/3 = 24). So, if that money you have lying around isn’t making you more money (at a rate greater than inflation), it’s essentially making you less money. Therefore, you need a plan for that cash.

If you’ve unexpectedly found yourself in this position of holding onto money in excess of your emergency fund (or specifically saving for a large purchase), it’s time to figure out where to put it. My husband and I are in this boat with you, so I’ve done a bit of research to determine our best options for what to do with that surplus in the bank account…

Invest in Index Funds

We have seen over 20% returns in the past couple years on our VTSAX (Vanguard index fund) investment. In addition to our monthly contributions, we often invest our family budget surpluses in this index fund through our joint brokerage account (after our ROTH IRAs have been maxed out). This might be the easiest way to invest, and it’s truly passive. But we still have a large cash cushion that we haven’t dumped into an index fund because we’d prefer to diversify and …

Buy Real Estate

I’m not going to lie to you. Buying real estate in this hot 2021 market is TOUGH. We’ve lost out on 5 deals in one town over the past 3 months. However, we’re determined to keep trying, so we have a significant amount of cash set aside to meet our goal of closing on 3 doors this year. Now that we’re already nearing the end of the first quarter of this year and entering the really busy real estate season, though, we recognize that 3 doors might be a pipe dream. So, maybe we can remain involved in real estate if we …

Become a Hard Money Lender

A return of 7-12% sounds pretty promising. This is what most private money lenders charge investors for doing a financing deal without using a bank or typical lender. The hard/private money lender is responsible for vetting the investor he/she is lending to, doing the underwriting, setting the terms of the contract, providing a large lump sum, and chasing the money if it’s not all paid according to contracted terms. So, although private money lending is considered passive income, it still requires quite a bit of work upfront and the possibility of following up afterward if terms are not met. This option still sounds good to us, and we may move forward with the steps to get started soon, but we’ve also thought that another way to diversify our portfolio might be to…

Back a Business

We know of several businesses who have struggled during the 2020 shut-downs, but the ones that have stayed afloat have incredible ideas for reaching more customers and expanding their online presence. They have the plans, infrastructure, staff, and products, but they may not have the funding. With a loan from a local independent investor, like ourselves, they can hit the ground running and pay a contractually-agreed-upon return on our investment when their business plan pans out. This may be one of the riskier ways to invest our cash surplus, so we’ve also considered that we could …

Turn a Fun Purchase into an Income-Producing Asset

Our family often talks about owning an RV for extended road trips or a temporary homeschooling adventure. However, we will not make a large purchase like this without a plan to rent it out when we’re not using it. We could either park the RV on land and rent it out via Air BnB or we could offer our super cool ride to friends and friends of friends at a reasonable rate so they could experience their own road tripping adventures.

Here are a few other ideas to turn a personal purchase into an investment:

  • If you’re buying a heavy-duty truck for work, hunting, or family use, consider renting it out to others to haul items or complete their own home projects.
  • If you’re buying a cool woodworking tool to build furniture or make unique decor as a hobby, consider offering the tool up for a fee to people nearby to prepare for their own projects. (Or sell extras of your creations.)
  • If you’re buying a fancy snow cone or cotton candy maker for a party, use it in the future to sell goodies at local festivals or near the neighborhood pool (with a permit).
  • If you’ve decided to splurge on a commercial-grade carpet cleaner after too many pet and toddler accidents, rent it out to neighbors for a lower fee than what the stores charge. Make your own non-toxic cleaners to go with it as well.

(For each of these ideas, check with your insurance agent regarding coverage/liability before renting out your assets.)

Sometimes, the idea of someone else using an item that’s special can leave us a little unsure, so another option is to …

Invest in Self-Growth

A great way to spend extra cash is to develop more skills that allow for greater income potential in the future. This might include going back to school, taking unique online adult courses, or paying a mentor to teach how to advance in a specific career. These are exciting options and definitely worthwhile if you know you’ll put the skills learned to use right away. My husband and I would love to learn more about renovating an historic home and doing a remodel mostly ourselves. However, we’re quite overwhelmed with raising four kids and keeping up with our current schedules, so this may not be our best choice currently.

