All posts by Greenbacks Magnet

I grew up in the Washington DC metropolitan area and have been working in the financial services and lending industry for over a decade. I earned a bachelor's degree in psychology and master's degree in distance education from the University of Maryland University College.
Real Estate

An investment action inspired by Supergirl: how you can use your Roth IRA to buy property

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Supergirl - IGN
The CW

Buy land, they aren’t making anymore of it. – Mark Twain

I am a firm believer in the learning curve. A learning curve is the rate of a person’s progress in gaining experience or new skills. Through time and experience will your ever-increasing knowledge and skills grow to help you make better and wiser decisions. That includes not only in your personal life, but in your financial life as well.

This post was inspired on an episode from the television series Supergirl (2015-2021). In an early Season One episode, two or three, Supergirl (Kara Danvers played by actress Melissa Benoist) is having a talk with her boss, Cat Grant, at her job with the company CatCo.

See the events of that exchange below.

Cat penned an article for the Tribune on Supergirl’s blunder at the port and ordered Kara to get it ready for posting. Kara wondered why Cat was constantly criticizing Supergirl, claiming that Superman never faced such heavy backlash. Cat expressed that women need to work twice as hard as men to succeed, pointing out that Supergirl, despite her good intentions, is still a novice; she left Flight 237 in the bay after saving it and now caused an oil spill while trying to prevent a fire. Since Supergirl’s job is a learning curve, Cat advised her to start with smaller targets and work her way up, similar to how the latter rose through the ranks at the Daily Planet.

Put simply, no one starts in at the top. You have to work your way there. Wealth building requires the same.

You have to learn to manage one dollar before you can manage one million. You start small and work your way up. Then it hit me. You can use one wealth building tool to help you build another. They are both levers that can be used to help you scale up your wealth.

It is like the S meaning on Supergirl’s costume. It is the family crest for the House of El; it means Stronger Together.

Both your Roth IRA and home investment can help you build wealth faster. They are both stronger together.  

The major fortunes in America have been made in land. – John D. Rockefeller

New Home, Construction, Industry, House

Buying a home takes money. You generally need money for two items: Down payment and closing costs. You can use funds from your Roth IRA to do this.

Roth IRA withdrawal rules allow you to take out up to $10,000 earnings tax and penalty-free as long as you use them for a first-time home purchase and you first contributed to a Roth account at least five years ago.

Normally you would need to wait until you are age 59 1/2 to start withdrawing funds. If you withdraw money from the account before age 59 1/2, you will typically have to pay a 10% penalty on the amount withdrawn. The distribution will also be subject to taxes. However, there are certain circumstances in which you might be able to take out funds from the account before reaching age 59 1/2 and not incur penalties.

One exception to the early withdrawal penalty is for the purchase of a first home. To be considered a first-time homebuyer, you cannot have owned a primary residence at any time during the previous two years.

This $10,000 exception is available for every individual, so a married couple can withdraw $10,000 from each of their IRAs for a total of $20,000 that can be used for a down payment.

In addition to purchasing your own home, you may qualify to help others buy their first house. IRA owners can withdraw funds penalty-free to help their first-time home buying children, grandchildren or parents purchase a home. Sweet!

However, $10,000 is the lifetime maximum for first-time homebuyer withdrawals. Therefore, the total of your withdrawals must remain under the $10,000 mark to avoid the early withdrawal penalty.

Many of you out there may say why not a traditional IRA. There is a method to my madness. Bear with me.

The reason for using a Roth versus Traditional IRA is that while there will not be a penalty on early IRA distributions for a first home purchase, you can expect to pay taxes on the amount withdrawn when using a traditional IRA.

For example, if you are in the 22% tax bracket, a $10,000 withdrawal for a home purchase will lead to $2,200 in taxes. For a couple in the 24% tax bracket who withdraws $20,000, the taxes due would come to $4,800.

However, this is not the case for the Roth because you have already paid taxes on that money so you owe no income taxes on money that is withdrawn for a first time home purchase.

So if you are all in on this plan, then let’s get down to business.

