Spending Money Like We Just Don’t Care

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downloadJuly 1st was a day on our calendar that we had circled in big red sharpie…Or, at least we would have if we still used a physical calendar. On our Google Calendar it looked like a giant list of meetings and to do items. It was a day when all the chaos of our lives converged into one 24 hour period.

I mentioned that we were selling both of our rental houses (the housing market in Seattle is on fire and while we think that it will continue to go up, we are quite happy with where it is now and plan on jumping ship while buyers compete for the privilege of buying from us) and it just so happened that both tenants gave notice at the same time.

In order to reduce vacancy loss, we needed to get the houses fixed up as quickly as possible and ready for the market.

Have you seen a rental house after the tenants move out? Everyone is messy, but there is something about living in a rental property that gives people the freedom to be just a little bit more messy. I really wish I had taken a before picture of our houses. One of them was piled high with stuff everywhere and puddles of dog pee all over the ground. The other was a patch work of miss matched painted walls and childhood graffiti. This is not a dis on our tenants at all! We had amazing tenants who were kind and always paid the rent on time, but people are messy.

So, we had one day to meet the contractors and fix up all the little things to get the houses ready for the market….and of course I was working all day that day.

I have the best job in the world in that most of the time, I get to choose my hours and make my job fit with the rest of my life, but there are times when that just isn’t possible and Friday the 1st was one of those times. I was shooting an 11 hour wedding. I thought about asking the couple to reschedule but figured they would probably say no.

This left Adam and Ilya to take care of all that house stuff while I was taking care of my work stuff.

We were dishing out money right and left: new floors, new paint, wall repair, tile repair, cleaning and staging. I felt like that person in movies with a giant wad of cash who haphazardly peals $100 bills from the top and tosses them around. Except I don’t carry cash. And it actually looked more like handing over a credit card every five minutes, but you get the idea.

A ton of time and energy went into the preparation of July 1st. I had to call flooring people, call painters, call contractors, call the stager, and coordinate with them and the renters to set aside times for them to come give me a quote. Then I had to drive all the way up to the properties. Not a big deal, you might think, but then you obviously don’t live in Seattle. It was at least an hour drive each way and that was if I was lucky! Then, most of the contractors never even got back to me or if they did, they charged way too much so I had to do it all again. It took a solid month of coordinating people to get everyone lined up and ready to go.

We even ate out several times this month because we were both working so much. All of this meant that I was dreading actually looking at our finances.

Could we have done things even cheaper than we did? Absolutely. Would it have been worth the utter exhaustion and misery it would have put us through. Nope. Being frugal is a balance. Your health and well being are valuable. I hired a contractor to repair a wall and tile entry way for $250. It took him all day and he used all sorts of fancy equipment that I don’t have. When he was finished it looked like new (something that would NOT have been the case had I attempted this project myself). Worth. Every. Cent. Same goes for the new floors and the painting of our incredibly high ceilings and the staging.

I sat down to look at our finances for June with a heavy heart and was floored when I got the results. For all the thousands and thousands of dollars we spent on rental properties for the month we only had to dip into our savings to cover $1500. Our regular monthly income covered the rest of it. I can’t even image what this would have done to us if we lived paycheck to paycheck. We would have gone into huge amounts of debt and spent years paying it off, but because of how we live, we were able to cover the entire cost of fixing up both houses using just our monthly income (and $1500 which we will pay ourselves back next month).

If there was any doubt in my mind that living simply and focusing on our saving rate was the way for us, they have been obliterated. Once we sell these two rental properties, we will hopefully be able to pay off our mortgage and be debt free! One step closer to financial independence!

How Do You Define Success?

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successRecently, I discovered that someone whom I thought of as a close friend has secretly been judging me for quite some time. Now, we all have opinions about our friends from time to time that we keep to ourselves such as: “I’m not lovin the new haircut,” and “I don’t think that ‘blackened’ chicken means burnt to a crisp.” Our friends are not us and we will therefore probably not agree with every decision they ever make. This is normal.

This “friend” of mine, however, told my husband that he should divorce me because I am a “user.” After the shock, sadness and feelings of utter betrayal calmed down, I started to think about what he was talking about. He clearly viewed our relationship as inequitable. Having maybe spent a total of 10 hours with him over the past year, I quickly realized that his opinion had nothing to do with fact or even observation but was purely based on what he knew about us.

