My Path to Financial Independence

    This image has nothing to do with Financial Independence, but Bryce Canyon is beautiful!

Brewing FIRE was borne out of a personal desire to share the story of my financial journey with others. The purpose is twofold: by making myself write all this down, I will reinforce my focus on my ultimate goal, financial independence. Additionally, I will share the insights I have gained and the tips I can offer that may help anyone who reads this blog.

A Few Facts About the Author

  • I am in my mid 30s. I am a scientific researcher, and also the head brewer for a local brewpub. My hobbies include homebrewing, hiking, biking and playing softball. I also have a spreadsheet fetish.
  • My wife (Mrs. BF) is a medical professional, glass blower, and chicken farmer.
  • We have an infant daughter (Baby BF) who is currently unemployed, but very cute.
  • Our family resides in the Northeast, in a relatively high cost of living area. We expect to stay here at least until we set our early retirement plans into motion.

My personal story is one of slow, gradual transition over time from the zombie-like consumer of my earlier years to the person I am today: more thoughtful and deliberate. The change has certainly been an evolution rather than a revolution. And that’s not to say I’ve figured things out. I’m still learning, but I am definitely on a better path than I was years ago.

Act I – The Early Days

First and foremost, I want to tell you how lucky I am. I was born in a middle-class household in America to two loving parents that have been there for me my entire life. I would not be here without them, and I am extraordinarily lucky for this. Thanks to my parents, I was able to graduate from a highly regarded private University with a STEM degree and $0 in debt. That, in and of itself, should pave the way to an easy, comfortable life, right? Well, not exactly.

Soon after college, I landed a job and was earning a decent salary. So, logically, I decided to start making poor financial decisions. One of the first (and worst) decisions I made was to buy a house. Now, on the surface, this is not necessarily a terrible decision. But the devil is in the details.

My Personal Housing Crisis:

  1. I bought the house 100% financed (no money down).
  2. The loan was for more than 8X my salary at the time.
  3. And, oh yeah, I bought it at the beginning of 2007. Also known as the absolute peak of the housing bubble
Impeccable timing.

In reality, it wasn’t really as terrible as I just framed it. I actually bought the house with a friend as an ‘investment,’ and it is a multi-family property. I was able to live in this house for 8 years at a very reasonable monthly cost, as my expense was subsidized by renting the rest of the house out. But still, I would not have repeated this transaction, given the opportunity to rewrite history.

Around this time, I was also doing many other irresponsible things with my money. I ate out quite a lot. My friends and I spent most weekends at bars. I considered Wednesday-Sunday to be “the weekend.” Stupidly, I bought a fancy German car that was equal to approximately 70% of my salary at the time. I also bought lots of other stupid shit that I didn’t need. And, most importantly, I didn’t pay any attention to where my money was actually going.

Why did I not care how I spent my money?

It’s simple- I was living a life of predetermination. I had already read the script:

  • Go to college.
  • Get a job.
  • Work 40 years.
  • Retire.
  • Die.

I honestly was not concerned about how I spent my money, because I had already resigned myself to the 9-to-5 grind for the next 40 years. I figured that I might as well have fun while I was at it, right?

Thankfully, a wake-up call from an unlikely source started my path to a better financial life.

Act II – The Great Awakening

So where did my wake-up call come from? Ironically, from the same place that was facilitating my egregious spending: my credit card company. Sometime around 2010, American Express began tracking expense categories, and providing spending reports to their customers in a nice, customized platform. Being the data fiend that I am, I immediately fell in love. I could group my spending into categories, track expenses over time, and actually see where my money goes every month.

It is a known phenomenon that when someone begins to observe or track something that previously was not tracked, their behavior regarding that item which they are tracking often will change as a result. When I started looking at where my money actually went, it made me realize how much money I wasted on things that had no lasting value to me. It pissed me off. More importantly, it made me want to change the trends that I was now tracking in a spreadsheet.

This alone probably would not have altered my life. I still believed that I had been relegated to a full career of being a corporate slave and exchanging one third of my waking life for money that I could indiscriminately spend on needless crap. The other factor that finally kicked me in the ass and changed my course was the same thing many other FIRE bloggers cite- discovering other financial independence blogs, namely Mr. Money Mustache and Early Retirement Extreme.

