Switching Gears – The Start of My FI Journey

Recently, I sold my car and bought an older, much more generic car.  While not an incredible life decision in and of itself, it represented a lot more to me than one might think.  The car represented the carrot (somewhat literally when you look at it) at the end of the stick that drove me through pharmacy school.  Our social compact in this country states that if you get a good education, you’re entitled to a good salary and all the luxuries you can afford with that salary.  And, for a gear head like myself, that meant a sweet car.  The one that caught my eye was the limited edition orange 2013 WRX pictured above that I bought brand new back in May 2013.  After buying the car, I almost immediately ordered upgrades for it from an aftermarket company and really made it my own.  I would regularly get both comments and accolades on the car ranging from “nice ride” to “that’s ridiculous”.  Either way, as someone who for awhile associated their car with their identity, the attention was nice and I felt like the promise of my education was being fulfilled.  So why sell it?  I didn’t need more money (more on that later), it wasn’t having major mechanical issues, nor was I tired of it.  In short, I didn’t need to sell the car.  But, an idea had been growing in my mind for quite awhile before I sold it.  One that was based on what I’d learned about life in the years since graduation and begun to remember about life while I was growing up.

A few months earlier, I had a conversation with a colleague at work that really had an impact on me.  He was also a pharmacist and not more than 10 years older than me.  He told me about his idea of quitting pharmacy, attending the local brewing school, and opening up a brewery using money from his 401k.  I laughed a little bit and asked him what his wife thought of that.  Surprisingly though, he said she was on board with it, albeit only after some serious conversations.  Over the years I’ve been friends with a number of beer nerds and the idea about “opening up a brewery” comes up pretty frequently but it’s always just a pipe dream.  So I was really taken aback when this guy who has a few kids, a mortgage, student loans, and a good paying job to cover those, got his wife to agree to this plan.  What’s more, she was also going to take the brewer’s classes with him.

I asked him how he sold all this to his wife and his response really got me.  He said that he felt like he was missing out on his kids growing up and that after “playing by all the rules” for years, he felt he needed to take a risk and do something different.  As a fellow retail pharmacist, I could see what he was getting at.  In general, we work inflexible schedules based off of store hours and work weekends on a regular basis.  In addition to that, on days that we do work, the shifts are often 12 hours long.  So you miss out on things like family dinner or weekend events quite frequently.  While I don’t have kids yet, I do want them in the future, so his experience really struck a chord.

When I was growing up, my parents made a decision very similar to what my co-worker was contemplating.  A few years after my sister was born, my parents decided that they didn’t want us coming home from school to an empty house.  To accomplish this, one of them would have to leave their jobs and work from home (neither made enough for the other to be a traditional stay-at-home).  They decided that my mom should do it so she quit her job at the insurance company and started a business from home as a freelance claims adjuster.  My dad followed suit a number of years later and sold used cable equipment out of our garage.  While they both eventually got jobs after my sister and I were done with school, neither one of them regretted the decision to stay home they made years before.  My dad would tell me that even though their prospects of retirement suffered for it, it was still the best decision they ever made and made them very happy.

For both my colleague and my parents, they see/saw owning their own business as the way to free themselves from the burdens of an employer’s work schedule.  But at the end of the day, you still need to make money.  The pressure to earn can still cause problems at home particularly when the money coming in isn’t consistent.  For me, I admire what my parents did, but I like not having to worry about money.

So what does all this have to do with selling a car?  I’m getting to that.  The underlying theme to these stories is that happiness is more a function of power over one’s time than their earning potential, and by extension, the things that come along with higher earnings (dope cars, big houses, etc.).  The car taught me that this formula for happiness is correct.  Buying the car made me happy, but the initial joy of owning something like that wore off quicker than I thought it would.  During the first year I owned it, I met my future wife and despite what I thought I knew about nice cars and women, she just thought sporty cars were loud and stupid.  During the winter that year, I also cracked the front bumper on a parking lot snowbank and learned how expensive it was to fix my new toy.  And, I tend to drive close to the speed limit most places, so having a turbocharged rocket for a daily driver didn’t really make sense.  After all those realities sunk in, I still had a cool car, but in terms of happiness, it wasn’t worth the $30k+ price tag and additional costs I was still paying for.