Ninety percent of all millionaires become so through owning real estate. – Andrew Carnegie

The rules for using a Roth IRA rather than a traditional IRA are slightly different. You can withdraw any contributions (not earnings) at any time from your Roth IRA before retirement age without penalties as long as the account is at least five years old. You will be able to withdraw any amount up to the total amount you contributed without being subject to taxes.

In addition to your Roth IRA contributions, you might opt to take out some of the earnings in the Roth IRA. You can withdraw an additional $10,000 from the earnings under the first-time homebuyer exemption.

This is where the withdrawal exception comes into play. You may withdraw a combination of both contributions and earnings or just earnings to use toward your home purchase.

Just remember that if you are only using earnings the cap is $10,000. Any penny above that will trigger the 10% penalty in a traditional IRA or just the the income taxes in a Roth IRA.

You can always take out funds above the $10,000 threshold if you are taking out contributions only or in addition to earnings.

Again, simple math can help you build wealth.

We don’t have to be smarter than the rest. We have to be more disciplined than the rest. – Warren Buffett

My method of using the Roth IRA early withdrawal exception.

First, I did some research and found out that if you qualify as a first-time homebuyer, you can withdraw up to $10,000 from your traditional IRA and use the money to buy, build, or rebuild a home.

Second, I learned that with a Roth IRA, you can withdraw your contributions tax- and penalty-free at any time, for any reason, as long as you have held the account for at least five years.

This got me thinking. At the time, I was renting. I had opened up a Roth IRA more than five years ago. I had been squirreling away cash in it since opening it up with T Rowe Price starting with $50 dollars a month.

I also opened up a second Roth IRA with another brokerage at another time as not to mess with the good thing I had going with the first one as you could no longer open a Roth IRA with T Rowe and continue with an automatic contribution of $50 per month.

Do not scoff or turn your nose up at investing small sums of money. Over the years dealing with both accounts and after regular and sporadic contributions over time my T Rowe account grew to over $10,000 as did my other one. I had well over $25,000 in both not counting my 401(k), Rollover IRA, or other cash and investments.

I was skeptical about moving forward at first with this decision to buy property. My first. Then, I thought about what Wayne Gretzy and Michael Jordan said, “You miss 100% of every shot you don’t take.”

This quote helped me as well. Progress always involves risk. You can’t steal 2nd base and keep your foot on 1st.– Fred Wilcox

Therefore, I went for it.

I started by combining both accounts. Then, I cashed out $13,000 of of my Roth IRA.

The first $3,000 was in contributions and the additional $10,000 was in earnings. After, using the funds for closing costs and a small part of it for renovations, I ending up paying taxes on a tiny portion. The grand total: $238.

I was shocked! I couldn’t believe it. I felt like I should have taken the plunge long ago.

Alas, we cannot look backwards, we can only go forward. Within a few months of me owning the property it had increased in value by $14,000. That is more than what I withdrew to get the place.

And owning gave me such a sense of peace. That right there is priceless. I decided to do some updates and renovations to feel better about the space I was in. It took some hard work and time, but it was worth it in the end.

I got inspiration from several places. I knew I wanted the feel of how I always felt every time I walked into a Restoration Hardware.

Restoration Hardware The Gallery at The Estate in Buckhead - Gilbane
Restoration Hardware Front Entrance

I got the idea to base my bathroom feel and design on the Marriott and Caesar’s Palace in Vegas. Clean lines, white, simple and elegant. I also went with frosted sliding shower doors that you could not see through.

Hotel review: Las Vegas Caesars Palace - 9Travel
Caesar’s Palace Las Vegas
First Look: JW Marriott Hotel Macau – Business Traveller
JW Marriott

My bedroom is my center and place of peace. I call it my home base. I also always have a mini home office in my bedroom as I like to roll out of bed in my pajamas and write, work and check the stock quotes.

75 Bedroom Ideas You'll Love - November, 2022 | Houzz
Houzz design

And I love an organized closet. I got inspiration for mine from the Container Store. Although, mine does not look like this, I did make sure it was organized with all of my suits, shoes, and sweaters together like in the picture below.