My husband works a typical 9-5 job. In a cubical. In computers. Downtown. He makes a decent amount of money and is the primary breadwinner for our family.

I run a part time photography business from my home which brings in a reasonable part time income. This allows me the time to take care of the things around the house. More importantly, I am the one who volunteers at my daughter’s school, attends the meetings, picks her up when she is sick and after school, takes her on outings after school and plans learning opportunities for her.

I tried to put myself in this “friend’s” shoes. What does he see? He sees my husband going to work every day and me staying home. To him, success is having a 9-5 job. In a cubical. Downtown. While failure is working from home spending time with your family.

That is so messed up and backwards.

But the really scary thing is: he is not alone. We are trained to believe as a society that success is working 40+ hours a week while getting paid well. This is what we all work towards achieving through years of school. It is typically the first thing asked at a party (“what do you do?”) and your response can instantly change someone’s opinion of you (“I am a doctor” vs “I am a mom”). The respect you receive correlates with the amount of money your said profession makes.

When I had Tiny Eivy and became a mom, I chose to stop my career in teaching. It didn’t make financial sense. In other words – the cost of raising a family, caring for a home and all the messy details that go along with that surpassed my teaching salary almost ten fold. Seriously. I – in my infinite love of spreadsheets – actually took the time to calculate it all out. Part of that included learning to do things myself which I have talked about in previous posts, and the hidden benefits of learning new skills while saving money – but part of it was just everyday stuff like watching our kid and transporting her to activities.

But – blah blah blah – I am not the first person to talk about the financial sense of having a parent work from home part time or simply stay at home. There are so many studies out there about the actual cost of running a family. None of it matters though because we, as a society, do not value work that is not paid directly. My friend’s silent judgement of me is proof enough of this. I’m sure that once we are retired these same people will no longer consider even my husband successful.

Even though we will never have to work for anyone else.

Even though we will travel the world.

Even though we will get to spend all the time we want together as a family.

Even though we will have all the time in the world to pursue our personal passions and follow our personal inspirations.

SHHHHH – don’t tell anyone but I’ve got a plan to combat this consumerist backwards view of success. From henceforth when asked, I will no longer tell people that I am a part time photographer and mom, instead I will cycle through the following titles as I see fit:

  • Chief Financial Officer for Eivy Household and Shadowpuppet LLC
  • Accountant and tax advisor
  • General Contractor specializing in kitchen remodels
  • Teacher
  • Landscape Architect
  • Personal Chef specializing in dietary restrictions
  • Personal shopper
  • International Photographer
  • UX Designer
  • Therapist
  • Project Manager

This is fun. I could go on, but the point is this: the more titles I accumulate the less I have to pay other people to do these things. The more I am independent – financially, personally, environmentally… Independent is the key word there. I don’t relay on anybody or anything to live a life full of passion and joy and that is my definition of success. What’s yours?

Getting Inspired

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muscleWhen I first heard about this whole minimalist lifestyle, I laughed it off as something that might work just fine for others thank you very much but was not for me. Who wants to spend their life counting their pennies and stressing over every purchase?

Then again, who wants to live their life working a 9-5 job in an office cubical?

Being a firm believer that it never hurts to gather more information (after all – you don’t have to actually DO anything with that information if you don’t want to), I sat down and started to make some spreadsheets with projections.

“What if we stopped eating out?”

“What if we stopped buying new things?”

“What if we tried walking everywhere rather than driving?”

With each question, I watched our DATE OF FINANCIAL INDEPENDENCE get closer and closer. Then the really hard questions started:

“Would it hurt to give it a try?”

“Would our lives suck if we cut down on expenses?”

“Would this lifestyle put a strain on our lives? On our marriage? On our family?”

I’m not gonna lie. At first it was HARD. I wanted to eat out constantly. I kept thinking about things that I wanted to buy, and I really missed my Starbucks coffee!

I didn’t think this whole minimalist thing was for us. It just wasn’t going to work, but I promised myself I’d give it a month. That was January. January was “buy nothing” month and let me tell you, I was counting down the hours until February 1st.

