I am a millennial male in his late twenties. I am pretty much damn near thirty. I’m married to my wife of five years who is in the same age as myself. We have just started our careers. Fresh faces added to the cog of capitalism.
During my college years I yearned to be done with school. My only goal was to finish college and to get that golden ticket into the middle class. Dreams of living in poverty haunted my sleep.
I grew up in an upper middle-class family. My parents were not wealthy, but they were better than most of my friends growing up in high school. After high school I moved out of my parent’s house into a low-income apartment complex with my future wife and one of my friends. There I experienced living a lower-class income for a half decade.
After graduating from college, I hustled to get a job in the investment management industry. The buyside was my calling. With hard work and “bruised” fingertips, I landed a job on the buyside.
I was thrusted into the fast lane of the corporate world quicker than the money I made. I went from eating rice and noodles to eating with top executives at fancy steakhouses. I went from barley scrapping by on my minimum wage job to getting bonuses that were twice or even three times what I made with the working class. I went from living in a low income building to a yuppie high rise full of young, hard working professionals.
Life was good…for the most part.
Working on the buyside isn’t a stress-free job. Stock prices go up and stock prices go down. When stock prices are going up you are making money. Year-end bonuses start to swell. You begin to think about what you will do with a fat cash infusion. Fuck, if the stock market continues to go up its possible you could get a bonus three or even four times what the average median family makes. And then it disappeared.
That is what happened at the end of 2018. The firm I worked for was having a killing in 2018. Instead of counting sheep to fall asleep I was counting the fat stacks of cash I was going to have come January 1. But it vanished. Poof, it’s gone.
First our portfolio was down 1% from the peak. No worries “stocks go down”, I told myself. Then it was down 5% from the peak. “The stock market is a voting machine in the short term and a weighing machine in the long term”, I told myself – thinking I was so clever for reading Benjamin Graham. Then we were down 10% from the peak. Then 20%. Before I knew it, the portfolio was in the red. We lost our investors money for 2018.
It was around this time that I read the book Sapiens by Yuval Noah Harari. In the book Harari talks about the endless consumption and achievement a Homosapien has. For an example, a young and ambitious Homosapien has just graduated from the most prestigious business school in the land of all Sapiens. They were so ambitious that they landed a job making $150,000 per year right out of school. If they work this job for 10 years they will likely get handsome raises, stock options, bonuses and all of the perks a high income bobo is destined to earn. They think to themselves “if I work this job for 10 years and save a good portion of my paycheck I will have the option of retiring by the time I am 35”. Everything sounds good on paper. But then the allure of the high income and all the “perks” that come with it kick in.
Lifestyle inflation comes around the corner. The ambitious Homosapien gets married. International vacation twice a year. The high-income Homosapien buys a luxury car. Then they get a country club membership. Next come the kids. A house in the suburbs with a mounting mortgage. Private school for the kids. Another car (probably leased) to haul the kids around. Life goes on.
Age 35 is here and the Homosapien has all the cool toys an ambitious, high-earning Bobo could ever want. But money in the bank? A measly $100,000. Early retirement vanished, in the blink of a decade.
That portion of the book in Sapiens hit me hard. I have only been working my new corporate job (at that time) for around two years. I did not want to spend the next thirty years working 60-70 hours week in a demanding, high stress job. I didn’t want to have kids and have them never see their dad because he was a cog in the machine of capitalism. I didn’t want to sell my soul for a paycheck.
A few months before I read Sapiens, my wife mentioned to me that we should start a budget. Track all our expenses and figure out where the hell we are spending our dollars. Before building the budget, we were trying to save $10,000 dollars in six months. This meant we were going to save $1,666 dollars a month. It seemed like a big amount to be saving. But then we built the budget.
The budget was fun to build. Not only did we begin to track our expenses, but I built a model of our finances for the next ten years and projected what our net worth would be under certain circumstances. Furthermore, we figured out the minimum we could spend and still live a nice life in a high cost of living city. With the budget built, we figured we could save 50% of our income before any year-end bonuses.
The model under my “best” case scenario had us retiring in five years. In the “worst” case scenario we were expected to retire in ten years. Not bad at all. We doubled the amount we saved with no raises. Tracking your every expense is an eye opener. A way to cover the holes in a leaky bucket of water.
We began to find ways to plug the holes in our leaky bucket of water. Since we worked all the time, we never went out to eat on the weekdays. On the weekends we tended to go out for dinner and a couple of drinks. It didn’t seem like much blowing $60 bucks here and there. But when we put that $60 bucks in the budget, we began to realize how much we were spending. The budget was another tool in the toolkit. A way see where the claws of consumerism was sneaking into our lives.
It has been an entire year since we have been running the budget. An eye-opening experience is an understatement. We managed to save 60% of our income. A huge amount. I’ve read the average American saves under 5% of their income. Even better, when we back out of the student loan payments (just paid these off on January 1st, 2020) we made and a big tax expense (one-time) we had, our savings rate was 74%.
Even better my wife got a raise at the end of the year and so did I. We also took the money we saved and paid off our entire student loans. We are now debt free. You could look at our apartment as a type of debt. Our rent is the biggest fixed expense we have by far. 2020 will be the year we plan to take action on this. House hacking is an option. So is buying a condo/house outright in cash or with a huge down payment. If we can eliminate our housing expense our living expenses would be around $30,000 per year. With high incomes and the dink lifestyle we have, the amount of money we could save in the future would be mounting.
We don’t plan to increase our living expenses at all in 2020. In fact, I have modeled for our living expenses to decrease year over year. With two big salary increases, the lack of a student loan payment drag and some one-time expenses we don’t plan to have in 2020, I think we will be able to save 80-90% of our income. A 90% savings rate gives us the ability to retire in under three years. And with the big cash cushion we have already saved, I think we can be financially independent in under 24 months.