There is one investment option, though, that we’ve both agreed is the best for personal growth, community improvement, and living out truths we take seriously, which is to…

Give Generously

I recently heard an amazing sermon by Mike Todd of Transformation Church. He speaks eloquently and passionately about being a purpose-chaser rather than a paper(money)-chaser. He said in his sermon, “God doesn’t have a problem with paper; he just wants priority!“ Our opportunities, finances, and blessings are the fruit after we’ve given His purposes priority.

Most believe that it’s better to give than to receive, and many also believe that true rewards (whether they be money or something even more valuable) only come after you’ve given from your heart. Therefore, this may be the best use of a cash surplus.

There are dozens of other ways to invest your extra cash, and because personal finance is truly personal, each person will likely have a different idea that resonates with him/her. The main thing to remember, though, is that while it’s a huge accomplishment to have saved a large sum of money, you don’t want it sitting around losing value for too long. Every dollar needs a job, and hopefully your surplus can provide more value to you in the future.

9 Easy Steps to Buying an Index Fund

I’ve been asked several times, “How do I get started in investing?” Usually, my response includes several follow-up questions, such as, “What are your investing goals? What’s your risk tolerance? How much money do you have to invest? Have you started first with your employer’s 401K? Do you have debt? An emergency fund?” and so on. There can be dozens of factors to consider.

Then, I recently came to realize that many of my friends were simply asking how to take the steps to open an investment account and contribute to it. Most had already decided that they wanted to invest a certain amount in the stock market but didn’t know how to actually start a new account (outside of 401K investing). Hopefully, the 9 steps below can be helpful to those who are looking for a literal answer to that initial question.

The guide in this post is specific to opening a Vanguard account because it’s the brokerage firm we use, but the process is likely the same or similar for other firms/banks.

Why do we choose Vanguard? We consider it to be the leader in low-cost index fund investing. After all, John Bogle, the founder of Vanguard, was also the inventor of index funds. Vanguard makes investing easy and has several options for mutual and index fund investing. If you’re more interested in trading stocks, options, and ETFs than taking the simple path to wealth, those trades are commission-free. Vanguard also has great customer service, including agents who will answer even the most amateurish questions and will gladly walk you through every step if you get stuck while navigating the website. For all of these reasons, my husband and I have both our ROTH IRA’s, as well as a joint brokerage account, with Vanguard.

Other highly-recommended brokers include Charles Schwabb and Fidelity, which also carry a wide variety of funds and low fees for many of them. (We have investment accounts in both of these brokerages and a few others due to past employer offerings, but we are slowly transferring balances on accounts with higher fees to Vanguard. We’d like to consolidate and reduce fees as much as possible.)

If you’re ready to purchase index funds, here’s your guide on how to do it in 9 steps or less:

1. Have your bank account info available, including routing number.

2. Go to Vanguard.com and select the Personal Investors page.

3. Click on “Open an Account”, then select “Start Your New Account”.

4. Follow the prompts and answer the questions on subsequent pages.

5. Determine the type of account(s) you want to open based on tax advantages, income limits, and contribution maximums.

  • The max contribution for an IRA each year is $6,000 for under age 50 & $7,000 for over age 50.
  • Simple rule of thumb: Traditional IRA‘s give you a tax deduction now, but you will pay taxes on the withdrawals in retirement. ROTH IRA‘s require contributions from earned income and do not give you a tax deduction now. But they allow your money to grow tax-free and allow you to withdraw the earnings tax-free in retirement. Also, you can withdraw ROTH IRA contributions (not earnings) before age 59 1/2 after owning the account for 5 years. (So, if you contribute the max for 5 years, you can withdraw the $30,000 penalty-free as soon as that 5 years ends, but you can keep your interest earnings in the account.)
  • Brokerage Accounts, also called Taxable Accounts, General Investing Accounts, or Non-Retirement Accounts, have no contribution maximums, no income limitations, and also no tax benefits on the interest you earn or the sale of funds. You are subject to taxes on all of it the year you receive the money. These can be joint or solely owned.
  • The other available options are investment accounts for children or small business owners. More on those in a later post.
Types of investment accounts

6. Provide personal and banking info.

7. Complete required paperwork and send it in.

This may take several days for a response.

