How to FIRE in Your 40s on a Teacher’s Salary (or Average Income) (Finance Friday)

Mindy:
What if you could access your retirement funds years before traditional retirement age without paying hefty penalties? Today’s Finance Friday guest is hoping to retire by the age of 45, but she doesn’t have a really clear understanding of the investing order of operations and what is best Today. We are going to break down the options that she has to make her dream a reality in just 14 years. This is a great episode if you’re worried about the middle class trap and how to make sure it doesn’t get in your way of financial freedom. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen and with me while Scott Trench is out on paternity leave is Amberly Grant.

Amberly:
Hello. I’m happy to be back here hanging out with you, Mindy. I’m so excited you’re here. Alright guys, I’m going to put on my best Scott impression, hopefully better than last time. BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe that financial freedom is attainable for everyone no matter what or when or where you have started.

Mindy:
I think you really starting to get that again. Scott’s voice is a little lower, but that was spot on. Okay, Kat, thank you so much for joining us today. We are so excited to talk to you.

Kat:
Yay. Thank you so much for having me Mindy. Thank you. Amber Lee, so nice to meet you guys.

Mindy:
It’s nice to meet you. Kat, can you share where your journey with money begins?

Kat:
I can. So I was brought up in the middle class and my parents really set the stage for me in terms of money and how to work with money and ultimately they taught me a few values. They taught me a value of frugality and they taught me a value of generosity and the value of frugality even though we could afford all the things we needed to afford. You can see that my mom still has her 1998 Honda Civic and I think it’s indestructible at this point. I always have been a saver. I’ve had a piggy bank under my bed since I was a kid and that was great except I never really put my money into a high-yield savings account. I didn’t know about that. My parents, I’ve always trusted them explicitly or implicitly with everything and my parents always invested for me, which was great.
We were investing except I didn’t realize we were investing in only a few stocks. It was fine when we were invested in Apple in the early two thousands, but then over time there’s just a few stocks that we’re in and those didn’t do well and I’m at the early stages of my life, so for me, I can pivot and I was lucky enough to without debt in school and I was able to buy a house, so I have a good setup for myself, but it’s of course different for my parents because they’re a bit later in life. And so I just started realizing I can’t just trust other people with taking care of me. I also have to make sure I’m taking care of myself with my finances, woman with a master’s degree in chemistry. I should know more about my money. And then my friend Anna Banana, we were in Ireland together and she told me about this fire movement and I was like, what the heck is that? I’m like, I can’t retire early. I’m a teacher, but I’ve just been absorbing your podcasts literally. It’s delicious to me. And so yeah, I am grateful to be here and to share my story, so thanks.

Amberly:
Thank you so much, Kat for sharing all of that. It’s really nice to hear where you come from because it really does inform where you’re going. You had mentioned you’re a teacher. Can you tell us a little bit about how far into teaching you are, what maybe state you teach and yeah, tell us that.

Kat:
I am a science research teacher in New York state and it is my seventh year teaching, but I am on step eight. We have a step system for salary from some of my other experiences with AmeriCorps. They counted that towards my steps.

Amberly:
Excellent. That’s really nice. And do you do something outside of teaching as well?

Kat:
Not anything that really brings home the bank, but I get some money for the specialty class. I teach science research. It takes a lot of time outside of the school day and I also tutor every week, every weekend.

Amberly:
Excellent. And you mentioned you’re in a step system, so what is your current salary?

Kat:
My current salary is around 87 to 88,000 and if I add my stipend as a research teacher, then it’s closer to like 90,000.

Amberly:
Excellent. Congrats on that. At 30 years old, that is awesome. Really, really great.

Mindy:
I wasn’t making $90,000 at age 30.

Kat:
I think New York State is one of the highest paid teacher salaries, so I do think I have advantage in that regard, but we also are one of the most expensive places to live. So

Mindy:
I was just going to ask, would you characterize your area as high cost of living or medium cost of living?

