Lean Fire & June 2021 Financial Results

We officially reached the next level of financial independence at the end of this month: Lean FIRE!

It’s time to pop the bubbly and do a little celebrating before the market comes crashing down. It’ll have to be cheap bubbly, of course… this is Lean FIRE, not Fat FIRE.

While it’s not our end goal, our Lean FIRE target is $850,000 in investments. How did we come up with this number? This is the minimum amount we think we’ll need to still live the lifestyle we want, with just a little more frugality than traditional FIRE would require.

Using the 4% rule, our Lean FIRE target would provide us with $34,000 per year, which is less than we expect to spend in retirement. However, as mentioned in a previous post, we currently have a significant amount of equity built up in our home and would have no problem downsizing and/or moving to a more affordable location in early retirement.

IF Mr. RFL were to come home from work next week and say that he’s done working 9-to-5, then we’d sell our current home. Rather than use all the equity as the maximum purchase price for our next home, we would take at least $150,000 of that equity and transfer it to investments. We’d use the remaining equity to pay for our next home, which would still be plenty. By doing so, we’d technically hit our traditional FIRE target of $1,000,000 in investments.    

We’re still on track to reach FIRE (without selling our home) by early 2022. That’s when the fun will really begin!

Before we get into this month’s financial update…

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Without further ado, here’s our June 2021 financial update, with all the details of this month’s spending, passive income, savings rate, investments, and changes in net worth for your voyeuristic pleasure.

Why share the details of our spending and finances?

Because I’m nosey and love reading about other people’s spending habits and net worth. Maybe you do, too.

Everyone’s financial situation is unique, and personal finance is personal. However, I do believe there is value in sharing information and providing context.

We’ve been motivated by the people in the FI community who’ve happily embraced simpler lives. Seeing others succeed gave us the confidence to begin our own journey to financial independence and a lifestyle we believe will be healthier, happier, and more fulfilling. I’m just trying to pay it forward.

If you’re looking for the frugalist of the frugal, you won’t find that here. Life is short and we have no problem splurging on things that make us happy. Although we spend freely in these value areas, we’re trying to ruthlessly cut back everywhere else.

Sharing our finances each month helps us stay accountable.

Other information useful in reading this report

Did we just buy a money pit?

We took a risk and bought a complete fixer upper in late 2018… with a toddler. When we moved across the country two years ago for Mr. RFL’s job, we found housing costs much higher than we were used to. So, when we found a great deal on a fixer upper, we decided to go for it.

We’ve been working on projects ever since, trying to do as much as we can ourselves to learn some new skills and save money. Since the costs of a whole home renovation are significant and non-recurring, we don’t include them in our monthly expense budget. However, we do share renovation costs each month for full transparency.  

How we define an “expense”

Outside of renovation costs, the table below shows all expenses for the month. Principal payments on debt are not included. As a former accountant, I don’t view principal payments as “expenses,” since they directly reduce debt and increase net worth. We don’t anticipate having any debt in retirement. 

JUNE 2021 FINANCIAL RESULTS

Net Worth

We calculate net worth by subtracting debt & other liabilities from total assets. Total assets include cash, investments, home equity, and an immaterial amount of other assets.

Our net worth is up 2.6% this month, and 17.4% year-to-date. Most of this is related to our investments, but a portion of the increase is due to an increase in our property’s value. I finally made a small adjustment this month, since we were way below all the online estimates. I’ll bump this up to the lowest consensus estimate (minus 6% to reflect NRV) once we’ve completed our backyard renovation.

The further we get on the journey, the more our money works for us. Our net worth has grown by 31% in the past year and 87% over the past 3 years. Love that compound interest!

Investments

Our Financial Independence portfolio, which consists of cash and investments, excluding our renovation SINK fund and daughter’s 529 Plan, is up by 21.5% year-to-date.

We invested $11,718 this month. However, a portion of this money came from a reduction in our cash position, so the net addition to our Financial Independence (“FI”) portfolio during the month was $7,200. We finished the month with a balance of $850,000…or 85% of our traditional FI Number… aka Lean FIRE!

Debt

We ended the month with $203,400 in debt, the majority of which relates to our mortgage.

For the most part, we no longer make additional principal payments to our mortgage during the year. We shifted our priorities to investing excess cash after we got the mortgage balance below $200,000 and refinanced to a lower rate.

The remaining debt is for a small project loan (0% rate), and my student loans (0.75% rate). We only pay the minimums on these balances since the rates are so low.

Savings Rate

Our after-tax savings rate was 66.4% for the month, which is just below our budgeted amount.

JUNE 2021 MONTHLY SPENDING

Ok, full disclosure time! The table below shows our expenses for the month of June, along with some additional thoughts (or excuses).

_{*Does not include monthly spending for home renovation from Reno SINK fund of $531, or charitable contributions made (which we don’t share publicly).}

Housing-Related – $880

Housing-related costs include mortgage interest paid, and a monthly allocation for property taxes, insurance, and HOA dues. This would go down if we chose a lean FIRE strategy.

Insurance – $460

This category includes our monthly premiums for auto, term life, personal liability, and health insurance.

Health insurance premiums are withheld from Mr. RFL’s paycheck, but all our other insurance plans are paid annually or biannually. We allocate an amount for auto insurance each month since the cost is high, but other insurance premiums are included here only when they’re actually paid.