8. IMPORTANT: When you receive confirmation of funding via email, go back into your Vanguard account to select funds to invest in.

Index funds are recommended very often in the Financial Independence Community. VTSAX is one of the most common ones and allows you to be invested in ALL 500 companies of the S&P 500. Read more about index funds here. Index funds track almost identically over time, so don’t stress too much about which one you choose.

Keep in mind that an index fund is a 100% stock investment. If you’d like to limit your risk a bit and balance out your portfolio, you can invest in a bond index as well, which pays monthly dividends. (We reinvest ours.) Many investors believe that the closer you are to retirement age, the higher percentage of bonds you should hold in your portfolio to minimize risk. (Reminder – lower risk usually means lower return.)

If you’re still not sure how your investment portfolio should be balanced, Vanguard can walk you through a risk assessment quiz to determine asset allocation for your target portfolio before you choose your investment funds. You can also view how different portfolios have performed over the last 94 years.

9. Buy!

Follow the prompts to buy the funds you’ve decided to invest in. You’ll select the desired fund(s), choose the dollar amount you want to invest, and designate where you want the money to come from (likely the bank account you uploaded).

If, at any point, you’re stuck or not sure what step to take next, open a live chat with an agent, read FAQ’S in the margin, or call Vanguard customer service.

Voila! You’re invested in the stock market! Hopefully you’ll watch your money work for you! My husband and I have seen 30%+ returns in the last couple years. These gains are unusual as we’re still in a bull market. Fluctuations are to be expected, but because we plan to keep our money in these funds for over 10 years, we feel good about riding the waves.

For a more in-depth guide to getting started with Vanguard, go here.

Everything written in this blog is based on personal experience. It is not professional advice and should not be taken as such. Personal finance is personal, and decisions should be made based on analysis of individual situations, as well as risk tolerance and financial position. 

Fuel your FIRE

Financial Freedom in 2021! Take Action: Day 30

Wow! We made it to Day 30! I calculated that I’ve written (and you’ve read) over 25,000 words in the last month. That’s enough words to fill 1/3 of a novel, and all of them were about saving money and investing for the purposes of financial freedom.

But why?

In my post titled, What Does Financial Freedom Mean to You?, I summarized what motivated me to jump on board with the FIRE movement:

“Financial freedom allows the ability to let go

of maintaining a specific image; of an addiction to other people’s lives; of the shackles of material goods; of the restrictions placed on me by others; of saying ‘yes’ when I want to say ‘no’; of saying ‘no’ when I want to say ‘yes’; of negative relationships; of working to achieve someone else’s dream.

It provides the option to linger

with a baby in my arms; in bed all morning with my husband; on the floor in my kids’ playroom as they set up a tea party; at church after service or maybe on a Wednesday; on a restaurant patio with a friend; at a beautiful beach all day; in my sister’s living room catching up on a favorite TV show; at my mom’s house sipping coffee; at my children’s favorite museum; on the hiking trail or in the river at a state park.

It affords the privilege of indecisiveness

on whether to build a forever home, buy an investment property… or both; on whether to volunteer in local church ministries, start the business I’ve always dreamed of… or both; on whether to do travel homeschooling, keep my kids in public school… or both; on learning to play golf, participating in an over-40 soccer league… or both; on whether to write a book, start or podcast… or both.

It commands the responsibility to give

financial literacy lessons to my children; personal finance advice to the young and old; donations to charitable organizations; more time to important projects; opportunities to the underprivileged so that they can break the cycle of poverty; gifts to my church; more of me to those I love.”

