This is part 4 of a 5 part series detailing why we want to retire by 40, as well as how to retire by 40. You can read Part 1 here, but basically I’m giving you all the dirty details from what got us into our bad financial situation, what exactly that situation is, which debt we’re paying off first as well as how we’re going to leverage savings, investing, and even to a rental property to ultimately achieve financial independence and Retire by 40!
Debt-Free Budget, Savings, and Expecting the Best or the Worst?
Once we’re out of debt, the next logical step is to save, save save! This is done both by keeping our expenses low and learning how to earn more money. In order to determine how much money we’ll need to live on when we’re retired, as well as how much money we can save each month, we need to create a realistic budget.
This is our current budget:
| Budget | Actual | |
| Income | $3,630.00 | $3,330.00 |
| Transfer from Savings | $700.00 | |
| Mortgage | $636.00 | $636.00 |
| Vivint | $55.00 | $54.00 |
| Utilities | $210.00 | $174.66 |
| Phone | $44.00 | $46.00 |
| Internet | $40.00 | $40.00 |
| Vehicle Payments | $917.00 | $917.00 |
| Gas | $300.00 | $367.68 |
| Health Insurance | $232.00 | $215.98 |
| Doctor | $80.00 | $15.00 |
| Life Insurance | $31.33 | $31.33 |
| Groceries | $300.00 | $329.00 |
| Zaycon Foods | $75.00 | $78.00 |
| Restaurants | $20.00 | $87.00 |
| Barber | $15.00 | $0.00 |
| Hulu | $8.00 | $10.00 |
| Personal Loan | $650.00 | $500.00 |
| Student Loans | $110.00 | $110.00 |
| Blog Expense | $314.00 | |
| Gifts | $165.00 | |
| Net | -$93.33 | $104.35 |
Our budget is TIGHT, but if you do the math, Our Debt-Free Date is Currently February 28th, 2017 – or just a bit more than 2 years away! – which makes it totally worth it!
You can also see that we have quite a bit of debt, which makes for a lot of debt payments. However, when you get rid of all of our debt payments, we’re looking at this:
| 2014 | Budget | Actual |
| Income | $5,260.00 | |
| Rental Income | $400.00 | |
| Farm Income? | $500.00 | |
| Mortgage (Farm) | $788.00 | |
| Insurance | $95.00 | |
| Utilities | $300.00 | |
| Phone | $25.00 | |
| Internet | $60.00 | |
| Gas | $400.00 | |
| Health Insurance | $232.00 | |
| Doctor | $50.00 | |
| Life Insurance | $31.33 | |
| Groceries | $400.00 | |
| Restaurants | $100.00 | |
| Barber | $15.00 | |
| Hulu | $8.00 | |
| Savings | $2,700.00 | |
| Tithing | $400.00 | |
| Vacation/Car | $300.00 | |
| Total | $255.67 | $0.00 |
How realistic is this?
As you can see, not only do we have a lot of wiggle room in this budget, we are also savings $2,700 a month! This looks all well and good, but is it realistic??
I believe that it is, as far as expenses are concerned. This is because I built the expenses on a worst-case scenario – i.e. living on the farm. There, we would pay more in mortgage, gas, groceries, and any number of different things. Utilities and internet would also be higher just because the property is so rural. So in short, yes, I believe the expenses part of the equation is realistic!
The income part, however, has some doubters, and I don’t blame them. Read on to hear more about that:
Our Assumptions:
That our income will rise in approximately the same percentage as our expenses inflate. I am assuming that every year I will get a 3% raise and that inflation will stay at 3%. Maybe not realistic, but it does make the calculations significantly easier, because I can literally calculate based on my income and expenses now (or the expenses of the farm now) See how that works?
That I will be making 75K per year in 2 years. Controllers at my company make $75K, and if I am not in a controller position in 2 years (I’m an assistant controller now) or at least very close to one, I’m leaving and finding work elsewhere. The benefits package at my current employer is shit, so even if I made slightly less money but still got a 401K match like I don’t have now, I would be coming out ahead :-)
Blog Income: $300 is what I assumed. The blog is making that right now, so as long as I stick with it, I (hope) I can assume that much.
Drill Income: Lastly, I am assuming that The Big Guy’s Drill pay will stay exactly the same, since he’s maxed out the pay scale for his rank. He may get a promotion, but if he does, it won’t really be that much money.
Some possibilities:
There are some possibilities that I haven’t considered in this budget, because we’re really not sure at all if they will happen.
Preschool: I think by the time the kiddo is 3, we will be so ready for preschool, and there’s a cost associated with that. Additionally, I want her in piano lessons, and as she gets older the things she wants to do will only get more expensive.
Part-time job: This one is my favorite. My hope is that when the kiddo goes to preschool, The Big Guy will get a part-time job to supplement our income.
Private School: If we still live in the area we live in now, Private school is as very real possibility, since I don’t want her in the public school she could go to. The area where we live is very cheap, but the schools show it. We don’t have any notions of putting her in top-ranked schools, but a nice, private school is definitely on the horizon.
Buying the Farm: I’ve talked and talked about this, so I have kind of considered this in my calculations, but within the next few years I should get a better handle on cost and things – or it may not happen at all!
There are so many variable to consider when determining an out of debt budget, as well as how much you can actually afford to save! I have tried to approximate to the best of my ability – and while some may think that I should always do a worst case scenario budget, I prefer to be accurate.
With that being said, I am not getting my hopes up that this budget will happen – which I think is why some are afraid of me publicizing an accurate budget – but I’m not.
What I am doing is working my butt off now, so that if this budget doesn’t happen, I’ll know that it wasn’t my fault.
So I”ll know I did my absolute best.
*This post may contain affiliate links. Read my disclosures for more information.
You May Also Like:
How To Retire by 40! – Part 3
You Don’t Need $1,680,000.0 To Retire
How Much Money Does it Take to Retire By 40?
Money Talk – Should We Buy The Farm??
**UPDATED! How Much Money to Retire By 40?
9 Things You Must Do To Retire Early
Are You On Track To Retire? Betterment RetireGuide’s Got Your Back
How to Retire by 40 – Part 2
How to Retire by 40! – Part 1
Does Your Life Insurance Fit Your Life?
It’s awesome that you’ve made a plan towards freedom! :)
Thanks – now we just have to make it happen!
Sorry if I missed this in one of the other sections, but what are you guys using to save your money now: 401k? IRA?
A Roth IRA through Betterment. We don’t have much in savings because we’re focusing on debt repayment, but we do manage to save a little
I want to get a handle on out debt so this is a great post to get me motivated! Thank you for this.
Absolutely! I can’t wait to be debt-free!
I am so glad I came across this post and your blog. As I am in the process of transitioning period which is the beginning of a new chapter in our life. so when I landed on this page and saw your tagline I smiled… because I am wrapping up a blog post for midweek which is similar to your mission.
We really don’t have any debt but we do not hardly anything saved up either. These are great tips and I will read your other threads for even more.
Wow! It’s awesome to see your plan – you’re so detail oriented!! I know you will achieve it! Best of luck to you!!
I definitely applaud you all for taking the steps to retire so young, but I have to ask– how can “normal” people do it? I make about 20k a year.
Your car payments take up 25% of your income…any reason why you don’t sell your cars and pay cash for older cars you can afford? Those kind of payments signify to me you bought cars that are completely out of line for your income level. I would guess you could get out of debt way sooner if you drove cars that were more appropriate for your income.