But then the craziest thing happened. February rolled around and I realized that I was so happy that I hadn’t bought that stuff that I didn’t actually need or really want. I was thrilled that I had all the money that I would have spent eating out safely invested making me more money. The biggest realization though, was that instead of driving my family apart, we ended up spending more quality time together – doing fun things as a family.

I hate the word “frugal” since it brings up images of being cheap and tight, but for lack of a better word I realized that being frugal was like building a muscle. At first, it feels like your arm is going to fall off and you can’t wait until you can get out of the gym and eat some ice cream, but slowly it gets easier and easier. Then, one day you realize that it is too easy so you start to give yourself more challenges and you actually enjoy those challenges.

Just like a muscle though, if you neglect the frugal lifestyle, your frugal muscle starts to atrophy and you start to forget all the reasons why you wanted to build that muscle in the first place.

Six months into this frugal lifestyle and I realized that I had stopped menu planning which had started to lead to, “lets just get take out tonight.” Driving to the supermarket seamed so much easier than walking. Plus it was raining (yep – not a great excuse when you live in Seattle). In other words, my frugal muscle was started to decay. Our accounts hadn’t really taken the hit yet but it was only a matter of time.

This is the point where you groan and realize that you had better get your ass back to the gym. My gym is other people who are living this way. People who are retired and traveling the world. Enjoying the simple pleasures of spending time together on a long after dinner walk. I think about the poor people who get trapped in the debt trap and I feel so grateful that my life never took that turn.

Here is a great article about living minimally. I disagree that it is a millennial thing, but everything else he talks about it right on. There are so many other people who inspire me and I know once we pay off our home I’ll feel so much better.

Six months ago, if you had told me that I was going to pay off my home by September, I would have laughed in your face, but with the housing market the way it is, things are looking good. So, there is a silver lining.

May Wrap-Up

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downloadIts my favorite time of the month! The time when I get to sit down and calculate how much progress we made towards our goal of financial independence!

May was the first month this year where we have not had some major appliance fail on us which meant that our savings rate was finally where we wanted it to be. That along with some particularly low utility payments (we are in that perfect zone of not needing heat or cool in the house) has left us with a savings rate of….wait for it….80%!!!

You read that right, folks. 80%! This includes having to shell out $200 for a new vacuum after the one that I got for free from my neighborhood buy nothing group didn’t work….surprisingly…

I’m doing my little happy dance.

The truly surprising thing about an 80% savings rate is not that we were able to save so much of our income but rather how easy it is to do this. I never feel like I’m depriving myself. I’m not stuck at home every night afraid to go out. I’m living my life exactly as I want to, doing exactly what I want to do. Living a simple, frugal life is not something that only a few special people can accomplish. It is something that everyone can do. Its like a muscle. At first it is hard to live your life this way but after awhile you don’t even think about it.

I find I have more fun and connect more with my child when I am wandering through the woods than when I am shopping. Getting free plants for our garden has led us to make connections with our community. Doing things myself has improved my skill set and given me a sense of accomplishment that I wouldn’t get hiring the job out.

How was your month?

 

 

Birthday’s and other observations

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downloadTiny Eivy has not, shall we say, embraced our frugal ideals. And, honestly, who can blame her? Her little seven year old self doesn’t really see the difference between a fancy dinner out and a make your own sushi night at home. She will casually decided that she wants an American Girl doll in the same breath that she declares that she also wants a stuffie from Goodwill. The world is full of wonderful things and she wants them all.

She turned 8 yesterday and when the dust settled, she ended up with an American Girl doll from her grandmother. Holy cow, y’all, those things are over $100! Someone did some great marketing with that one.

Since it was her birthday, we did several things that we never do:

  1. We drove almost an hour to go to THE MALL because that is where the American Girl Doll Store is.

It has been years since I have set foot in a mall and I am not ashamed to say that I was a bit overwhelmed. Everything that I dislike about consumer American can be summed up in THE MALL. From the shiny displays of $100 tee-shirts to the copious amounts of STUFF that is so cleverly presented that even I, in my frugal state, am drawn to. THE MALL is so very good at convincing you to buy things you don’t need for money that you probably don’t have.