The FI Movement

I can’t remember where or how I came across MMM and ERE, but the discovery that I didn’t need to work until I was 60-something absolutely blew my mind. Why had I never heard this before? How come they don’t teach this in schools? Why wasn’t everyone following in these authors’ footsteps?

I spent the next few months consuming everything I could related to Financial Independence and the Early Retirement movement. This included reading all of MMM’s blog, and Jacob’s book. I found Your Money or Your Life, and realized people were already talking about FIRE before I was even in high school!

One final factor in my conversion was that I began dating my wife around that time. Mrs. BF had a different upbringing than me. Her parents divorced when she was young, and she spent much of her childhood moving from place to place. Money was not easy to come by, and she didn’t grow up with many amenities. Suffice it to say, consumerism is anathema to her. She has been chiding my frivolous spending since we started dating in 2010. She was the final push I needed to alter my spending habits and, more generally, my financial outlook.

It was time to take my future into my own hands.

Act III – The Continual Improvement Process

I’m going to borrow a concept from Six Sigma and Lean Manufacturing programs called the Continual Improvement Process, or CIP. Continual (or continuous) improvement is used in the business world as a process to continually improve products or services, using a feedback loop, and forever looking for ways to reduce waste and inefficiency.

The main tenets of CIP, paraphrased for FI purposes, are:

  • small, incremental changes are easier to implement than large changes
  • these small changes can have a great impact over time
  • introspection is critical to the process
  • this is a never-ending (continual) cycle

CIP is a core philosophy that I use to drive progress in my life. I use it at work and home. I can apply it to things such as physical fitness (this is why fad diets don’t work; they’re too drastic), self-education, or personal finance.

Now armed with the tools to track my spending, the encouragement of FIRE bloggers, and the continual improvement process, I had everything I needed to begin my journey to financial independence. Time to start slashing costs.

Round 1: the low hanging fruit

  • Car Insurance: my premium was $160 per month (!!!), although I had a perfect driving record. In about 15 minutes, I saved over 50% on car insurance, while actually increasing my coverage.
  • I cancelled multiple subscription services (newspapers, magazines, websites) that I was barely using.
  • Wireless bill: I switched to an off-brand service that was $30 per month.
  • Cable/Internet bill: I called my provider and informed them that they were charging me too much. They agreed, and reduced my bill considerably.

In a matter of just a few weeks, I had reduced my monthly spend by approximately $250, with negligible impact on my quality of life. I am still astounded that my friends pay $100 per month for their wireless service, or $200 for cable, when all they have to do is refuse to pay this much, or switch to cheaper alternatives that offer the same exact services.

Once I had dipped my toe in the pool of frugality, I couldn’t stop. I continued attacking my monthly statements, looking for more and more places to save.

Round 2 – the deep cuts

  • To reduce spending on restaurants and bars, I began cooking more often and hosting parties at my house.
  • We built raised-bed gardens in my backyard to supply me with fresh vegetables during the warmer months.
  • I stopped buying clothes that I barely wore and didn’t need.
  • We did more “free” things on the weekends, like going to the beach, hiking, or just visiting friends.
  • I started brewing my own beer as a way to have the craft taste without the craft price.

Additionally, I built an apartment on the third floor of my house so that my girlfriend (now wife) and I could live together. This saved her in rent, helped me a little bit with the mortgage, and greatly reduced the amount of commuting I had to do daily since we lived about 20 miles apart. I also switched to a diesel vehicle to save on gas, which was $4 per gallon at the time.

All-in-all, I was able to reduce my overall yearly spend from approximately $35,000 in 2010 to $24,000 in 2016, when Mrs. BF and I combined our finances. I cut out nearly one third of my costs without significantly impacting my way of life!

In the past 2 years, I’ve made even more progress in my never-ending quest toward maximizing efficiency and reducing waste.