It’s this final paragraph that makes the FIRE movement especially appealing, not just for myself, but for the entire community too. I recently heard that while others might see an individual’s push toward financial independence and early retirement as a selfish, greedy move, the truth is that most people in the community want to use their freedom for greater good.

Those who’ve reached FIRE write blogs to help others improve their money situations. They host podcasts and share the best tips available. They write books to make investing easier. They teach classes for free to the under-privileged, under-educated, and under-represented. They run fix-it clinics, start buy-nothing sites, and inspire minimalist movements. FIRE people don’t keep this to themselves; they share what they know and encourage others to make the best use of their money as well.

Consider the type of people who truly subscribe to the Financial Independence Retire Early life. These people are often intelligent, motivated, educated, persistent, goal-driven, risk-tolerant, and innovative. When people with these qualities are freed from the daily grind, their talents can then be put toward philanthropy and changing the world we live in.

Take action today on Day 30 by determining what fuels your FIRE and decide what good you could do in the world if earning a regular paycheck was no longer a top priority.

Thank you so much for going on this 30-day journey of action steps toward financial freedom with me! I truly hope it’s been helpful and that you’d be willing to share these tips with others.

I invite you to subscribe to this blog and follow Frugal_with_Four on Instagram. I’m looking forward to sharing so much more on living this frugal yet wonderful life with you.

Thanks for reading!!

Consider Real Estate Investing

Financial Freedom in 2021! Take Action: Day 21

Don’t wait to buy real estate, buy real estate and wait.

– T. Harv Eker

My husband and I just started our real estate investing journey by closing on our first rental property last year. We decided that because we were starting late in life on maxing out our retirement accounts, we needed to add real estate investing to help us reach FI a little faster. I read, researched, and studied several free resources, such as the Bigger Pockets Podcast and books from the library, for almost a year before we purchased our first (non-primary) residence.

It was not a quick process, and finding our second deal in today’s competitive market is proving to take longer than we had planned as well. We’re determined to add two more properties to our portfolio this year, but we’d rather pass on several good deals than buy one bad one. So, we’ll continue to follow Gary Keller’s advice in The Millionaire Real Estate Investor: “Persistent Effort, Patient Money”.

Although we’ve decided to slowly start with buying rental properties, there are many additional options and opportunities in real estate investing. It can be as easy as selecting a fund through your online broker or putting a couple hundred dollars into a pre-vetted deal on a crowdsourcing website like Fundrise.

Today’s action step is to read about these 5 ways to get started in real estate investing. Determine whether any of these are worth adding to your overall investment portfolio and retirement plan. If so, make a list of resources to dig a little deeper into your preferred method. I highly recommend the book and podcast linked above.

Know Your FI Number

Financial Freedom in 2021! Take Action: Day 19

Whether you plan to retire early or work until the Lord takes you home, it’s helpful to know the magic number you’re aiming toward to no longer be dependent on a regular paycheck to pay your bills and live a full life. Your FI (Financial Independence) number is the amount of net worth you need to support you for the rest of your life moving forward.

The breakthrough Trinity Study published by three professors from Trinity University in 1998 determined a safe withdrawal rate* from stock portfolios despite the fluctuations of the market, and the conclusions they made have had a huge impact on retirement planning. Their research produced the “4% Rule” mentioned in yesterday’s post. What this means is that if you can estimate your annual expenses for when you plan to retire (or when you’re hoping to reach that state of financial freedom), you can multiply that yearly amount by 25. This is a simple way to calculate your FI number.

Here’s an analysis of how I’ve calculated my family’s FI number:

  • Anticipated Retire Early Date: January 1, 2030
  • Family Status (at that time): 2 children graduated from high school, 2 still in grade school
  • Potential Side Income: Real estate investing (monthly cash flow)
  • Estimated Annual Expenses: $70,000
  • Expenses Remaining after Side Income: $70,000 – (10 homes * $3600 cash flow) = $34,000
  • Required Net Worth: $34,000 * 25 = $850,000
  • FI Number (with RE investing): $850,000 … almost there!
  • FI Number (without RE investing): $1.75 million … NOT almost there!

