Money story: Two broke millennials in pursuit of financial freedom
This guest post from Claudia Pennington is part of the “money stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all stages of financial maturity. Today, Claudia shares the steps she and her husband have taken in their pursuit of financial freedom.
Garrett and I were your typical, college-educated millennials (thanks to student loans) who purchased new cars (courtesy of auto loans) and an overpriced, pre-recession home with a 30-year mortgage. We were good consumers, the kind of consumers that lenders love: We spent on credit and we paid our bills on time.
Fast forward to 2014 ?? We managed to acquire even more debt. We had a car loan, two car leases, a mortgage, student loans, and credit card debt. Living paycheck to paycheck was exhausting!
It took years for us to realize just how tired we were.
- Tired of not having any time.
- Tired of not having any money.
- Tired of not being able to travel.
After listening to people on the radio talk about similar money problems, we decided it was about time that we get our own finances in order. In 2015, we took a hard look at our spending from 2014. We didn't like what we saw. We created a plan to get out of debt and change our lives.
Fast forward to today ?? We managed to eliminate all of our debt. We’re a one-car family (no auto loan). We paid off our student loans (paid Sallie Mae Navient back). We paid off our mortgage in just over a year.
Let me tell you how we did it.
Home Expenses in 2014: $45,954, in 2017: $7,227
According to Mint, we spent $45,954 on everything “Home” related during 2014. Our “Home” expenses included mortgage, insurance, repairs, remodeling, utilities, and any “stuff” we bought to adorn our home.
Having a 1500-square-foot home was a drag. Between the money going out for heating, cooling, taxes, insurance, and many repairs and the time we spent cleaning it, mowing the lawn, and shoveling snow, we were over home “ownership”.
After spending nearly $46,000, you’d think we might have made a dent in the mortgage. But no, you'd be wrong. At the end of 2014, we still had a mortgage balance of $156,000 because we weren’t paying anything extra. Our house owned us.
Baby Boomers around us were dying to retire but finding themselves handcuffed to jobs in order to pay their mortgages. Neither of us wanted to end up like them. But in 2014, that’s exactly where we were headed.
By 2017, we had sold our 1500-square-foot house, moved into a 500-square-foot house (yes, I'm serious), and managed to pay off the mortgage on the new place. Our $7,227 in expenses included taxes, insurance, utilities, and the “stuff” to take care of the house like soap, rugs, and whatnot.
Auto Expenses in 2014: $10,256, in 2017: $7,466
At one point, both of us had a Volvo and a smart car. That's right: Our household of two owned four cars.
To acquire four cars, we had two car loans and two car leases, so it’s no surprise that in 2014, we spent $10,256 on debt, repairs, and insurance for four cars.
And you know what’s really crazy?
We had so much stuff in our two-car garage (hobby stuff, home stuff, deck furniture, etc…) that we struggled to park just one car in the garage. The time and money we wasted juggling four cars was obscene.
By the end of 2017, we had become a one-car family. The leases on our smart cars ended in early 2017, so we paid the end-of-leases fees and returned those cars to the dealership. Most of our expenses in 2017 were the result of car repairs and maintenance, like a new computer, fancy synthetic oil, and so on.
Health Expenses in 2014: $14,532, in 2017: $3,726
In 2014, Garrett started seeing a new, out-of-network, out-of-pocket doctor ($$$). It was a last-ditch effort to address a lifetime of chronic fatigue. (He’s doing much better today!)
Also in 2014, I came down with some bizarre symptoms that went undiagnosed (probably tick-borne illness). Thousands of dollars in MRIs, blood tests, and CT scans, no one could explain the difficulty walking, fatigue, and brain fog. (Thankfully, I recovered.)
In total, we spent $14,532 on our medical needs in 2014.
And all of the stress about money certainly didn't help our health!
Eliminating all of our debt also eliminated much of the stress we felt about money. What a relief it was knowing that we were true homeowners, living mortgage free in our “tiny” house.
Downsizing to the 500-square-foot home freed up a lot of time. No longer were we spending hours each week maintaining or remodeling our home. Instead, we spend our time hiking, kayaking, and doing all the other action verbs we enjoy doing.
Food Expenses in 2014: $15,693.48, in 2017: $7,070
Between our jobs, half-done home remodeling projects, and countless medical appointments, we had convinced ourselves we didn’t have time to cook when we lived in our larger 1500-square-foot home. In fact, we thought that by eating at restaurants every other night, we were actually saving time.