Custom Closets & Custom Closet Design | The Container Store | Custom closet design, Wardrobe door designs, Closet designs
The Container Store Custom Closet Design

Lastly, the heart of the home. The kitchen was inspired by honey + lime. Stainless steel appliances and organized kitchen cabinets make life easier. Again, although my kitchen does not look like this, it was done with something like the picture shown in mind.

Kitchen remodel, Samsung stainless steel french door refrigerator at Best Buy
honey + lime kitchen design

Every time I think back and ask myself if I made the right decision I think of this quote from FDR.

Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. – Franklin D. Roosevelt

Amen.

Financial Freedom, Retirement

Couple Making $500,000 has no Retirement Savings

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Burning Money, Dollars, Cash, Flame

After reading about a couple earning half a million dollars, I could not believe they did not have anything saved for retirement. Especially considering the couple were ages 65 and 59.

You don’t just start in at the top making that kind of money. Oh no. You have to toil in the salt mines for YEARS to make that kind of dough!

All their money is tied up in their home. They have a home worth a million dollars but a stock portfolio worth $0.

That is the type conundrum that just baffles those that are way lower on the income scale.

That would mean making $500,00 for just four years, they have earned $2 million dollars and not ONE RED CENT went to their retirement accounts.

Euro, Seem, Money, Finance, Piggy Bank

I didn’t read anything about owning any vacation or rental property, old savings bonds, having a few shares in Apple stock, nada.

This couple is burning through money faster than those kids were buying chocolate bars in Willy Wonka. And if you saw the 1971 movie, you saw what pandemonium that was.

I mean where is the money going?

There has to be some sort of financial household accountability and management. Once all the expenses are tracked, you can look for ways to cut. At this income level, I find it hard to believe they do not have a financial advisor or accountant.

This couple could save a small fortune, if they sold their home, ate out less, and sold the pricey cars.

Wallet, Credit Card, Cash, Investment

THE STRUGGLE IS REALLY NONEXISTENT

As soon as they earn the money, its spent. We have a serious cash flow problem here. We gotta stop the bleeding. This is a sinking financial ship and we have to plug those leaks. There has to be ways to save.

The couple own a home that will be paid for in 7 years, and at this time is worth around $1.4 million. They stated, “If we sold it tomorrow, we could net $1 million in equity. Home prices are going up faster , so it would be difficult to find a home for less than $750,000 (if we were lucky).”

One word: move.

Drop the financial anchor that is your home and move on. Is this home really worth you living today with nothing?

Take the $1 million in equity and but a modest $300,000 home with cash, then pay off any other debt you owe and start maxing put your retirement accounts. Keep a minimum $100,000 cash high yield savings account and start investing the rest.

If the couple does this, they could stash away $22,500 in a 401(k) and $7,000 in a spousal IRA for 7 years and have over $300,000 with the stock market average return of 10%.

If they can max out two 401k’s, then that would be the equivalent to investing $45,000 per year. Using the same factors as above, that would net the couple a col almost half-a-million ($500k) in retirement savings.

Just simple math.

Financial Independence, Investing, Real Estate

Reading the Stock Market Tea Leaves

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Tea, Cup, Pot, Tea Leaves, Pour, Pouring

“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” —John Quincy Adams

Stocks are down and housing prices are up. We have seen a shift in way consumers are spending. Mortgages are in. High-priced stocks are out.

Although the stock market has had an astounding run since the Pandemic began in March 2020, it is the acquisition of housing has most Americans chomping at the bit.

The US has minted more than half the world’s new millionaires over the last few years as investments in equities and tech stocks propelled assets higher. Real estate, is generally considered to be a more stable investment than volatile stocks or fluctuation cryptocurrencies and is a tangible asset. Real estate investing has also created 90% of the world’s millionaires.

However, not too far behind is stocks as nearly 70% of their wealth gains over the past year and a half have come from market gains. The wealthiest 1% know this. That is why they own 89% of all US stocks.