2. We bought Tiny Eivy a dress for her American Girl Doll.

This dress cost more than my entire outfit. Probably more than my entire wardrobe. Not that I begrudge this gift at all, but I am still floored by what they charge for a dress. For a doll.

3. We ate lunch out at Blue C Sushi.

You know the place – with the sushi train track that is timed perfectly to allow you enough time to grab your food but not enough time to check and see how much the plate is that you are grabbing. Maybe I’m being cynical, but I was so disappointed by the whole experience. The food was sub-par and after each of us eating the equivalent of one roll, our bill came out to $30. I think I was disappointed because it was supposed to be such a treat. We NEVER eat out anymore and I was really looking forward to the experience. I probably put too much expectation onto the poor restaurant, but clearly I need to be more picky in the future.

It really was a good day, and Tiny Eivy loved it, but the entire experience reminded me why I am embarking on this crazy path of saving 65% of our income to retire early. It is about so much more than saving a few dollars. It is about finding meaning in the experiences that we have by connecting with other people rather than with things. Its about valuing quality over gimmicks, but mostly its about spending time with the people you love.

My favorite part of the day was that I got to spend it with my big 8 year old girl and my husband who took the day off of work. In the evening, we invited our old community to celebrate with us and everything just felt right in the world.

Garage Sale Bingo

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downloadIf you have read this blog for five minutes, you know that I can work a thrift store like nobody’s business. I follow two basic rules when I go:

  1. the item must have been on our “want” list for more than a month
  2. don’t pay more than thrift store prices for it.

Rule #2 might seem redundant. Since I am IN a thrift store the prices must reflect that, right? Wrong. Sometimes I find that the thrift stores get delusions of grander and charge outrageous prices for used items. Like $15 for a tee shirt or $30 for a pair of shoes. No thank you. If I wanted to spend that, I’d head over to Target and get something new. (Note: I’m totally bluffing. I would never head over to Target and get something new).

Thrift stores are wonderful wonderful places. There is something that I love more than a thrift store, though, and that is a garage sale. Its like a thrift store on steroids. People shoving stuff into your hands begging you to take it away. It can be very easy to fall into the consumer trap of buying all the tings at a garage sale so we play a little game: Garage Sale Bingo.

Yep – it is as fun as it sounds. Before we go, we make a bingo board and fill in all the spaces with the items that we need (that have been on our “want” list for more than a month). Then, as we hit each garage sale, we frantically search for the items on our board trying to be the first person with a bingo. We fill the board with big things – like a tent – and little things – like a coffee mug. Obscure things – like a humming bird feeder (which I found!) – and common things – cookbooks.

Garage Sale Bingo does a couple things for us:

  1. It keeps up on track – no unnecessary purchases
  2. It breaks up the chore of traveling from sale to sale as we run from the car desperate to be the first person to spot an item on our list (only the first person to spot an item gets to mark it off)

Note: we do not have to actually BUY an item on our board just because we spot it. We simply have to spot it.

It might be important to note that Tiny Eivy hasn’t quite figured out the joy of Garage Sale Bingo. She brought her jar of change and walked away with more loot than we did – mostly because she is adorable and whenever she picked up an item, people begged her to take it for free. Awesome. She spent most of her money on the baked goods that kids were selling at the sales. Sugar high for the win!

Micro Lending vs The Stock Market

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Anytime I get into the nitty gritty details of our investments, I feel like I need to put a BIG disclaimer – “WE ARE NOT EXPERTS! WE ARE JUST EXPERIMENTING AND THIS IS WHAT WE HAVE FOUND!” You should probably just ignore me and and this entire post. Seriously. Go read someone who actually knows what they are doing.

OK – you are still here. You have been warned. Here is what we do.

I might have mentioned that Adam and I differ in ways that compliment each other: he can focus on tiny details for hours whereas I see the whole project and just want to move forward. He sees the value in living life now to its fullest rather than getting bogged down in the rules we have laid out for ourselves. He takes risks where I just want to curl up under my blankets and stay safe.

So, it should be no surprise that he began experimenting with investing money LONG before I was on board. In our mid twenties (dear God, over 10 years ago!), Adam opened a Prosper account and realized that he could get a 12% rate of return. 12% – that’s huge! He was able to get similar results with Lending Club. Being the spreadsheet geek that I am, I used those numbers to calculate just how long it would take us to retire based on that rate of return.