Despite this, I still owned the car for a couple years.  I did what many Americans do when they make these types of purchases on credit.  The car itself cost $32,000 but the payments were $547/mo, something I could afford.  Besides, the interest rate they gave me on the loan of 1.67% seemed like a good deal compared to the interest rates I had on other loans.  But this line of thinking is actually false.  In the modern world, we laugh at people that buy things that make them poor.  However, people that buy things that keep them poor are rarely ridiculed.  The latter is a much more subtle process.  Like high blood pressure, you usually won’t see it from the outside, but it kills a lot of people.  How?  What they don’t emphasize (for good reason) at the car dealership is that when you buy a car, you’re really making an investment into a depreciating asset.  While it’s widely known that cars depreciate in value, that calculation is rarely taken into account when financing one of these purchases.  Also, as I noted above, when financing something you don’t think much about the total price, just the monthly payments.  This type of transaction is engineered to get you to buy something that you’d normally balk at if you had to pay for it outright.  You get lulled into a false sense of affordability and the impact on your future financial health can be devastating.

Ever since graduating, I’ve tried to expand my knowledge of personal finance and investing as much as possible.  Since personal finance, investing, and retirement planning is not something generally taught in US schools, I relied on what information I could find online and from my “financial advisor”.  The downside to this is that more often than not, the information being put out there is intended to sell you something in the end.  Case in point, the financial advisor I had gave me the impression that we were getting me on the path to retirement.  We talked extensively about my financial situation at the time and she even offered advice on setting up my 401k.  Then, she recommended that I get involved in a whole life insurance policy because it had an investment component and would be the best type of investment I could make at my age.  I took her advice, bought the policy, thanked her for all the advice she gave, and we toasted to a long working relationship with each other.  That was almost 6 years ago now and I think I can count on one hand the amount of conversations we’ve had since.  Bottom line, it’s difficult to find credible knowledge on your own to navigate the world of wealth building.

Then, while on Facebook one day, I saw a link to a rather ridiculous sounding blog about a guy who says he retired at age 30 called Mr. Money Mustache.  The blog itself didn’t disappoint and is quite ridiculous.  However, its author made some very compelling arguments about the attainability of financial independence and why financial independence and happiness are really complimentary pursuits.  This was my introduction to the FIRE (Financially Independent Retire Early) movement.  Pete (Mr. Money Mustache) posits that the amount you need saved to be financially independent is not a function of how much income you make at the end of your career like most retirement planners argue, but entirely a function of how much you spend in a given year.  A really simple concept when you think about it.  I then took a deep look at my own finances and discovered something incredible.  By making some small changes, my wife and I could realistically reach financial independence in our early to mid forties.

To accomplish this, we first needed to get a better handle on our debts since they were inflating our living expenses.  Fortunately, I had taken the early first step of eliminating my own credit card debt with the help of the infiBudget and got into a mindset of avoiding future credit card debt like the plague.  But I still had two other large debts: student loans and the car.  While the student loans were definitely a project, eliminating them outright wasn’t an option.  The car loan however, I could do something about.

So I decided one day that, in light of my broader financial goals, I needed to staunch the bleeding and sell the car.  I did some research on potential replacements (I still need a car to get to work) and found a good deal on a 6 year old Toyota Corolla with comparable mileage.  I was able to negotiate a straight trade of vehicles with the dealership covering the rest of the loan I had on the previous car and drove off with the Toyota.  The end result, financially, was an extra $600 per month savings in just payments and insurance.

Now, after a year of owning the Toyota, I can proudly say that I don’t miss my old car.  While the “new” car has roughly half the power of the old one, keeping the manual transmission still makes driving fun.  With the financial savings, we were able to payoff the rest of my wife’s student loans and have been able to tackle rest of the loans in a big way.  Aside from the financial benefits, having the prospect of financial independence in the nearer future has given me a much more optimistic outlook on life that the “better” car never gave me.

 

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