Those at the top of the economic food chain know the wealth comes from the owning of assets. The top 1% own a lot of stock my friends. And those at the bottom of the economic pyramid own so little. Meaning they are not keeping up with the rise of inflation and their purchasing power is steadily decreasing.

The dollar in their pocket is worth less now than it was yesterday. This means you are able to afford less at the grocery market and to purchase other consumer goods. For example, the cost of a pound of brisket was listed as $9 a pound. My sister sent me a screenshot of a 9.67 pound of brisket in her grocery store. The cost: $87.

I am sure somewhere my grandmother is looking down upon us and thinking that the family may very well have to turn vegetarian or severely cut back on meat consumption. I know grandma, I know.

According to Pew Research, the Consumer Price Index, the most widely followed inflation gauge, increased 7.0% from December 2020 to December 2021 – its highest rate in nearly 40 years. Families are spending $30 more per week at the local grocery store or farmer’s market. An increase in prices also mean less that is being invested and saved.

The price of lumber has increased by 288% making the cost of homes go up by an average of $36,000. The average new car price is now $47,000. As of 2021, the average monthly car payment in the US is $575 for new vehicles and $430 for used vehicles.

newcarprice

When I put these numbers in my compound interest calculator, it informs me that if I can invest either one of these amounts monthly for 30 years, I can become a millionaire. Therefore, I have come to the conclusion that new cars are wealth stealers and must be avoided at all costs. Rejecting new cars has made me richer. Things have gotten so far out of whack for the average household that people have begun to put groceries and gas on credit! This an absolute no-no. Building wealth requires cash.

Even if using OPM – other people’s money – you still have to bring some cash to the table to invest in index funds or put a down payment on a home. You must have capital to work with if you want to build wealth.

And companies are all too happy to part you from this wealth whether you have some or not. Case in point, I recently looked up the Kelley Blue Book value of my car. I just wanted to know what it was worth. Little did I know that this information gets sent over to local car dealerships who within mere seconds of me inquiring started sending me a barrage of solicitations for my business to put me into a new car.

I know very well that the average car payment is over $500.

These salespeople are looking to increase their monthly sales quota. I continue to get offers to get me into a new car by email, phone and text over the next week.

At this point, my Spider-sense is tingling. Why are folks still calling me after a week? I get it. Business is all about sales. They make fat commissions of us folks once we sign on the dotted line.

I prefer to keep my money where it is; in my pocket.

Just for kicks, I decide to look up the cost of food, housing and cars from the last 30 years.

Solved: Cost of Living The table at the right shows the average pr... | Chegg.com

After doing all of this research, I have come to the conclusion that the future is going to be expensive.

THE COST OF BUYING A HOUSE OVER 30 YEARS | Bike Friday

Therefore, it is unwise to use credit for present consumption with yet unearned future dollars.

We can prepare for the increases in living expenses by investing our dollars today. Don’t believe me. Just take a look at all the charts I provide in this article.

Numbers don’t lie.

The constant outflow of discretionary dollars on basic cost of living has consistently gone up. The cost of homes, education, cars, gas, and food are going through the roof!

I truly feel that incomes have not kept pace with the cost of homes and education. Equity may have increased, but so has the cost of homes.

In 1976, the cost of Harvard University tuition was $3,740. In 2019, it was $54,002. How can they justify it? It is almost like that owl in the how do we get to the center of a Tootsie Pop commercial: the world may never know.

r/Damnthatsinteresting - 1976 cost of living.

This is a mystery that I do not even think Scooby-Doo and the gang could solve no matter how many Scooby snacks Velma has in her back pocket.

Scoobydoo Whereareyou GIF - Scoobydoo Whereareyou Thegang - Discover & Share GIFs

I do not say these things to scare you. I am merely your jedi money guide on this journey. I want you to invest.

Own your primary residence and buy those index funds.

As the stock market goes down, buy the dip. Buy low. Get those high returns to sell high.