There are so many variables, right? But that’s ok. The analysis is the the fun part. It’s a game to see how low you can get your expenses by paying off debts and cutting unnecessary spending. There are also so many ways to earn a passive income to offset your anticipated annual expenses and decrease your FI number; real estate is just one of them. What’s important is that you continue to keep track of your expenses and net worth with intentionality. If you do that, chances are that you’ll reach FI much sooner than planned.

In the example above, I conservatively estimated owning 10 doors in our real estate portfolio at $300/month cash flow, but our goal is to own 20, and maybe our average cash flow will be even higher than that. If so, we may be able to cover ALL of our anticipated expenses through those investments. We may also downsize our home with fewer children living with us or we may decide to do traveling homeschool, which will decrease our living expenses, and therefore, our overall annual expenses.

The point is that things will change; the future is unknown. The good news is that you now have a framework and an easy way to calculate your FI number even as income, expenses, and investments change.

Another aspect to consider is that many believe that the safe withdrawal rate is now higher than 4% and closer to 7%. This would significantly reduce how much you’d need in your nest egg. At a safe withdrawal rate of 7%, our FI Number (without real estate investing) drops to $994,000!

Today’s action step is to calculate your FI number. It’s ok if you have a few different scenarios with a few different outcomes. Just doing the calculation will give you a ballpark to aim for and get you in the habit of doing the math as things change. There are FIRE calculators online that you can use to find your FI number while taking into consideration your side hustles, higher or lower withdrawal and return rates, as well as anticipated expenses. So… what’s your number?

*The safe withdrawal rate (SWR) method calculates how much a retiree can draw annually from their accumulated assets without running out of money prior to death.

Increase your Income

Financial Freedom in 2021! Take Action: Day 16

The term “side hustle” has become very common in the last couple years. It seems that every other person has a small side business, MLM venture, after-hours hustle, You Tube channel, Etsy shop, home bakery, or blog to try to add to their regular W2 income. If you type “side hustle” into google, there are thousands of articles and websites dedicated to sharing ideas on maximizing your earning power with a second, third, or fourth stream of income. I’ve found a list of 100 side hustles that can make you $500+/month and 50 ideas for a lucrative side business. There are even several weekly podcasts dedicated to making extra cash on the side.

The underlying theme is that in our modern culture, in which 80% of Americans carry debt, people need to make even more money. Sometimes a side hustle is a passion project or a hobby. Sometimes it’s a long-sought-after dream slowly coming to light. Sometimes it’s a way to reach financial independence much faster. However, many times, people launch into side hustles to pay off student loans and consumer debt. With the cost of living (and spending) today, many W2 jobs don’t offer a salary that allows people to get out of debt and get ahead quickly enough.

The ultimate goal of financial freedom is to let your money work for you, not the other way around, but in order to reach that goal, it may be necessary to trade some of the extra time you currently have for some extra cash.

Today’s action step is to review the articles and lists linked above to determine if there’s a way for your family to earn a side income from a side hustle. But before launching into anything, calculate what your time is worth and what you could really earn. Also, remember that it’s usually best to stick with what you know and utilize your current skill set.

Which side hustle seems most feasible for you? Or, if you already have one, what do you love about it? Please share!

Change your Mindset

Financial Freedom in 2021! Take Action: Day 6

Most of the books I’ve read and podcasts I’ve listened to have taught brilliant and reproducible finance strategies, but more importantly, they’ve taught me even more about mindset. I’ve encountered atomic habit techniques, ways to dream big, encouragement to think a million and to become a millionaire next door, motivation to live frugally, as well as reminders to walk my own path. Every story I’ve read about someone else’s struggles and/or successes has led to more motivation to stay the course toward my own financial freedom.

