We are proof that Family FI or Financial Independence (FI) is not a thing only for the “tech bro’s.” The pathway to FI may be slightly different for families but you and yours can still enjoy a luxurious life.
We created Family FI here at fi59andahalf.com to describe a family that is consciously on the path to build wealth but prioritizes family needs. For example, this includes one parent pausing or working part-time to raise children may take priority over other financial decisions. Family FI is not necessarily the fastest pathway to FI like some in the FIRE Movement. Our plan to make “paid work optional” by age 59 and a half is still faster than traditional retirement. For us, making intentional and careful decisions was the key.
Learning about Family FI- Part 1 on the road to
The Importance of Planning
Accidents happen, this includes having children. While we planned our children, some people do not. If possible, we recommend starting your pathway to Family FI before you have children. We recommend implementing the following:
Exercise the Habit of Paying Yourself First
Using the financial strategy of “paying yourself first” is an old strategy and one implemented by my own parents. By paying ourselves first we hide money from ourselves . We live below our means (and did so from the very start) which has been a key wealth building tactic. Initially, we paid ourselves by paying off our debt, which included college student loans and a car loan.
Live on One Income
Admittedly, living on one income is a bit like “paying yourself first.” We desired to have parental involvement in raising our children. For us, it was important to prove to ourselves that we could live on one income (if we needed to) while raising kids. Pro tip, living on one income can help advance your FI journey as a couple. We were “investing” the other spousal income on various savings and retirement vehicles to meet immediate and long-term goals. We outline some of these saving priorities below.
Living on one income forces you to prioritize needs over wants. We focused on gamification of how to fulfill our needs and maximize versions of our wants. For example, perhaps we needed (ok, really wanted) coffee, but we bought good coffee grounds and made it at home. We maximized drinking good coffee over buying coffee out. Thus we had the luxury of top line commercial coffee over a drive-thru brand.
Save for a Down-payment for a House if you plan to have one
Once we paid off our debts, we started saving for a down-payment for a house. We knew we wanted to try to have children and it was our preference not to raise kids in an apartment. It was important to us, to save a minimum 20-percent of the total cost of a house. We knew that if we had 20-percent we would avoid paying private mortgage insurance (PMI). Often you must pay PMI for a conventional bank loan if you put down less than 20-percent. Pro tip, avoid the PMI instead of “Operating like an FI idiot” in this and other ways.
Avoiding Insane Debt by Buying Less House Think You Will Need and Not Maximizing Your Loan Amount
Making moves to avoid massive debt, means being smart about buying a home. Buying a home does not mean you need to maximize your full approved loan amount. In living on one income, we knew we could not “afford” a mortgage based on our two incomes. Against the advice of our real estate broker and bank lender, we purchased a home far below our approved loan limits. Buying less home than you think you need and taking out a smaller mortgage will most likely save major money in interest.
Pay Off Debt Except for Your Mortgage
Marrying into debt caused one of us incredible anxiety. Paying off all debt was the number one priority. Paying for a house in all cash would have been the preference of one spouse. Eventually we came to a peaceful agreement about taking out a mortgage. Admittedly, paying off all our debt except for our mortgage was a key to Family FI.
Covering Catastrophic Events
We know that on its face, purchasing life insurance may seem like “Operating like an FI idiot” but we could not risk it. Losing a parent has so many ramifications, not the least of which is financial devastation. Covering catastrophic events, like paying for at least term life insurance, was not optional to us.
More Tricks of the Trade
Your FI Number May Not Be Clear Right Away
An individual, couple, or family can determine the FI Number by the amount of money they need to achieve Financial Independence (FI). Determining your FI Number is not your household income or adjusted gross income. In the Financial Independence community, an FI Number is based off of annual spending or the amount of money an individual, couple, or family plans to spend annually with the added calculation of being able to generate enough funding through investments or other sources on an annual basis to reach that goal. Many in the Financial Independence movement use the FI Number multiplied by 25 as the baseline, as noted in the FI cult-like leader Mr. Money Mustache in his post “The Shockingly Simple Math Behind Early Retirement. Bill Bengen, the Godfather of “the four-percent rule” or 4% rule determined withdrawal rates using historical data.
Figuring out your Family’s FI Number may take several years. In fact, we are still dialing in our exact FI Number. We have a range of possible FI Numbers. Follow us on our journey to achieve Financial Independence over the next 100 months. Having reached a good place in our FI journey, we have changed our approach these next 100 months. Our mindset is only possible after decades of hard work.
Contributing to Pre-tax retirement accounts (tax-deferred accounts)
We are contributing to pre-tax retirement accounts allowing for investment before government taxes. In the United States, examples of pre-tax retirement accounts generally include traditional individual retirement accounts (IRAs), 401(k)s and 403(b)s. The term pre-tax means that the individual puts off paying taxes on the money contributed to these types of accounts, including any potential earnings they may generate. Taxes will be due when we remove funds in retirement. Typically, pre-tax retirement accounts do not allow for a taxable withdrawal until the individual reaches age 59 and a half. Thus, part of the reason for the website known as fi59andahalf.com
401(k) and 403 (b) pre-tax retirement account contributions
We are utilizing both 401(k) and 403(b) employer sponsored pre-tax retirement accounts or tax-deferred accounts as part of our plan. Currently, we are contributing the annual maximums.
Using Health Savings Account (HSA) as a FI Tool
The United States federal government created health savings accounts (HSA), better known as HSAs, which is a pre-tax type of savings account that lets you set aside money to pay for qualified medical expenses. HSAs did not exist at the start of our FI journey. We are utilizing an HSA-eligible medical plan (sometimes called a High Deductible Health Plan (HDHP)) which allows us to contribute the HSA maximum. By using pre-tax dollars to fund an HSA to pay for deductibles, copayments, coinsurance, and some other expenses, we are able to lower your out-of-pocket health care costs. An HSA may earn interest or other earnings, and these earnings are tax free. The Mad Fientist refers to HSAs as “the ultimate retirement account” (thus using it as a pre-tax retirement accounts or tax-deferred accounts).
This is Part I in a Series
Please look out for future posts detailing a pathway to Family FI. Thank you for reading.
*Disclaimer: The content on this website or any blog posts is not intended to be investment or life advice. Readers should consult with their legal, financial, and accounting specialists and spiritual and/or life coaches to provide insight on their personal and specific circumstances as each situation is unique. FI59andahalf.com and any blog posts are written for entertainment purposes only.
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