I did this back in 2013 when I bought shares of Apple (AAPL) for $258. The stock went on to split twice. Once for a 4-for-1 basis on August 28, 2020, a 7-for-1 basis on June 9, 2014. Prior to each split the stock was trading well over $500. It was $656 in 2014 and $656 in 2020.

It went from a billion-dollar company to a $2 trillion-dollar one. At the time of this writing, it is hovering around a $3 trillion-dollar market cap. Off a small one-time investment, I made tens of thousands of dollars.

And that small home that was purchased years ago. It has increased in value over $100k. The equity has gone up by over $100,000 and counting. That is why we invest my friends. So we can keep earning money in our sleep. Our money can work without taking vacations or sick leave. We can’t.

So here is your homework for this evening. I want you to find a home you would like to buy and a stock you would like to purchase. Figure out how much of a down payment or initial but in you will need. Divide this amount by how long you think it will take you to save up these funds.

For example, the VTSAX has a minimum initial investment of $3k. You decide you want to but this investment in a year. Therefore, you divide $3,000/12 months = $250. That is how much you must save every month to but this index fund. Doing the math will allow you to slowly build your dreams.

Let us not forget the wisdom of one of the greatest investors of all time: Warren Buffet. He reminded us that American living standards advanced seven fold in the 1900s, while the Dow rose from 66 to over 11,000. The Dow now stands at 34,934.27 today in 2022. “The model has worked well for America. If you look at all these disparate businesses, such as if you looked at the Dow Jones as a single entity… (though it rotated)… but going from 66 to 11,000 is doing something right. Owning a group of good business isn’t a bad plan.” Yes, owning is good for your pocketbook in the long run. Now I want you to go out and get some assets.

But before you do here is some more Buffet wisdom, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” And lastly, “The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.” Patience is key. It will take you to the promised land of financial independence.

When I read the tea leaves on the stock market, I see it rising to 100,000.

Why you ask? A little research.

The Dow Jones industrial average index (DJIA) opened in 2018 just shy of 25,000 on Jan. 2, and a little over two weeks later it already had topped 26,000. The DJIA would need to rise by 20% to hit 30,000. We did that. As reported by Kigplinger, the DJIA has enjoyed an annualized increase of 7.33% since 1950, based on Yahoo Finance historical data. Therefore, the DJIA will double every 10 years (9.82 years, to be exact). If we continue at our 1950-2017 pace, the DJIA index will double, or hit 50,000, in 10 years.

If a $100,000 in the market at a 10% return will net you $1,000,000 in 30 years, then you can become a multi-millionaire with help of the stock market. And that excludes housing equity. So get out there and start putting your dollars to work.

Millionaires know that you get rich by saving $20 bucks at a time.

Careers, Financial Freedom

How to become a Millionaire on One Year of Overtime Pay

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Top of the morning to you! Happy Monday! On this sunny day in December, Christmas is a mere 13 days away. Some people are already receiving excellent Christmas gifts in the form of overtime pay.

Making the rounds this morning on the news is sanitation workers making an eye-popping $300,000 in NYC!

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And I thought having that in my retirement accounts was good news. That is a Merry Christmas present indeed. Let’s get right to it!

I know some of you out there haven’t heard from me in the blogosphere for some time now. But you know what, I feel like Dr. Dre in Forgot About Dre.

I’ve been busy behind the scenes trying to get this blog off and my finances to newer heights! I never left you.

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And to prove that I’m still here back better and stronger than ever, I will be posting some new articles here in the near future about climbing that millionaire ladder and moving on up to a deluxe apartment in the sky.

The stock market is minting millionaires every day. Let Mr. Market make you richer whilst you sit back and sip Mojitos letting your hard earned dollars work for you. Let the money flock to you like ducks to water or a moth to a flame.

Thanks to the IRS tax code, you can now contribute $20,500 in 2022 to your 401k. I’m going to ride that pony into the million-dollar sunset. TE-HEY! You should do the same. Save until it hurts. Invest until you owe so little in taxes you rival the tax returns of Jeff Bezos and Amazon for the last few year paying $0 in taxes.