Going to restaurants all the time led to laziness and poor food choices. We weren’t eating well. We weren’t exercising. It’s probably no surprise that our health expenses were as high as they were because we weren’t taking care of our bodies.
Looking back at that year, it's clear that we were the problem in our lives. The state of our finances was largely due to bad decisions and poor choices. But spending nearly $16,000 on food wasn’t the problem — a lack of accountability was our real problem.
Honestly, food continues to be a struggle — even as I write this in early 2018. When we plan ahead and purchase enough groceries for the week, we’re okay; going out to eat isn’t even a thought. But when we don’t plan portions properly or we forget to go to the store to replenish the stockpile, we run into trouble. Our spending on food is down significantly, but there’s still room for progress.
2015: The Year of Change
In 2015, we started talking about money and what we wanted to do with money in the future. We quickly realized that we weren’t spending money in a way that aligned with our values. Neither of us imagined that we’d be working until 67, but we weren’t doing what we needed to do in order to retire earlier.
I started seeking out online personal finance resources to help us get our financial situation in order. One of the blogs we found was 1500 Days, which is all about financial independence. It was the first time we'd encountered the term; it sounded as if though financial independence would lead to the life we sought.
J.D.'s note: I love 1500 Days. It's one of my favorite finance blogs. Two of its best features? First, Carl is hilarious. And second, the blog contains plenty of dinosaurs.
By April 2015, we set a plan for getting out of the hole we'd dug, to become money bosses for the first time in our lives. We wanted to achieve financial independence in 1500 days — on 19 May 2019. Having such a lofty goal meant we had to make some big changes.
Since our saving rate was nonexistent, we stopped spending on all non-essentials and started budgeting. We challenged all of our expenses to see how low our spending could go. Each expense we lowered meant more profit margin. But cutting our expenses wasn’t enough to get us out of debt in the timeframe we outlined. We had to take bigger steps to rearrange our lives in order to accomplish our mission.
- I left a part-time job in favor of a full-time job. Garrett put extra hours into his W-2 sales job because of the commissions he could earn.
- We put the 1500-square-foot house on the market in April 2015. (Sold in May 2016 — $0 in proceeds from the sale.)
- We set about the process of building a smaller home. We found our postage-stamp lot — 2500 square feet — and had a small house manufactured to fit on the space. We moved into our 536-square-foot home in September 2015. (We've been loving it ever since!)
- We sold one Volvo and turned in the two smart cars at the end of their leases. Now, we’re a one-car family. Since I work from home, I’m content with biking around town to run errands or when I just want to hang out by the river.
- We started a side hustle and used the income from our side hustle to pay off our credit card debt in October 2015. [J.D. again. Claudia is too shy to say, but I'll mention it for her. Their side hustle is SEO Audit Guide, a company that helps folks in the online space optimize their websites. I've paid for their services myself. Twice.]
- We used the debt avalanche approach to eliminate the remaining debts, which we paid off in March 2017. (Here's a debt avalanche calculator.)
We’re just three years into this journey to FI, and I’m proud to say we are 100% debt free. No mortgage. No car loans. No student loans. No credit card debt.
2018: The Year of Growth
Our purpose for this journey was to create margin in our lives to pursue something purposeful, our “why,” something other than W-2 employment: a life of financial independence colored with slow travel and entrepreneurship.
If you know about the stages of financial freedom, you know we’re working on Stage 4: Security.
In the last several months of our journey to debt freedom, we were able to make monster debt payments — as much as $13,000 toward the end. We were obsessed with getting out of debt, so we didn’t save any money. Sometimes we had as little as $500 in our checking account. Most of the time, we had less than $100 in savings.
In 2017, we made solid progress on Stage 4. We set aside enough in our emergency fund to cover one year's worth of expenses (about $30,000) and we invested the max in our tax-deferred retirement accounts.
In 2018, we're focused on growth. We want to grow our income, which will in turn increase our saving rate. This will give us more money to invest. (We're interested in dividend investing.) After much debate about how we should pursue financial independence, Garrett and I decided that real estate just isn't right for us. Dividend investing is a better fit. (With real estate, we'd need to invest far too much time and money to generate enough passive income to cover our expenses.)
Pursuing financial freedom changed us for the better. We’ve seen significant improvements in our finances, but also our health and happiness. No longer are we broke millennials living paycheck to paycheck. Somewhere along the way, we became happier, healthier, self-actualizing, wealth-building millennials. And financial freedom is finally in sight.