FIRE Community Guest Interview #8: Calculated Engineer Family Utilizing Geo-Arbitrage to Reach FI

1. Can you give us a little background of who you are, what you do, and how you became interested in personal finance?  How did you discover the idea of financial independence? 

I’m a 35 year old wife and mom living in Wyoming. For the last ten years since graduating college, I’ve been working in the sustainable buildings industry, with the majority of that time being self-employed. Now that we’ve reached FI, I cut back my engineering work substantially and only work on projects that I really enjoy. I became interested in personal finance through the lens of paying off debt when I was in college. I learned about financial independence through reading the book Your Money or Your Life (a.k.a. the “crossover point” when your investment income covers your living expenses). This was at age 22. Thirteen years later, we’re FI.

2. When in your journey did you realize financial independence was actually possible?  Was that the original goal at the beginning?

It was in 2013, just after our daughter had been born. We knew we were doing well with savings and investing in our company retirement plans, but didn’t really have an end goal or a target retirement age laid out. When we first sat down to do the math using the 4% rule, we discovered we’d be FI by age 35. FIRE was not the original goal – we instead were focused on paying off debt including our mortgage so I could be a stay at home mom. Once we realized it was only a few years away, I kept working from home as a freelancer to boost our FIRE investments.

3. To help put things into context, if you are comfortable sharing some numbers, what is your savings rate/what was it during your working years, net worth, salary, how many hours a week do/did you work, etc?  How long have you been working towards financial independence and where are you today? 

During our working years, we made it a priority to only live on the lowest of our incomes. In the beginning, my husband was the top earner so we saved his entire paycheck and lived on mine. After I started my own business and our incomes grew, we still lived on that smaller income which was around $50,000 pre-tax in 2009. During our peak work years, my husband worked about 50 hours/week at his day job, and I worked 40 hours/week at my day job plus 15-30 hours/week at my freelance gig (which I grew into a company and it became my main job). We’ve been working towards this goal since graduating college in 2009, so it took us ten years. That included buying three homes, moving across the country three times, starting a family, and starting multiple small businesses. Now in early retirement, I only like to work zero to ten hours a week (this brings up so many thoughts on what counts as work!).

4. Do you feel deprived?  Do you feel like you are sacrificing and missing out on life?  How would you say your mindset has shifted throughout your FI journey?

No 🙂 We’ve always been naturally low-maintenance people, preferring to buy used vs. new, bring our own lunch and take affordable vacations like road trips & camping. We’ve definitely had seasons of life where we spent much more than we currently do, like in our twenties living in the big city. One year we spent $10,000 on restaurants alone, which is crazy to think about now since we prefer the taste of home cooking (except Olive Garden, our favorite). There have been times when I feel deprived for TIME instead of money, like when I’d want to take a family trip during the school year and we can’t skip school. Financially, since our living expenses are covered by investments, if we want to do something expensive (like go to Hawaii for our ten year anniversary), it just means taking on some extra freelance work to cash-flow it.

5. What do you spend your money on and what don’t you spend your money on?  What brings you happiness and joy?  How much money do these things cost?

How about I share our FIRE budget? The plan includes about $42,000/year of spending and breaks down like this:

• Food: $8,976/year (60% groceries, 40% restaurants) We go to restaurants often when family visits or when we’re on vacation and are fans of casual dining so we can go out more frequently.
• Travel: $6,391/year. We spend summers traveling the US national parks with our RV, and this includes annual passes to the national parks and science museums. It also includes air travel to visit family in the Southeastern US one or two times a year, which we offset significantly with travel rewards.
• Utilities: $4,655/year. Electric, gas, water, trash, recycling, alarm, internet and cell phones.
• Transportation: $4,018/year. Insurance, registration, gas and repairs for an electric vehicle, a pickup truck, and an RV.
• Housing: $3,298/year. Single family home including property taxes, insurance and maintenance.
• Entertainment & Hobbies: $2,615/year. Annual ski passes for the family, sporting events at the nearby university, movie nights, ice skating, etc.
• Shopping: $2,385/year. Clothing and general household items. We primarily buy clothes secondhand because our town’s consignment shops are amazing!
• Health & Fitness: $1,208/year. Includes doctor/dental visits and gym membership. Health insurance premiums are zero for our bronze-level HSA-eligible high deductible health insurance plan.
• Kids: $1,217/year. Includes extracurriculars, school supplies, summer camps, babysitters and allowance. We fill up our calendar with free events before registering for paid kids stuff.
• Miscellaneous: $6,931/year. This is cash ($20/week per adult, no questions asked), gifts, charity, personal care, postage… It also includes $3,312/year for “capital improvements”, aka saving up for our next car or a new roof.

6. Do you use a budget?  Do you track your expenses?  Do you track your net worth?  If so, how often do you update these?

Yes, I track our spending weekly and update our projections monthly. We use online tools like Personal Capital as well as homemade spreadsheets. As far as living within a budget, we keep a few rules of thumb in mind:

• $10/hour per person or less for entertainment. Anything over that needs to be discussed ahead of time.
• $500/month max for groceries – beyond that and we’re cooking from the pantry.

