FIRE With Kids Interview #1: Rich Frugal Life

Welcome to the very first interview in our new “FIRE with Kids” interview series!

It seemed only natural to start this series at home. So, here you have it: The Rich Frugal Life family’s FIRE with Kids interview.

About the FIRE with Kids interview series

I designed this interview series to connect with and share the stories of families with kids (or dependents) who are pursuing financial independence, with or without early retirement.

Reaching financial independence is a huge feat regardless of your circumstances. However, adding kids into the mix provides another layer of nuance and additional challenges.

I hope that by sharing different stories and voices, more people will find an example that they can connect with and feel empowered to begin their own FIRE journey.

We believe that families come in all different shapes and sizes, and all are welcome here. If you’d like to share your family’s story, please read this post for further details and contact me.

BACKGROUND

Tell us about your family

If you read this blog regularly, you probably already know us. But for those who are new, I’m Kristen (aka Mrs. RFL), a 40 year-old who “retired” from my corporate accounting career over two years ago to help our family transition to a less chaotic and more balanced life.

My better half, Mr. RFL, is also an accountant and is 36 years-old. Together we have a smart and sassy five year-old girl and own a home in the Phoenix metro.

We enjoy travelling, hiking, playing board games, DIYing, and baking/cooking together as a family.

You can read more about our story here.

FINANCES

Do you budget and/or regularly track your expenses?

Yes! I’ve been an avid budgeter and expense tracker for my entire adult life.

Mr. RFL and I combine our finances and create an annual budget each year, which we update throughout the year, as needed. We also track our expenses monthly and share with readers on this blog.

I’m a huge fan of budgeting! But if budgets scare you, that’s okay. You should know that just tracking your expenses can yield most of the same benefits. When you track where every dollar goes, it’s easy to identify the areas where you are wasting money. Having this knowledge helps you spend money more mindfully and reduce expenses, without feeling deprived.

We aren’t strict with our personal budget. It’s a loose plan for where we want our money to go. It also serves as a permission slip to spend more money on the things we do value, without the guilt.

What are your average annual household expenses?

Our annual household expenses have been between $50,000 – $55,000 over the past couple years. We recently increased our budget for this year to $60,000 to allow for more travel and fun money.

Besides income taxes, where do you typically spend the most money each year?

Our largest spending categories in 2021 were: Housing ($10,400), Food ($8,900), Health Insurance ($4,300), and Daycare ($4,200).

This year, our daycare costs will be lower, since our daughter will be starting public Kindergarten in the fall. Daycare costs were between $13,000 – $14,000 per year when we were both working full-time!

As the pandemic has gotten less scary, we’ve been travelling more, so travel will likely become our 3rd largest category this year.

We love “value-spending” … what do you happily splurge on?

Our value-spending areas include travel, high-quality organic food, good wine, and craft beer. Notice the hedonistic trend?

What’s your annual household income and/or typical savings rate?

We don’t share exact income numbers, but after his recent promotion, Mr. RFL now earns in the low-to-mid six-figure range (depending on variable compensation). Prior to my exit from the corporate world, I was earning in the low six-figures.

Suffice to say, having high salaries in recent years has certainly helped to propel us along on our FIRE journey. Although we both started our post-graduate careers making less than $50,000 per year.

Total household income also includes our passive investment income (dividends and interest), which has grown substantially over the past few years.

Our savings rate in recent years has ranged between 60 – 70%. We expect it will be closer to 80% this year due to Mr. RFL’s higher income.

Do you have any income streams in addition to your primary job?

Other than the passive investment income noted above, we don’t have any other significant income streams.

While I occasionally sell used clothes and other items on the secondhand market, it doesn’t earn much money. I also haven’t focused on monetizing this blog, so it doesn’t even earn enough money to cover the expenses of running it.

Do you have any debt? If so, what is your paydown strategy?

Yes. We have mortgage debt of approximately $176,000 on our primary residence, which carries an interest rate of 2.5%. We also have a small amount of home project debt after replacing our HVAC unit in 2018, which has 0% interest.

Since our debt-to-equity ratio and the interest rate are so low on our mortgage, we now rarely make additional payments.