Student Loan Interest – $2

I graduated with $40,000 in student loans, but only have $1,900 remaining. Because the loans carry an extremely low interest rate (0.75%), I only pay the minimum each month. Mr. RFL graduated debt-free.

Food – $408

At the end of May, I issued myself a challenge to use what we have and keep food spending as low as possible this month. I’d hoped it would make up for some of the overages incurred during the first few months of the year. While this may still seem high to many, I consider the challenge a success. I feel like this month’s spending is pretty good for a family of 3, who eats mostly organic and pastured foods.

Unfortunately, we’re still trending over budget on food for the year. Overall, we’ve spent $4,756 year-to-date on groceries and eating out, compared to the budget of $4,240. Perhaps we’ll make up the difference later in the year, maybe it’s inflation, or maybe I just need to increase the budget so we can continue to vote with our wallet.

It’s gotten too hot to eat outside here, so we probably won’t spend much on restaurants over the next few months other than when travelling or the occasional take-out to support our favorite local businesses.

Alcohol – $120

The grocery store had a sale this month and we were out of a couple things, so we stocked up on some liquor and bottles of wine. Definitely more deals to be had on alcohol in Arizona than there were in North Carolina.  

Household Consumables – $0

This category includes most of the non-food consumables used in our household, such as toilet paper, shampoo, skincare, laundry detergent, cleaning products, batteries, etc. No purchases this month.

Utilities (incl. internet) – $265

This includes electric, water, gas, security, and internet.

We saved $50 on our electric bill this month for participating in our utility’s summer rewards program. Basically, we allow them to control our thermostat when demand is high and there’s a risk of brownouts, and they give us money to participate in the program. Because we already keep the thermostat pretty high in the summer, it can get pretty hot, but the events only last 2 hours and you can opt out at any time.

These savings were offset by an increase in our internet bill from $42 to $67 this month as our promotional rate ended before we had a chance to call the cable company. Time for another call to get the rate down.  

Mobile phone – $102

If you read last month’s update, you’ll know I finally made the switch to a prepaid plan for my cell phone service after months of talking about it. However, since we kept both lines active for the month of June, we had two bills to pay. We should be done paying for the old service, so the bills should be lower going forward.

Home maintenance – $96

Most of this month’s expense was for HVAC air filters, which we buy in bulk to save money. 

Medical – $72

Just one doctor’s visit this month, and some OTC medications.

Entertainment – $13

This category is for television, streaming music, books, games, concerts, and happy hours. We’re down to just Hulu & Spotify for paid streaming, though we have a prepaid Disney+ subscription and I got Apple+ free for a year with my new iPhone purchase last month.

Only free gatherings with friends this month so no other entertainment costs.

Travel – $1,282

I’m so excited to finally started travelling again! We’ll take it slow for another year to be cautious, but will begin planning and booking more travel going forward.

This month we booked the airfare and rental car for our week-long trip to North Carolina and Tennessee this fall to attend a wedding and visit family. Unfortunately, between the time we started looking and the time we were finally able to book the trip, prices increased by quite a bit. Looks like the rebound in travel is in full effect.

We opted not to use any of our airline miles and hotel points for this trip, since the exchange rate wasn’t worth it for the options we wanted. We’ll save them for a future trip.

Next month is our 5-night trip to Bryce Canyon and Zion National Park!

Other Shopping – $294

About half of this was for a new laser printer (affiliate link) we bought in February after being fed up with our old inkjet printer. Apparently Best Buy forgot to charge us for it, so the cost hit in June. I’m not sure how either of us missed that omission.

We bought a long extension cord and chainsaw this month as we continued our futile DIY attempts to kill and remove the giant Oleander bushes so we could move forward with our backyard renovation.

After countless hours spent by Mr. RFL, we finally admitted defeat and will hire someone to help us with this in July. At least we tried, which makes the money spent feel more worth it. Plus, our purchases will come in handy for future projects.  

JUNE OTHER INCOME (Non-Employer Related)

While the majority of our income comes from W-2 wages and related employee benefits (i.e. 401k match), we continue to build on our passive and other income streams. The total passive income earned in June was $2,198.

Interest

We earned $94 in interest this month, primarily from our high-yield savings account and interest earned on Mr. RFL’s deferred compensation investments.

Dividends

We received $1,783 in dividends during the month of June, which brings us to a total of $3,755 year-to-date. This number includes all investment income, including distributions from bonds and REITs which are sometimes referred to as “interest.”

Since passive income is an integral part of our plan to fund early retirement, it’s fun to watch this number grow each quarter.

Total dividends and interest received covered 16.3% of our current expenses year-to-date. If extrapolated for the whole year, the amount earned would cover approximately 22% of our expected annual expenses after FIRE ($40,000). The higher this percentage grows, the lower our investment withdrawals will need to be to cover all our expenses in retirement.

Reselling

We’re continuing to declutter and sell our unwanted clothes and baby gear on the secondhand market. I set a goal to list 30 items for sale this month and achieved that goal (though it was more time intensive than I thought it’d be).

I sold our daughter’s old crib locally and several items on Poshmark for a net reselling commission of $203 this month.

If you join Poshmark using the link herein or the referral code “RFL2024”, you’ll receive $10 off your first order.

Cash Back Rewards

We earned $118 in cash back rewards this month, primarily from our credit cards. We charge everything we can on our cards to maximize cash back, but always pay the full balance off each month.

There you go… a transparent look at our June 2021 financial update and celebration of hitting our Lean FIRE milestone. How did your June go?

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