I actually really enjoy budgeting, carrying around envelopes with money totals written on them (Jordan Page’s envelope method, not Dave Ramsey’s), stretching a dollar… I stopped doing this so much when I was ramping up engineering work and am looking forward to playing around with it more in early retirement.

7. As a FIRE family living in the US who has already reached financial independence (rock star fam!), are there any pros to living in America specifically that have helped you along your journey?  Conversely, any cons?

The biggest pro is how easy it is to start a business here. The tax code certainly favors business owners, and we figured that early in our careers. There’s so much support for entrepreneurs too, like the Small Business Development Centers located in most major cities. I’ve only lived in the US, so I’m not sure how other countries do it or what any of the “cons” would be. I like it here 🙂

8. What is your investment strategy?  Do you invest in mutual funds, index funds, dividend growth stocks, real estate, other businesses, etc?  Has your investment strategy changed over the years?

We like index funds and prioritize pre-tax retirement accounts like 401Ks, IRAs and HSAs. We’ve both grown our own small businesses but not to the point where we’d sell them off for a profit, and we’ve never been landlords.

9. If you could go back in time and change things, what would you have done differently?

I would never have financed a new SUV during college. I also would not have bought a home on the west coast (would have rented instead). Also, I probably would have scaled back my work much earlier for more relaxation time.

10. Has reaching financial independence changed how you live life overall?  

Yes and no. I grew up hearing that “money changes people” and I’m not sure I agree with that. We’re still living very much like we did during our broke college student days. That’s always been the lifestyle goal – to have the kind of freedom we had when living on campus, working part-time / seasonal jobs and spending our days learning, riding bikes, socializing, exercising, volunteering, etc. The big thing I’ve noticed is that we enjoy certain aspects of work more, now that we don’t depend on jobs for income. I like getting out of the house and working with groups of people (since I’ve been working from home fully since 2013), so I’ll take on contracts with that arrangement. My husband likes a technical challenge, so he’s always reaching outside of his niche to try new things with work.

11. Can you give our readers a glimpse into your current work setup?  Do you plan to call it quits at any points? 

My husband still enjoys engineering very much, so he’s continuing to work on exciting contracts that come up (no more than 20 hours/week typically). I’m switching my brain away from engineering as my business comes to a rolling stop (not chasing new work, but finishing out existing contracts through 2020). My next act includes flexible teaching gigs and writing. I like doing about 5-10 hours/week of intellectually stimulating work. We both take the entire summer off, as well as school breaks. My rule with working after FIRE is “would I do this thing for free?” If the answer is yes, then I’ll do it (like teaching group fitness classes). The main thing I’m excited about is finally getting to explore the homemaker life, which was my goal six years ago before my business took off and I got swept up in that.

12. Do you take advantage of tax advantaged accounts offered to you?  If so, which ones and how so?  How do you withdraw from these funds early without being hit with a penalty? 

Yes! We have 401Ks, IRAs and HSAs which we have maxed out for most of our working years. We plan on accessing these as needed (to supplement any fun freelance work) using the Roth IRA five year pipeline conversion strategy. Here’s a basic overview for a family with $40,000 in annual expenses. (Note we live in a state with no income taxes, and our federal income taxes are zero up until $44,300/year of income based on the standard deduction for married filing jointly plus the child tax credit for one child).

Save up a total of 25 years of living expenses (4% rule), most of which would be in pre-tax accounts and includes at least five years of expenses in an after-tax brokerage account (not a Roth IRA, but just a regular investment account). Each year, withdraw that year’s living expenses from the brokerage account (paying taxes only on the capital gains of what was sold, which could be very small depending on your situation). Also, take one year’s living expenses ($40,000) from a 401K and roll it into a traditional IRA. Then convert that amount into a Roth IRA (which “crosses the tax line” and shows a taxable income of $40,000 on your tax return forms). After five years, you can withdraw that same $40,000 penalty free from the Roth IRA. This is why you need five years of living expenses in the brokerage account (to give the Roth IRA conversion five years to qualify for penalty-free withdrawals).

13. As an American family who has reached FI, what are your post-FIRE plans regarding health coverage?  What do you estimate your post-FIRE health costs will be once you are no longer employed? 

We’re using a high-deductible health insurance plan purchased through the exchange. Based on our finances, we’re eligible for tax credits to cover the entire cost of premiums. This was a big reason why we chose Wyoming, where a family of three can qualify for this benefit with an Adjusted Gross Income of up to around $84,000.

14. As a FIRE family, can you provide our readers with a general idea of how much raising your daughter has cost over the years?  Any parenting related money hacks you can pass along?  What have been some child-related items that are totally worth the cost and what have been some items that if you could go back in time you wouldn’t have purchased?  

I haven’t tracked it separately, but most of the child-related costs include daycare which we minimized by me working from home while she slept (read: years of relentless exhaustion). We did enroll her in preschool when she got older, but we weren’t facing the massive bills that full-time working families encounter. Some of the ways we save money with a kid include choosing road trips over airfare for vacations (having a kid increased our air travel expenses by 50%) and sharing meals with her at restaurants (i.e. not ordering a full kids meal for her). We also prioritize free events first to save on extracurriculars. For example, our daughter did a season of free hockey instead of paying for gymnastics lessons this year.