We could have paid cash for our HVAC replacement, but chose to take advantage of the interest free loan. Because we’ve never had credit card debt or money issues, we felt safe making this decision. I realize it’s not the right one for everyone.

We plan to be debt-free by the time Mr. RFL quits his job, but aren’t in any rush to pay these loans off until that point.

What’s your current investment strategy?

You can read more about our investment strategy and portfolio allocation here and here.

In short, we don’t invest in anything sexy. That’s right… we’re boring investors and I’m proud of that. Being boring is probably one of the reasons we became millionaires in our early 30’s.

Substantially all of our money is invested for the long-term in broad-based market or bond ETFs, or low-fee funds. We currently allocate around 15% of our portfolio to bonds or other fixed income investments. A small portion of our equity investments are invested in dividend paying funds and real estate, which will provide more passive income in our early retirement.

Additionally, we max out our tax-advantaged retirement accounts and Health Savings account each year, and invest any other leftover money in a taxable brokerage account.

Financial Independence / Retire Early (FIRE) with Kids

When did you discover the FIRE Movement, and why did it appeal to you?

We discovered the FIRE movement in 2018. It wasn’t too long after becoming parents and feeling the burn out of having two demanding careers and a child. We were pretty frugal to begin with, but we hadn’t realized that retiring extremely early was even possible. I’d always just assumed we’d have to work until at least 55 or 60.

The flexibility that financial independence provides to design a life you truly love is so attractive!

After reading popular FIRE blogs, like MMM, and running our own numbers, we realized that we were actually closer to financial independence than we’d realized and fully committed to the idea.

You can read more about the start of our FIRE journey here.

Where are you currently at on your financial independence journey?

I’m happy to say that we reached our financial independence goal earlier this year!

Of course, the stock market’s rocky performance has kept us hovering not too far above that number since then. We’re now in process of slowly transitioning to early retirement.

Is there a target “FIRE Number” or safe withdrawal rate you are working towards?

We set our FIRE number at $1,000,000, which is based on a 4% safe withdrawal rate.

While some may argue that the 4% rule is dead, I feel comfortable using that threshold for our calculations. Recent studies have shown that flexibility in early retirement can support a withdrawal rate of 4% or higher.

The primary reasons we’re comfortable using 4% are: (1) We don’t include social security income in our FIRE calculation; (2) We have a significant amount of home equity and plan to downsize in retirement; (3) We have passive investment income and a small pension that will offset some of our expenses, without selling assets; and (4) We are willing to be flexible and spend less (or earn more) in down market years, if needed.

Are you planning to retire early?  If so, what do you envision early retirement will look like?

Yes. While I quit my corporate career a few years before we reached financial independence, Mr. RFL also plans to retire around age 40.

In early retirement we hope to find a community we love and serve that community. We also hope to spend more time as a family, travelling, being outdoors, and pursuing new or forgotten hobbies and passions.

We discussed our current plans for the transition to and first year of early retirement in this post: Making the Transition to Early Retirement: Our 5 Year Plan.

Do you plan on working after reaching financial independence? If so, will you make any changes?

As mentioned above, even though we recently reached financial independence, Mr. RFL plans to continue working full-time for a few more years. He’s finally gotten the promotion he worked so hard for, so can enjoy that and accomplish more there while he contemplates his next move.

After struggling to find my purpose in my first two years of early retirement, I’m actually toying with the idea of going back to work on a (very) part-time and seasonal basis.

Once we’ve both retired from corporate life, it’s hard to imagine that we won’t do anything in the future that either makes money or saves us a lot of money.

That said, it’s nice to know we won’t have to.

For example, working on our fixer-upper is something that we’ve both mostly enjoyed (besides the added difficulty of trying to entertain a young child while doing it). Buying another live in flip or renovating dilapidated properties to turn into rentals, or to live in ourselves, is something that we could see doing in early retirement.

Did you make any changes to how you manage your money after discovering the FIRE movement?

After discovering FIRE, we got more intentional about what we spent our money on. We actively looked for ways to cut back in areas we were overspending, but not receiving a lot of value (such as cell phone service and bad take-out pizza).