Kat:
I would characterize it as medium to high. It’s hard for me to compare it when I’ve only really lived in New York, but I remember traveling to a few other places and I was like, this is still pretty expensive in places around the country where I thought things would be cheaper. So I would say definitely it’s not New York City prices where I live, but it’s very close to that. Yeah.

Mindy:
Kat, what is your retirement goal?

Kat:
My retirement goal, kind of a rough goal of being able to retire by around 45. I know that I will need, if I was to completely retire about 1.2 million, that is based on the 4% rule that you guys talk about a lot. It’s all kind of estimates, but

Mindy:
So 1.2 million, that is a great number. Let’s look at your actual numbers right now. I’ve got a net worth of $388,000. That’s pretty awesome for a teacher. That’s pretty awesome for somebody in their early thirties that’s pretty awesome all the way around for just an American at any age, at any salary because Americans are more paycheck to paycheck. So that’s broken up into $40,000 in a 4 0 3 B, $16,000 in a Roth. IRA $11,000 in a brokerage account, $2,000 in a 5 29 plan. I do see $42,000 in cash. I’ll ask you about that in a little bit. And I see about $300,000 in home equity, two 50, 300,000 depending on that. So currently I don’t think that you have enough to retire, but you’re not trying to retire at 32, you’re trying to retire at 45. So we do have a timeline horizon that I think is pretty doable, especially because you’re making $90,000. Let’s look at all the income. Do you and your partner combine finances

Kat:
At this time? We do not. He contributes to my mortgage because the house is in my name currently and we kind of do every other for groceries, so he pays me essentially as part of taking off some money from the mortgage.

Mindy:
So I see a grand total of household income of 134,000, but since you don’t share expenses, let’s say 90,000 for you plus $2,000 into 10 99. Is that the tutoring that you were talking about?

Kat:
Oh yeah, that is the side tutoring.

Mindy:
Okay. And then I see $900 in other income. So that is what, 92? 93,000. That’s great. Current expenses, I have 36 0 1, so we’ve got the mortgage payment of 800 groceries of 400 restaurants at 300, entertainment at $9. Slow down. Kat, I don’t know what you’re doing with that nine whole dollars, but come on, you’re trying to reach financial independence 150 for travel, 300 for utilities, $20 for clothing, 400 for shopping 122 for insurance. I don’t see anything really crazy in these expenses and I’m going to do some quick math here. Times 12 is 43,000. You’re in $93,000 and you’re spending 43,000. I think you’re doing okay. I see debts of $14,000 at 0% interest. I wouldn’t pay that off any sooner than you had to or any sooner than that 0% interest would go away. I do see a pension with a potential value of $99,000 a year. That’s nothing to sneeze at except you’re only seven years into what a 20 year commitment.

Kat:
It would be actually 32 more years of teaching in order for me to get that at the current pension system that I have. So that is part of my motivation for looking into if I can fire, I do think that there’s a likely chance that we’ll change because our union in New York state is pretty strong and so they’ll try to get that to 55, which is where tier four teachers are currently at. But I don’t know, so I want to make sure I’m taking care of myself so that if I don’t want to work until I’m 62 and they don’t change it, then I don’t have to.