That is because the more you invest, the less you pay in income taxes. But enough about all that. Let’s talk about these $300,000 sanitation workers shall we?

First off, I have to take you all back down memory lane. Remember that guy that made $270,000 being a transit janitor in San Francisco. No? Let me post that article here to jog your memories. It was all over the news. I especially remember it being in the Washington Post. Which is also owned by Amazon founder Jeff Bezos. Check out the link A BART janitor made $270,000 in a year and some people are wondering why.

This image has an empty alt attribute; its file name is image-1.png

That was 2016. Many were left scratching their heads wondering just how could someone sign up for overtime almost every day, work 361 days in the year, and earn $162,000 in overtime pay. Not me. The system allowed no limit on overtime, so he got it. End of story.

Let’s say that after taxes was able to bank enough to max out his 401k for the next five years. In 2016, the IRS contribution limit was $18,000.

So, hypothetically speaking, if you invested that same amount annually for five years would invest that would be $90,000 cash in the market. During that time, $18,000 per year could grow into $124,431.47. If he let that money sit in the market without adding another dime of his base pay or overtime, that could turn into $1,003,205 over 20 years. He would become a millionaire based on one year of overtime pay.

This image has an empty alt attribute; its file name is image-2.png

Now let’s fast forward to 2021. Sanitation workers in NYC have earned upwards of $300,000 and receiving $153,000 in overtime pay. Cha-ching! Bank that money baby! They too can turn this windfall into riches by simply investing this money.

The NASDAQ has gone up 750% since 2009. No time like the present to invest. Brokerages have not only gone to $0 trade commissions, but companies have also recorded record high turnout in 2020 and 2021 of new customers entering the market and signing up on their platforms.

If these overtime kings put that money to work, they can make a fortune.

All this from one year of overtime pay. With many companies not even offering overtime, that is awesome that these guys are able to not only make a living but even build wealth off of it. Therefore, college admissions counselors everywhere beware! Haha! No $100,000 MBA required!

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Financial Freedom, Financial Independence, Retirement, Self-Made Millionaires, Wealth

Coasting to FI: Compounding my way to Coast FIRE and $1 Million

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Reading, Read, Peaceful, Woman, Dusk

“One minute of patience, ten years of peace.”  – Greek Proverb

“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” —John Quincy

It was a hot summer day. Same as any other. I was busy working as usual.

I have been working so hard since I was like 5 years old. That was the age that I decided I was going to be rich.

I used to go outside and play on the playground every day. Those were some of the most important days of my life. I learned so much on the playground. The virtue in helping others, sharing, caring, making friends, solving conflicts and exercise.

Nothing came easy. You had to earn every inch when playing sports with other kids whether it was jumping rope or running. You played to win.

I was always pretty good at academics so I put a lot of my energy into that. I figured that could be my path to riches. It turns out I was right.

I was working 8-hour days and studying up to 8 hours a day in college. At one point, just a couple years ago I was reading 25-50 books a year.

I had a hunger for knowledge; especially, personal finance.

Once I learned what compound interest was, I knew I found my road to wealth. I would save and invest money consistently until interest would do the rest for me on my journey to $1 million dollars.

I had been grinding it out so long that sometimes the days blurred and I feel asleep at night from pure exhaustion. Then one day I looked up and realized I had made it to Coast FIRE.

Coast FI refers to saving enough to “coast” to financial independence. This allows participants in this version of FIRE (financial independence, retire early) to take jobs with less stress or pay due to reaching a certain amount of money needed to retire earlier than age 65.

Coast FIRE is a sub-genre of this early retirement movement. This version calls for having enough invested or saved so that without adding another penny of contributions to your retirement portfolio it will still grow to fully support retiring at a traditional retirement age. Your nest egg, simply put, has reached a tipping point so that it will “coast” to the target amount needed for retirement.

People who have successfully achieved their Coast FIRE (like me) still need to work, but they only work to cover current living expenses – not to build up their savings or investments for a future retirement.