We also started reducing our cash position and investing more of our savings. Previously, we’d been holding way too much cash or using it to pay down low-interest debt, rather than investing.

What’s the worst financial mistake you’ve made?

Fortunately, we’ve never made any massive financial errors.

However, one of my biggest financial regrets is not maxing out our 401k and other tax-advantaged accounts sooner, and holding too much cash during that time.

The 2008 financial crisis hit when I was just a couple years out of college. It was scary to watch my retirement accounts plummet and nearly half my coworkers get laid off. I was also in a relationship at the time with someone who was even more risk adverse than I am. Somehow this combination caused me to become fearful of investing and to hoard cash, or use it to pay down (low interest) debt.

It took me almost 10 years to get back in the saddle!

Mr. RFL and I didn’t begin maxing out our retirement accounts until after discovering FIRE, despite having enough money to do so for several years.

The opportunity cost of holding too much cash and paying down low interest debt instead of investing in our retirement accounts during the longest bull market ever was huge.

What additional challenges does having kids add to the pursuit of financial independence and early retirement?

Raising kids can be expensive! Having kids adds another person that you have to take care of and financially support.

However, I think the biggest challenge is the uncertainty that kids add to the mix.

There are already so many unknowns when planning for early retirement, but having kids adds one more. It’s too early to know what our daughter’s hobbies and interests will be. We also have to be financially prepared for college or if she ever becomes ill and requires significant medical care. I don’t ever want the reason that we can’t give her something to be money.

The other big challenge is the constraint that kids add to your early retirement plans. You are free from work…but you aren’t 100% free.

I read several blogs of early retirees who travel extensively and live a nomadic life. That sounds really fun, but it’s not ideal with kids. When we retire, our daughter will still have ~9 more years of school left before college. In order to live that lifestyle, we’d have to commit to homeschooling our only child, or uproot her frequently, neither of which appeal to me. There are just more tradeoffs necessary when kids are involved. Ultimately, I believe we have a responsibility to do what’s best for her on whichever path we choose.

That said, I think that having kids provides one of the biggest motivations for pursuing financial independence in the first place. The ability to actually be present during your little one’s childhood, and not worry about money, is priceless.

In your opinion, are there any negatives to pursuing FIRE with kids?

I don’t think there are any negatives specifically to pursuing FIRE with kids. However, I do think the FIRE movement itself is easy to get caught up in, which can negatively affect the entire family.

When you’re pursuing FIRE, there is often that pressure to save more, make more, and/or achieve FIRE as quickly as possible. While it works for some, I don’t think that’s a healthy approach. We’ve chosen a slower path to FIRE, but I still have to fight those urges every now and then.

How do you plan to teach your kids about money?

We’re just beginning to teach our daughter about money, so I’m really excited to see how others in the community answer this question!

While we haven’t done any formal lessons, we regularly talk about money, budgeting, saving for the future, and not wasting money (or anything) in front of our daughter.

We’ve also recently started paying a weekly allowance of $5, which will go up by $1 every year. We couldn’t decide whether to do a chore-based allowance or provide a universal income, so we split the difference. She receives $2 a week for being a well-behaved member of our family and another $3 for completing a set of age-appropriate chores. So far my nerdy chore chart has been working. Tantrums and bad behavior are down compared to a couple weeks ago. We’ll see how long this lasts…

WRAPPING UP

What advice would you give to families just starting out on their FIRE journey?

Track your spending! It’s so enlightening, and after you get the hang of it, it doesn’t take as much time as you might expect. Tracking your money is the best way to identify the areas where you can painlessly cut back to increase your savings rate.

Also, talk to your partner about your collective goals and desires to make sure you design a path that works for everyone involved.

There is no rush… financial independence is all about the journey.

Where can readers learn more about you and follow your journey?

On this blog! I regularly share updates on our FIRE journey and spending, as well as nerdy analysis on whatever personal finance topics that I’ve been researching.

Do you have any questions for the FIRE with Kids community?

I’ve already asked them in this questionnaire 😉

Hope you enjoyed our first FIRE with Kids interview!

Are you ready to share your story?

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