However, it can be easy to slip back into old habits and a keeping-up-with-the-joneses mindset without regular reminders of why this path is important and possible. Here are a few money truths that I choose to focus on:

  • You only see what people spend, not what they save. Wealth is based on savings, so those who spend the most may not be the ones I should model my habits after.
  • NOT investing is riskier than investing.
  • The things in life that bring the greatest joy are usually free.
  • Comparison is the thief of joy.
  • My family has far more than we could ever need to live a happy, healthy life.

Beyond all of these reminders, I’ve found that the biggest factor in changing my mindset from a spender to a saver, from a hoarder to a giver, and from helpless to capable is daily gratitude. To take action today, write down 10 things you are grateful for and 10 things that bring you joy. Then, reflect on the following questions:

1. What would your perfect day look like?

2. How much money would you need to participate in the 10 things that bring you joy and/or your perfect day?

3. What percentage of clothes in your closet do you wear regularly? What percentage of dishes in your cabinets do you use regularly? Percentage of toys? Tools? Do you really *need* more?

4. Who do you compare yourself to most frequently and why? Are you envious of their spending habits? What intrigues you the most?

5. What activities do you participate in or items do you buy for the primary purpose of posting on social media?

6. What percentage of your income are you giving to charity? Does that contribution match your heart/desire for giving?

7. Think of the last 5 non-essential, non-gift items or services you bought? Did any of them relate to your list of 10 things that bring you joy? Did any of the purchases help you get closer to reaching your personal goals or contribute to your list of priorities from day 2?

8. How much food do you throw away per week? Check out these statistics on food waste and how we can all reduce our impact.

9. Do you have a net worth of at least $100,000 (Assets – Liabilities > $100,000)? If so, did you know that you’re in the wealthiest 10% of the world?!

10. Would any of your relationships change if you lived a life of less… less spending, less waste, less participation in expensive activities, less debt, etc? How and why?

Your answers to these questions might help you determine whether you’re ready to make a mindset shift toward financial freedom. If so, it’s time to get creative with saving! Check out these ideas to motivate yourself to save rather than spend: AMP Up Your Savings!

If you’d like even more resources to help with mindset and strategies, check out what Frugal with Four recommends.

Our First Rental Property Deal: The Challenges and Rewards

Just over two months ago, my husband and I bought our first rental property! Adding real estate investing to our portfolio is step #9 in our plan to reach FIRE by 50, so we are stoked that we were able to get started in the infamous year of 2020. I turned 41 this year; my husband turned 40. We still haven’t decided if our age deadline of 50 refers to his milestone birthday or mine, but we figure we have about 10 years to develop a strong real estate portfolio.

At my 40th Bday party…
let the FIRE countdown begin!

It all started with a little podcast called Bigger Pockets Money, which introduced me to several personal finance strategies and books to read, while also making real estate investing sound very appealing. I quickly decided that it had to be a part of our early retirement plan, but the extent of my knowledge only came from buying and selling a few primary residences in my life. So, I had to dive in! Thankfully, the free resources available are endless. About 50 podcast episodes and a dozen books later, I felt like we were ready. I started analyzing deals daily, constantly texted my realtor with questions about available properties, and talked my husband’s ear off about the next best Texas town in which to invest.

After months of research, analysis, and attending random open houses in the cities and towns we heard were the fastest growing, it hit us that we were out of our league. There are a lot of big dogs out there in the investing world, and the competition is fierce. Houses sold sight unseen, and several deals went into bidding wars. Out. Of. Our. League.

So, we finally decided to check out a sleepier town we’ve traveled to a few times on family road trips. I started looking up houses for sale and made a list of about a dozen I was interested in. Problem: Our realtor didn’t have access to the MLS there, and I wasn’t ready to involve a new realtor because we were still in the exploring phase. So, I took matters into my own hands. I spent an entire afternoon while one of my kids napped and the others played legos to call or email the listing agent on every single property. I politely asked if they’d be willing to show us their listing in a couple days. Most obliged despite my unconventional method, and we had 8 showings for that one Saturday.