The thing about Coasting to FI is that you must first do this before you can get to any of the other versions of complete financial independence; never having to work again – such as Fat FIRE, Lean FIRE, or Barista FIRE. Where compounding does the heavy lifting for you.

FIRE requires you to save up at least 25 times your anticipated annual spending and you have got a 97% or better chance of that money lasting at least thirty years. 

Fat FIRE typically means a budget of $100,000 a year, which requires a retirement savings of $2.5 million.

Lean FIRE typically involves being frugal and living in a lower-cost area, or even other countries with a lower cost of living with a budget of $30,000-$50,000 a year, which can require a retirement savings of a minimum $500,000 to $750,000.  

Barista FIRE is a hybrid between Fat FIRE And Lean FIRE. Barista FIRE is being able to retire before the conventional age of 60+, but taking on a part-time job for supplemental income and potentially health insurance. You will need to have at least $1 million in retirement accounts.

Coast FIRE requires you to save a certain dollar amount that will allow you to coast to FI such as saving $200,00, which will allow you to coast to $1 million in 15 years with a 10% rate of return.

 Coast FIRE formula for determining how large the participant’s nest egg must grow would begin with a regular FIRE number (estimated in the example below at 25 times annual spending of $50,000). In the formula below, note that “Years to grow” is an exponent.

25 x $50,000 / (1 + annual growth rate)Years to grow = Coast FIRE number

Suppose someone estimates they need 30 years to reach their Coast FIRE number and an average annual growth rate over those 30 years of 7%. The calculation would then be:

$1,250,000 / (1 + 0.07)30 years = $164,209

In this example, the Coast FIRE number would be $164,209, which would grow over 30 years (given the above-stated estimates) to the target figure (or regular FIRE number) of $1,250,000.

I like to use the $1,000,000 target for my estimate. The calculation would then be:

$1,000,000 / (1 + 0.07)30 years = $131,367

If you want to retire sooner, then just see what a different target number will do or by shortening the number of years.

For example, $1,000,000 / (1 + 0.07)20 years = $258,419. That means your Coast FIRE number would be $258,419.

Once you reach this dollar amount, you could stop investing in your retirement accounts and reach $1 million in 20 years. The higher the compound interest rate, the quicker you are able to get out of the rat race.

Once I hit $300,000 in cash and investments, I knew that with a 10% rate of return that it could turn into $1 million in 12.5 years.

$1,000,000 / (1 + 0.10)12.5 years = $303,802.

Paying off debt faster and more aggressively plus investing those funds and more could allow folks like me to get to $1 million in less than a decade.

I can now put on my eye mask, kick back and coast to $1 million. If I can do it, then anyone can.

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I started with $0 in retirement savings. I started stashing money into my 401(k) and then opened a Roth IRA to start saving even more.

If you want to coast to FI, then let compound interest do the heavy lifting for you, save $100k because the first $100k is the hardest, and allow it to coast you to $1M in 30 years.

Happy wealth coasting!

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Financial Freedom, Financial Independence, Investing, Retirement, Wealth

Flip of a Coin: How I Decided to Own A $250K 401(K) Vs A $250k Mortgage

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House, Garage, Driveway, Architecture

This is not a post for the faint of heart. So some of you out there may need to do what you did when the nurse swabbed your arm with alcohol right before she gave you the Covid-19 shot, turn your head away and close your eyes!

It was years ago, but I had to make a call. I had to make an executive decision. Would I like to buy a $250,000 home or become a 401(k) Quarter of a Millionaire.

It was almost like flipping a coin. Do you choose heads or tails?

Heads and be a $250k homeowner.

By the way, home values over 30 years have risen about 4% on average but stocks have been able to return 10% over that same time period.

Now back to the coin toss.

Tails and have $250k, that’s right a quarter of a million bucks, in your 401(k).

I chose not to go with the path of least resistance, which is the American dream of being a homeowner, and to put my money in stocks. Best decision I ever made.

After watching the housing crash or 2008-09, it dawned on me to put some money into businesses that pay you dividends instead of a mortgage that you have to pay. Missing even a single payment on a mortgage and never being able to catch up could put you on the short list to foreclosure. Nobody wants that.