Mindy:
Now we need to take a quick add break, but listeners, I am so excited to announce you can now buy your ticket for BP Con 2025, which is October 5th through seventh in Las Vegas Nevada. Score the early bird pricing for $100 off your ticket by going to biggerpockets.com/conference. While we’re away, welcome back to the show. We are joined by Kat. I’m going to read a quote that comes from your application. I realized what I really want is time freedom more than anything else. So one of your questions for us was, is it silly to retire at 45 when I could be a lot wealthier if I waited another 10 years? No, it’s not silly to retire at 45, even though you could be wealthier. You know what? You’d be even more wealthier if you waited another 20 years and you’d be even more wealthier if you waited another 30 years.
You could just work forever. You want time freedom. You are seven years into a 39 year commitment. I don’t think I would be looking at that pension as something that I was going to be able to collect. I would be putting it to the side should the rules change and you are able to collect even a dollar from it. Yay. And that is where my pension knowledge ends. So I am going to send you on a little homework assignment. Oh, you’re a teacher. Here’s homework for you. Episode 2 59 of the BiggerPockets Money podcast. We spoke with somebody who, he’s anonymous. He goes by the name Grumps Maximus and he talked to us all about pensions, how to value your pension, how to see if it’s even worth pursuing, and it’s been a minute since he shared all of that. I’ve recorded, I dunno, 400 episodes since then.
So I don’t remember all of the things that he shared with us, but luckily we recorded it. So you can go and listen to that episode and start doing a little bit of homework on your pension. Talk to your HR department or whatever the equivalent is and ask them what happens if I don’t retire at 55? What happens if I retire at 45? Is there an age minimum where if I don’t work until that age I don’t get anything at all and then I would just not even worry about this or consider this pension right now and everybody listening who has pensions were like, no, it’s worth money. Great. I’m sending her on a homework assignment so she can determine how much this is worth. But I think first of all, at age 31, you’re in a great financial position, your goal is to retire in 14 years. I think that’s doable. You asked what age should you stop contributing to your 4 0 3 B and instead put it into a brokerage account. Amber Lee, do you have any information, any ideas about that?

Amberly:
Well first of all I wanted to ask and step back here and say in retirement, do you expect your expenses to stay the same? Because when I’m looking here at your number of $1.2 million, that is about $4,000 a month in take home, essentially pay for yourself to cover those expenses that are now at $3,600. So there’s only about a $400 buffer. What are you thinking about for your expenses when you’re approximately 45 years old?

Kat:
I think that my goal is to pay off my mortgage by then, so that should lower my monthly payment by about a thousand dollars. So it would free up a thousand dollars. I would like to retire after I pay off my mortgage so that that’s taken care of. Yeah,

Amberly:
I have to ask, I know dogs are life. Are you planning on adding any other creatures or spawn to your life in the next 15 years?

Kat:
Yes, thank you for asking. That is a big part of the equation is whether or not I add spawn to my life and I don’t know, I undecided, I did start a 5 29 as Mindy read out before and part of that was maybe I would one day and I want to make sure it’s the spawn would be ready. I don’t know why I’m still calling them a spawn, but I’m not convinced of that because I have a great life and I love my current dogs. So yeah, right now I’m planning as if I’m not having kids and I’ll just donate that 5 29 to a kid in need, but it’s a possibility I don’t know what the future holds for me.

Amberly:
Perfect. Yes, I wanted to know that just because kids always change the equation if we do end up going that direction, but with life you can pivot every single time something new jumps in, that’s when you take a look at the environment that you’re in and say, Hey, is this still my goal or does my goal change based on the new inputs? So I think that’s okay and it’s okay not to know right now and we’ll just continue moving forward as if it’s a no and then you can make a choice later on. Alright, when you’re saying you’re going to pay down your mortgage so that you’re mortgage free in about 15 years, I’m looking at you’re going to be spending about 15,000, $16,000 a year of that salary to pay that down over the next 14 years. So that’s going to take a lot of a big chunk of change. Is there an emotional reason that you want to pay this down or is it just financial so that you don’t have to be responsible for it to when you’re fi?

Kat:
I think it’s both. I think I detest having a loan out especially, it’s such a big number. It was shared earlier that I have this net worth but of 300 and something thousand but when so much of it is in my house and not in paper, I’m just like, let’s just pay off the house, which I think is emotional response and doesn’t add more to the paper. But yeah, so I think it’s emotional and I also think that it would make me feel more free when I am retired early potentially to not have to have a mortgage payment.