Round 3 – lean and mean

  • I was able to change positions within my company which resulted in my office being less than 2 miles from my house (compared to 20 miles previously). I spend about $25 per month on gas now, and car maintenance has been reduced drastically.
  • We bought a single family home, and built an apartment in the basement which we rent out to cover most of the mortgage.
  • We cut the cord when we moved into the new house. A couple streaming services are adequate for our entertainment needs.
  • We installed a solar power system on our roof last year, to save on electricity costs and reduce our carbon footprint.
  • I got my company to pick up my phone bill and my wife did the same.
  • We buy nearly all of our food on sale. We call this the “used foods” section at the grocery store. I know it sounds gross, but everything is still in near-perfect condition, we are preventing food from going to waste, and it saves a ton of money!
  • We own chickens that provide us tons of eggs, fertilizer, and endless entertainment. Although we could sell them for a premium, we share the extra eggs with our friends and family.
Our chicken family

I will delve into the details of many of these money-saving exploits in dedicated posts over the coming months.

Investing – The Other Side of the Coin

I’ve spent plenty of time showing you how I cut my expenses over the past seven to eight years, but no time talking about what I was doing to build wealth at the same time. Actually, I have been investing consistently since I started working full time. However, due to my excessive spending, my savings rate was not very enviable for the first few years. Here is what my investment contributions look like for my working career:

Can you tell when I got serious about FI?

Currently I max out my 401k, Roth IRA, HSA, and then contribute the remainder to a taxable brokerage account. Mrs. BF does the same, minus the HSA (she funds a dependent care FSA). I also make principal payments on my mortgage for the multi-family property. We have begun funding our daughter’s 529 plan. I have dabbled in other investment vehicles in the past, such as Lending Club and Loyal3. I found that the rate of return for Lending Club was not especially great (see MMM’s article with the same conclusion), and thus I am in the process of unwinding that investment. Loyal3 was purchased and replaced with a service with monthly fees- no thank you! Additionally, I was contributing to my company’s Employee Stock Purchase Plan (ESPP), but I am now using this program solely as a way of generating more income from my employer.

see also: the Brewing FIRE Investing Hierarchy

The Final Push to the Sum – Financial Independence

(No one got the Grandaddy reference)

So the final question is this: what is my personal target to consider myself financially independent, and how close am I to that target? Well, I’m still figuring that out. It depends on a few factors:

  • what is my safe withdrawal rate?
  • what is my drawdown strategy?
  • will I continue earning income after FI?
  • how much?
  • what do I want to do with the rest of my life?

I know that when I finally achieve FI status, I do not plan on ‘stopping,’ per se. I am fairly confident that I will just shift my focus, and pursue other interests. In all likelihood, I will continue earning money in some form or another, albeit on a diminished basis. So should I factor that into my calculation?

Currently, our annual household spending is in the $50,000-60,000 range. The majority goes to housing costs, since we live in an expensive town in an expensive state. This means that our spending can come down substantially if we consider geographic arbitrage, or just move to a more rural part of the same state. So I will use the lower value of $40,000 for the following calculation.

Assuming annual spending of $40,000 and a safe withdrawal rate of 4%, we need $1,000,000 to be FI. Here’s a chart of our progress thus far.

Brewing FIRE Net Worth, 2006-PRESENT

Net worth chart

Note: home equity is not included in this graph, since I haven’t been tracking it diligently over the years and it is kind of an arbitrary value anyway.

After making this chart, I was initially disheartened by the significant gap between our current net worth and the FIRE line. But alas, the power of compounding is with us! A rough, back-of-the-napkin calculation based on our current savings rate and assuming an annual return of 7% puts about 4-5 years from FI. That’s not too bad- I didn’t start figuring my shit out until I was 30, and I could be out of the rat race by 40? I’ll take it!

So that’s the abbreviated story of my fiscal life. In upcoming posts I will begin to flesh out many of the details of my story- how to slash your expenses, how to buy “used foods,” why you need pet chickens, house-hacking, etc… I also plan to update our net worth on a monthly basis as a way of tracking our progress and a method of explaining my financial planning in real time.

If you are actually still reading this post, congrats! Thanks for following my journey, and stay tuned for more. Better yet, sign up for emails below, or follow me on Facebook/Twitter. Cheers!