Fast forward 10 years later and Covid-19 is not only derailing retirement savings but also increasing the likelihood that many renters will be evicted.

According to CNBC, 20% of renters in America are behind on rent and owe an astounding $57.3 billion. The average amount owed by each renter is $6,000 and they are a minimum of three months behind.

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Once you get that far in arrears, rental companies and landlords are quick to start the eviction process.

Especially, mom and pop landlords that cannot afford the losses. They depend on this income to pay their own bills and fund their retirements. I knew after watching millions of Americans lose their homes to foreclosure in 2009 that I did not want to be in that predicament.

Therefore, I made the conscious decision to keep fixed low housing costs and to put my money into stocks. I put my money into index funds because they consist of thousands of stocks. All those businesses are not going to go bankrupt at the same time so it gives your money some security as opposed to putting all your money in one stock and then you lose everything.

The S&P 500 and other indexes will remove any stock that is not meeting its standards. Therefore, you do not have to do this on your own with stock picking. This also insures that your money stays invested in firms with a good balance sheet as the ones that are not pulling their weight are dropped from the index. Thus, you do not lose all your money as you would being invested with only one stock or placing your bets in speculative investments like cryptocurrency and bitcoin.

I actually know someone who says they invested all their money in bitcoin and lost all of their money! What were they thinking? If you are going to invest in bitcoin, then it with money, you can afford to lose and only invest more than 5% of your savings. That is all the risk that is adequate with bitcoin, in my opinion.

Not enough to money to become a bitcoin millionaire, but also not enough to lose your life savings, your home and all your possession in case you bet the farm on a losing investment.

Let us learn from the recently deceased creator of McAfee software founder who invested $25 million in Lehman Brothers bonds and lost every penny after they collapsed and went bankrupt in 2008.

You can read more about the demise of Lehman Brothers in my post called Don’t Trust the Commission-Based Advisor in Wall St Cubicle 23

I decided to just put my money into the VTSAX because it includes the total stock market. Want some Tesla stock? Drop some money in the VTSAX. It will only cost you $107.

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Instead of buying stocks one by one, you can just get them all for one price. That way you do not have to pay $685 for one share of Tesla.

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Don’t even get me started on the S&P 500. One share in this stock will set you back $4,267.

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If you have that kind of money just burning a hole in your pocket, then be my guest and buy some. However, if you want a piece of the whole market then just start buying the VTSAX.

I sleep like a baby knowing that my money just can’t fall to zero because the every stock in the fund will not blow up overnight. Even if businesses tank, the fund will correct this by replacing them with a better stock, and I still keep making my money.

I think of it like this, a home you have to feed but your 401(k) feeds you.

As a homeowner, you cannot realize gains until you sell. Therefore, you must feed the beast until you do!

take my money gif - Flywheel Coworking

Considering that most American homeowners only stay in their homes for an average of 9 years, all the money spent on maintenance and repairs is burnt if you are foreclosed on. However, according to Fidelity, many 401(k) millionaires keep their accounts for open for 20-30 years to amass that type of fortune. That means people are holding on to stocks longer than homes!

Therefore, on my path to millionaire status, I decided to go for stocks over real estate. Don’t get me wrong, you can make a fortune in real estate, but you have to maintain the property until you sell. I can make my fortune in index funds simply by breathing and automatic investing.

Seeing and listening to the stress of homeownership versus the ease of index investing I think I made a good choice going with stocks. My low housing costs allow me to invest more. This also allows you to pay off debt faster and travel more. However, it is always your call. This is just my 2 cents.

I mean who wouldn’t want to be a Quarter of a Millionaire. I’ll take that any day of the week over being broke!

And just so you know, if you let that money sit and ride it out in the market, you would have $1,000,000 in 14.5 years with a 10% return. That is without adding another cent.

How many homes that were bought for $250k do you think will be worth one million in the same amount of time? None.

I have no problem at all with being a 401(k) millionaire. None whatsoever!