Amberly:
Yeah, completely understand. I think when you look at the math when it comes to whether you should pay down your mortgage early or not, it really does rest on interest rate and then we can look at emotions as well with an interest rate of 3.1%. I believe that’s what it was. That’s quite low, especially if you’re going to compare that to putting money in the market and you have such a tight horizon for what you want that money for, how long you have to start putting money into the market. I actually might recommend that you don’t pay down your mortgage super early. It may be a little bit earlier than you were planning on it, but maybe not putting a lot of money towards it and instead redirecting that money towards not only your retirement accounts but perhaps a brokerage account. And I think we’re going to get into that in a second here, so just something to think about if it is an emotional reason, I always say emotions, Trump finances, so I can understand why you do that, but it may be something just to take a little bit more of a reflection on and perhaps continue to keep your mortgage in later years.

Mindy:
Yeah, Amberly and I are both on team keep the mortgage but because you have a 3.125% rate, I think we should say that so that because not everybody is looking at your spreadsheets, Amber Lee and I have them in front of us and the 3.125% rate is not a rate that you are probably ever going to see again in your whole life and you can always pay that off later. You can put the money into a high yield savings account while you’re making your minimum payments and investing the rest because the point that I have is once you pay off your mortgage, that money is locked into your house. Sure you can pull it out with a home equity line of credit, which is currently at eight or 9% interest. I don’t like paying eight or 9% interest because I’m cheap, so I would want to put that in a high yield savings account so I have the option to take it and throw it all at the mortgage when I’m ready to retire and say now I’m retiring mortgage free. Or I can look at it and say, wow, I’ve got that money to pay the mortgage. I am going to instead invest it or I’ve grown all of my other buckets so I don’t really need to pay that off. You have more options when you have a big bucket of money, so I like the idea of paying extra to a mortgage until I see that 3% rate.

Kat:
Thanks. Yeah, I see that and I started shifting just within the last month because I’ve been drinking your podcast and I’m like, oh, I’ve heard you give that advice to someone else before, and I’m like, yeah, I do have a low interest rate and I don’t have a ton of cash availability and I don’t want to do the middle class trap that I know you guys are very passionate about, so I appreciate your passion.

Amberly:
I have a second question because Mindy had asked me when does she stop contributing to her 4 0 3 B? Because that is your question. Here’s my other question for you. How much a year do you contribute to both your Roth IRA and your 4 0 3 B? Do you know separately?

Kat:
That’s a great question. I know I was contributing about 400 a paycheck to my 4 0 3 B, so that roughly that’s twice a month, so maybe about 10,000, but I’ve since upped it because I have my security money if you will, so I can now contribute more. So I’ve been contributing recently closer to $900 a month, sorry, a paycheck to my 4 0 3 B and some of it is post-tax or yeah, I think it’s called post-tax when I’ve already been taxed on the money. It’s like a 4 0 3 B Roth if that resonates and then I contribute, I max out my Roth IRA. So

Amberly:
7,000 a year for 20 24, 20 25,

Kat:
Yes,

Amberly:
We have to take one final ad break. We’ll be back with more from Kat after this. Thanks for sticking with us. I did some calculations for you because this is a really difficult question of when to stop contributing to your retirement accounts and instead move towards your brokerage accounts because you can use your retirement accounts, you can only use after a certain time without penalty and it’s a 10% penalty. Sometimes it’s worth it to take the money out. I know some bloggers have done some blogs about that and it’s kind of a wash sometimes. So the other one is moving money into your brokerage accounts so you can use that money now and then rely on your retirement accounts later. So let’s just say, I’m going to say in 14 years you continue to use your Roth IRA as you funnel $7,000 into it. I’m sure it’ll go up over time for the amount, you can do it per year, but in 14 years you’re going to have $217,000 in it.
At that point you might say I am never going to contribute another dime to it because you’re no longer employed, you maybe don’t have earned income, so you can’t and you’re just going to let it sit there for the next 20 years. So then you’re 65 years old when you’ll actually start pulling in your Roth out, you’ll have $1 million. So we know with the 4% rule, you’re going to have $40,000 a year at 65 just from your Roth IR, not including your 4 0 3 B. So with that and your 4 0 3 B, you’ll have for sure hit your fine numbers at 65, right? I mean way over that moment or in that time because well, I’m going to do the same calculation. Let’s just say with that lower amount, $10,000 a year for your 4 0 3 B in at 65 you’re going to have 1.1 million. So essentially you’ll have $80,000 a year from those two accounts alone, not including a possible pension or any social security work from work you do outside of teaching in the future if that’s what you decide to do, take on some sort of side job.
So when we’re thinking about that, it might mean you’re over contributing. If you continue to put money into it over the next 14 years and maxo is out, I can’t say when you can stop contributing to your 4 0 3 B, I think it would be great for you some more homework to start doing some calculations to see what makes you feel comfortable to have at 65 and then that will show you when do you stop contributing to those accounts within the next 14 years and start moving towards a brokerage account. Mindy, do you have thoughts on that?