This particular Saturday was during the dead heat of summer… in Texas … during a pandemic. So, we had no choice but to load all 4 of our kids into the minivan with the temperature gauge already reading 100 degrees by mid-morning. We promised them a fun day trip with just a few stops to look at houses. Thankfully, they bought into it, and we took off for the 2 hour trip. We had packed lunch boxes full of favorite snacks and plenty of treats, and we planned a stop at a super cool playground with a nearby hiking trail along a river.

By the time we made it to the first showing appointment, the car was a disaster, covered in snack wrappers, small toys, and countless coloring pages. Plus, our 3-year-old was fast asleep. My husband and I saw the first few houses in shifts. One of us had to stay in the car with the little guy. And of course, all three of the other children insisted on getting out, donned their masks, paraded through each home, and offered their unsolicited opinions. Our 4-year-old kept pointing out which room would be hers, no matter how many times we explained that we wouldn’t be living in these homes.

After hours of foundation issues, bad neighborhoods, major fixer-uppers, and an historic home with a busted lockbox, we made a quick kid-friendly pit stop for ice cream. At this point, the temp had reached 110 degrees outside, and our A/C was struggling to keep up. Everyone was exhausted. We debated whether it was worth it to see the last two houses. It felt like we had struck out in yet another Texas town.

Maybe it was the sugar high from the root beer floats or the sheer determination within, but we decided to forge ahead and see the last two houses. For our second to last appointment, we arrived to an obviously occupied home but no sign of a realtor anywhere. Soon after pulling up, a woman walked out onto the porch and gestured for us to come on in. The realtor was a man, so we knew this had to be someone living in the home. We double-checked the address, and it was correct. My eldest and I put our masks on and slowly approached the door. The house was beautiful, well-kept, and only a couple years old. It was even better on the inside, and the tour of the home was given to us by the current tenant who had just brought her first baby home from the NICU. We kept our distance, did a quick tour, and chatted outside a bit. My husband took his turn walking through the house, and as soon as he exited, we both gave each other THE look. This was it. We knew it.

Just at that moment, the listing agent arrived and gave us the whole story. We were questioning him about why this wonderful house with kind, paying tenants had been sitting on the market for 30 days, especially since the almost identical house next door sold in less than a week for full asking price.

It turns out that because the tenants in this home had a baby in the NICU for the whole month, no showings were being allowed… until that afternoon when we walked in! We asked the realtor several questions about how much rent the house was getting, why it was being sold, and whether the current tenants planned to stay. The answers couldn’t have been better, and we quickly realized that if another person were to walk through this house, we might lose our chance.

We called our realtor; she recommended a great local realtor in the area, and we put in an offer right away. The realtor she recommended specializes in rental properties, so as an added service, he also agreed to write up a new lease when we closed and to do all the negotiations/signing with the tenants, who did agree to stay.

We couldn’t believe it! After months and months of striking out, we finally hit a home run. We felt like this deal was the best scenario we could’ve imagined for our first rental property.

Here are all the numbers for those interested in deal analysis:

  • Purchase Price: $175,000 (25% down, 3.65% APR)
  • Monthly P&I: $598
  • Taxes and Insurance: ~$420/month
  • Additional expense: $50/month landscaping
  • Rental Rate: $1510 monthly (including pet fees)

So far, everything has been great! We communicate with our tenants a few times per month, sometimes about the house, sometimes about our families. My husband has visited the house for a walk-through once since closing and asked the tenants if there are any concerns or any ideas for future improvements. This relationship has helped with on-time payments and upfront communication. We even get a picture of the check each month before it’s sent in the mail and sometimes a picture of their baby to accompany it.

Now, we’re ready to find the next one! We know not every deal will go this smoothly, and we anticipate that problems will come at some point, which is why we have 6 months of expenses in a separate bank account for this property alone. However, the momentum has started, and we don’t want to slow down. With a goal of 2 properties per year, we are constantly on the hunt.