Worth It: part-time preschool (“nursery school” or “mom’s morning out”), science museum annual pass.

Waste of Money: brand new clothes, shoes for non-walking babies, swim lessons before age four (we don’t have a pool, so this was not an urgent safety concern). We wasted years in the pool before it actually “clicked” for her at age four.

15. Are you saving for your daughter’s post secondary education?  If som can you provide some more details on your plans here? 

Yes, we have a separate brokerage account to help cover the costs, although we’ll likely pull the funds from our HSA (with receipts for unreimbursed medical expenses from previous years) first since it’s double FAFSA-blind and can help qualify for additional financial aid. This was another reason we moved to Wyoming. It’s one of the only in-state universities left in the US where a student can live at home, work a part-time minimum wage job and still cover tuition on their own. They also have extremely generous academic scholarships for in-state students. We’re not planning to pay for private or out-of-state college costs, or living on campus since we’re walking distance from the university.

[Court: Kim also has a college planning in early retirement series for anyone interested in reading more. Additionally, back in November last year Kim wrote a guest post on the Go Curry Cracker blog about Hacking the Health Savings Account (HSA) for College, what a creative strategy and it’s part of her college planning series.]

16. Where can you see yourself in the next year, 5 years, 10 years?  

Next year (2020): Closing down my engineering business and moving on with my life 🙂

2025: Enjoying the homemaker lifestyle, spending summers exploring international locations with our daughter who will be entering middle school.

2030: Helping our daughter explore her future options with college & career decisions. Planning longer international trips as a couple once she’s an adult.

17. Have you come out of FIRE closet yet?  Meaning, do your friends, family, co-workers, etc. know that you have reached financial independence? If so, how did you bring it up and what were their reactions?  If not, why not?  Why do you struggle with this conversation and why do you feel that money is such a taboo topic?  

The only friends in real life who know about our finances are the ones who read my blog, otherwise we prefer to keep it private. I’m not shy with sharing information with friends who come to me for advice though, like if they’re interested in paying off their mortgage early, etc. Sometimes knowing that someone else did it helps give you the nudge to make a big decision, which was certainly the case with us. I talk openly and evangelically about paying off debt because I feel like that’s a more attainable goal for most people, but I don’t talk about FIRE with folks who still carry consumer debt – it’s simply a bridge too far.

18. What pieces of advice would you suggest to someone who is just starting out or someone who is working toward reaching financial independence?  

Track your spending. You don’t know how much you need to work if you don’t know what you’re actually spending. If you have consumer debt and want to achieve bigger financial goals, it’s going to take some short-term sacrifice to clear those debts off the books. Enjoy the early part of the journey – you can still have a great time spending very little money on your social life (I know because that was me ten years ago!). Find enjoyment in the simple things like renting funny DVDs from the library and hosting friends at your house (like a Back to the Future marathon) instead of going out on the town. Frugality breeds creativity and you’ll always remember the fun times you had when you were living frugally, compared to yet another night of dinner + drinks + movies.

19.  What has been your greatest accomplishment to date? 

Teaching my daughter to read before she entered kindergarten. That investment of time and energy is paying serious dividends years later. FYI we used The Reading Lesson book from Amazon – it took about six months start to finish, and I have fond memories of snuggling on the couch together with that giant book. She was so proud when she finished and got the “Reader for Life” certificate of achievement.

20. Are there any books, blogs, or podcasts that you would recommend to our readers? 

Books: “Your Money or Your Life” and “The Total Money Makeover” were the biggest pivot points for me in my financial journey. I also enjoy “The Complete Tightwad Gazette” and think everyone should have a copy of this book in their home (it’s back to basics frugality).

Blogs: Mad Fientist is great for explaining the Roth IRA conversion ladder strategy, and Root of Good lays out the transparent details of early retirement finances.

Podcasts: Choose FI covers every topic in the personal finance realm and makes it easy to find specific things you’re looking for. I also like to binge watch Dave Ramsey videos on YouTube for motivation, even after reaching FIRE.

21.  How can people get in contact with you?

My website is www.thefrugalengineers.com. I’m no longer on social media (thanks “Digital Minimalism“) so the best way to find me is on my blog.

Thanks again Kim for being a part of our FIRE Community Guest Interview Series on the Modern FImily blog. I always love learning about other FI family who have “made it”.  Kim shows how us math nerd girls are absolutely rocking it in the FI community.  Next month’s interview will shift over to an immigrant to the US from Venezuela who really shows us how her background has impacted her FI journey.

Did you enjoy this interview? Any additional questions for Kim?  Thanks for tuning in and check back next month for the next interview.

We love highlighting other members of the FI community. Please contact us if you’d like to be a part of the FIRE Community Guest Interview series and we’ll see if we’re a good fit!

And in case you wanted to read the previous interviews that make up our FIRE Community Guest Interview Series, here you go!