Before you all rush out and start investing in Prosper and Lending Club, let me go over the drawbacks of this strategy:

  • Adam did a lot of research on each loan that he invested in. He created a complex system to determine if he was going to invest in a loan or not. This greatly helped his rate of return.
  • He does not always get a 12% rate of return. In fact, I think one of his accounts is down to 5%. Not great. Theoretically, we should do better in the stock market.
  • Taxes! The interest that we get on these loans is taxed at a higher rate than long term capital gains (the money we make on investments in the market). Plus, since these micro loans are constantly being paid back, we end up with a huge tax bill at the end of year.

Ultimately, we decided that the investing the whole stock market was the best plan for us. The 4% rule is based on the whole stock market, and I don’t feel like I know nearly enough about investing to try my hand at anything other than the whole stock market. Plus, the fees for investing in TWSM are super low through my vanguard account.

We are not selling our Lending Club and Prosper loans, but we are not putting any new money into those accounts. All of our savings are heading straight to our IRA followed by our regular whole stock market accounts.

But what about your house? I thought you were trying to pay that off. True.

After playing around with the numbers, and thanks to some amazing real estate growth in our city, we think that once we sell our two rental properties up north we should have enough equity to pay off our current home! I am super excited about this. I hate being a landlord – the stress of having to deal with issues at a moment’s notice; the worry about getting a bad tenant; the expense of repairs, taxes and insurance. Its just such a weight on my shoulders all the time. I’m really looking forward to removing that weight.

So, there you have it. Every month we save as much money as we can (about 60% of our income) and put that money in the whole stock market (after maxing out our IRAs and 401K). In a couple of months, we will sell our rental properties and hopefully pay off our mortgage enabling us to put even more money into our investments.

 

Big Spender

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So, this frugal thing is all well and good but what about when you want something. I mean REALLY want something.

I have talked about living your life from a place of abundance rather than a place of deprivation. For me, this means that I am constantly thankful for all the amazing things I have in my life. Rather than focus on what I don’t have (summer home in France), I choose to put my attention to all the riches that I am constantly surrounded with: my fancy computer, camera, lenses, beautiful home, tranquil backyard, lovely hardwood floors…etc… you get the idea. I mean, honestly, I have so much more than I could possibly need.

Does this stop me from wanting things? Hell no. I find that it is very easy for me to forgo the latte every morning as long as I focus on all of the amazing retirement investment I am making instead, but what about the big things? Not just the big things, but the REALLY big things? The things that I need and want to feel fulfilled in my life.

As many of you know, I am a photographer and it is my dream in life to travel the world and tell the stories of people I meet through photography. Recently, I was presented with an opportunity to travel to Rwanda with a group of photographers to study how to take photos in the field at an orphanage. It would be a week long conference complete with field days to practice what we are learning and use the images to increase humanitarian aid. I really really really want to go. And it will be about $6000. $6000!

So, what is a frugal girl to do?

This is where Mr. Eivy comes in. I am a rule follower. We decided that we were going to live this way so I will just have to pass up this amazing opportunity. Mr. Eivy, on the other hand, is the teeter to my todder. The yang to my yin. The Han Solo to my Luke Skywalker. Or something like that. I tell him about this trip and how much it costs and he says, “Go. You have to go. This is what you want in life.” Love that man. And it’s true.

To retire early, we need to permanently reduce our expenses. I am not planning on traveling to Rwanda every month or even every year. This will be a once in a lifetime opportunity. Yes, I want to travel the world taking photos of people to tell their stories when we retire but we can do that much cheaper (I promise I’ll talk about our plan to do this in more detail later).

So, I’m going to do it. Every person must forge their own path to achieve his or her dreams. There is no right or wrong way to do this. For me, my path involves this trip to Rwanda in August.

April Wrap Up

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downloadApril was a good month. It wasn’t great. We have yet to have a great month this year, but honestly it wasn’t bad.

Our washer and dryer were hanging on by a thread and we knew that we wanted the space in the laundry closest to store food for our kitchen remodel, so, we bit the bullet and traded them in for a fancy new washer/dryer combo! I normally would never buy something like this new but we knew that we wanted the combo and it is impossible to find a combo unit used. They are just too new. Or too many people like them. Whatever the reason, buying a used machine wasn’t an option so good-bye $1500 – hello washer/dryer combo.