I’ve recently adopted a mantra I heard in an interview with Robert Kiyosaki: “4 green houses and a hotel.” Hopefully we can play our own game of real-life monopoly within the next decade. Stay tuned to see if we win or go bankrupt trying! My current goal is to just land on my step-dad’s version of “free parking” a few times, where the player gets to collect a mix of Monopoly money and the real cash my step-dad tossed in to make the game more interesting.

We plan to play often with our kids as well. Now that our children have joined us on this journey, literally and figuratively, we’re hopeful that they’ll learn investment strategies and important aspects of personal finance much earlier than we did. We’ve also told them that these homes are a key factor in their future post-graduation. More details on that to come…

I hope you’ve enjoyed reading the story of the ups and downs of our first rental property investment. I can’t wait to share more with you in the future! Please subscribe for more posts on our FIRE by 50 journey and additional tips on living a frugal yet FULL life.

FIRE By 50… Starting at Age 40

Can it be done?

I had never heard of FI or FIRE until just before I turned 40 years old. At that point, I didn’t consider it a possibility for me and my family. I was turning FORTY. I was a stay-at-home mom. We have 4 children. We love to travel. Plus, my husband and I had recently chosen to move to an area with an esteemed school district and elevated home prices to match.

FIRE was not in our cards.

However, hearing about this movement and the different paths people chose to reach financial independence piqued my interest in a way that money and finances never had in the past. Money was simply a means to gain possessions, feed our family, and to pay for vacations. I had never considered money as a path to freedom….

But once my eyes were awakened to this idea, my brain couldn’t shut off. I made a list of books to read and devoured them quickly, often calling my husband mid-day, excitedly sharing new tidbits or strategies I had learned. I started binging podcast episodes and blogs during every free moment I had. I spent hours and hours learning. There seemed to be no end to the ideas and creative ways to completely change my life through better money management.

When it finally set in that maybe we could forge our own path to financial independence despite the obstacles I saw in our way, I scribbled down a list of requirements to get us to FI(RE) at 50. With that list staring me in the face, I was again inclined to say, “This isn’t in our cards.” But something stronger was tugging hard at me. It was an adorable toddler with bright blue eyes and blonde hair who was born with an innate spirit of adventure and risk-taking. As he tugged on my arm to lift him in my lap, I looked at that list in a whole new light. The fire in my belly surged and the smile on my face widened. I looked my baby boy in the eye and announced, “We’re going for it!”

Goals to reach FI by 50…

  1. Track spending every month and maintain an annual and monthly budget.
  2. Practice frugality consistently to decrease expenses and increase savings rate to at least 25%.
  3. Pay off debt (car loan) and don’t take on any new debt (outside of mortgage).
  4. Move savings/emergency fund to high yield savings account.
  5. Invest additional savings in Index Funds.
  6. Take part-time work for extra cash (me).
  7. Sell primary residence for profit and set aside funds for real estate investing.
  8. Buy new home with very low interest rate and in low tax rate neighborhood in same school district.
  9. Purchase 1-2 cash-flowing rental properties per year for the next ten years.
  10. Use equity or do cash-out refi of a few investment properties to fund college, technical education, or business start-up for each child.
  11. Continue to decrease expenses as first two children graduate, then sell/downgrade home and purchase one with cash or practice geographic arbitrage.
  12. Wes retires, and we live off of rental property income and investment dividends…

FINANCIAL INDEPENDENCE!

As of today, September 11th of 2020, almost two years into our journey, we’ve accomplished the first 8 goals and started on #9. We’re in the process of purchasing our first long-term rental property. I never thought we’d be this far along in such a short time, but I also recognize that the last several goals will be the hardest, especially finding ways to fund multiple rental properties and learning how best to manage them. But we’ve made it this far, so there’s no turning back now. I hope this blog and my readers can help to keep me accountable. Please share what’s worked for you.

Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.

Lao Tzu