(For those of you keeping track, we have now replaced Every. Single. Appliance. in our house so we are good for a long while. Knock on lots of wood)

Despite this huge expense, we were still able to save quite a bit.

Our savings rate for April was…drum roll, please….

50% !!!!

Our goal is to save 65% of our income each month so saving 50% after making a huge purchase is pretty good.

Another fun thing that happened this last month: I discovered a math error and cut an entire year off of our retirement date! So that was awesome. Oh yes, and the real estate market is super hot here in Seattle which means that our net worth hit over a million this month! That’s right. We are millionaires….kinda…OK – not really at all. This makes us sound much further along than we actually are. Most of that million is tied up in the value of our rental properties which we plan to sell this summer to pay off our house giving Uncle Sam a very hefty chunk of change in the process. Sigh.

Here are the numbers for April:

Percent of income saved: 50%

Percent of the way towards our goal: 44%

Thanks so much for following along on this journey. Everyday I get at least one person reaching out to cheer me along. So, how was your April?

 

 

The Simple Math Behind Retiring Early

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downloadApparently, there were quite a few raised eyebrows when I posted last week that we are a mere 4 years away from Financial Independence.

I had people asking if we had inherited a large sum of money (nope). Did we win the lottery? Negative – we’d have to play to do that. Are we involved in some shady offshore dealings? Ha! OK – no one really thought this but I thought it sounded fun and made me sound cooler than I am.

The truth of the matter is much more mundane and boring. We saved. A lot. Our goal is to save 60% or more of our income every month.

The math is really simple:

If you save 100% of your income than you are financially independent. In other words, you don’t need to make any money to cover your expenses – thus you are able to save 100% of your income.

If you save 90% of your income then you are able to live off of 10% of your income and it will only take 2.7 years for you to generate that 10% passively for the rest of your life.

We save about 60% of our income which means that it will take us 12.4 years of saving 60% of our income to generate a passive income stream large enough to cover that 40% that remains.

Here is the graph that I’m using to calculate all this.

Here’s the kicker: It really doesn’t matter how much you make. If you only make $100 a year but you are able to save 90% of that (meaning that you only need $10 a year to live off of), it will only take you 2.7 years to get there.

This is why being frugal matters. When we cut our food out monthly bill from $1,000 a month (don’t judge) down to $100 a month, we shaved over five years off of our retirement date. Moving the lawn myself instead of paying someone to do it shaved 6 months off of our date. Making my own coffee at home rather than getting a Starbucks everyday cut off almost a year. You get the idea.

I can get a side job and put all that money into our savings account, but ultimately putting even an extra $1,000 in the bank matters very little compared to cutting out expenses permanently.

But, wait a minute – if it is going to take you 12 years to retire why are you only 4 years away? In short, because we have been doing this for a while. We originally wanted to retire by the time we were 30 – knowing absolutely nothing about retiring or how to get there. We just wished really hard. Surprisingly, this strategy did not work, but it did start us saving and investing. We’ve spent the last half of our 20’s and first half of our 30’s buying houses and and investing in micro-lending. Watching our net worth grow.

Knowing a little bit more about how tax advantage accounts work (hello 401K and IRA) we are now switching our strategy a bit and saving a bit more, but ultimately it is just a lot of boring saving up. Trying to get to our magic retirement number.

Magic retirement number, you ask? Yep – its the magical number that once you reach you should be able to generate enough passive income to cover your expenses. In other words – once you reach it, you are retired!

While this number is different for everyone, the take-a-way is: the less you need the lower that number will be and the sooner you will reach it. To figure out your number, first figure out what your monthly expenses are, multiple that by 12 to get your yearly expenses and multiply that by 25. This is your magic number.

Mr Eivy just read over my shoulder and pointed out that it is a bit more complicated than just saving money. True. You have to invest this money and use the 4% safe withdraw rule to calculate your passive income. This basically means that once you hit your magic number and have it safely invested, you should be able to withdraw 4% a year without touching the principal (in fact, your principal should grow 3% with inflation using this rule of thumb). I promise I’ll write more about this later so stay tuned!