Mindy:
I love this. I want to give a little bit more context to what you’re saying. The rule of 72 is where Amberly got this numbers. These numbers from essentially the rule of 72 says that your investments at an 8% return will double every seven or eight years, so she has taken your numbers and just extrapolated that out. It is down and dirty math, it is absolutely not guaranteed. Past performance is not indicative of future gains, but it’s a great way to look at what your net worth will be in the future and that’s stopping after a certain amount of time with your contributions. She made mention that you can’t contribute to a Roth IRA if you don’t have earned income, you have a Roth 4 0 3 B, which makes my heart sing because all the Roth plans help you avoid the middle class trap. You can always access your contributions in a Roth IRA. You can’t access the gain you can at age, is it 55 or 59 and a half?

Kat:
59 and a half.

Mindy:
So then you can start accessing the gains. You’re a teacher. I’m wondering if you have access to a 4 57 plan.

Kat:
I don’t even know what that is.

Mindy:
That is another homework assignment for you to talk to your HR person about and just ask them, do we have a 4 57 plan? The 4 57 is a special plan essentially for go employees, like teachers who are where you can put the current 401k, 4 0 3 B contribution limits into your 4 0 3 B and those same current ones into your 4 57 plan. So if the limit is 23,000, you can put 23 into your 4 57 and an additional 23 into your 4 0 3 B for a grand total of 46,000. But wait, there’s more. Once you no longer work for that company, you can start accessing your 4 57 accounts with no penalties. If there are traditional 4 57, then you have to pay taxes on the money that you’re pulling out. But if they’re a Roth 4 57, you’ve already paid the taxes, you can just start pulling that money out. So with a partner who is perhaps able to help support you while you’re putting money into these 4 57 plans or just look at you’re making $90,000 a year and your expenses aren’t that high, maybe you could max out both or maybe you stop contributing to the 4 0 3 B in favor of the 4 57 because when it comes time to pull money out on the 4 0 3 B, you’ll have to pay penalties, but on the 4 57 you won’t.
So that’s another homework assignment for you. Do you have a 4 57 and do you have a Roth 4 57.

Kat:
Okay, got it. Wrote down my homework. Yes, teachers appreciate it.

Mindy:
I love it. And you also want to know what your pension amount would be if you retire at 45 because I do think that you would get something, you definitely don’t get your full pension, but even if it’s half of what you would get at 55, that’s still a couple thousand dollars and who doesn’t like a couple of thousand dollars a month

Kat:
I’ll take it.

Mindy:
Yeah, exactly.

Kat:
Can I ask a question?

Mindy:
Absolutely. This is your show.

Kat:
I appreciate it. I love education. It’s just great and I promise you what you guys tell me here. I am telling my students too, so they get a science research and financial freedom education at the same time for me. They know I like getting off track sometimes, so this is good. I was wondering if the 4 57, does a 4 57 have tax benefits also? I guess that’s the point of a 4 57 rate and that would be why it’s better than a brokerage account.

Mindy:
So it’s not better than a brokerage account, it’s different than a brokerage account. A traditional 4 57 is just like a traditional 4 0 3 B or a traditional 401k in that you are reducing your taxable income by contributing to it. The Roth 4 57 plan doesn’t have the tax benefits. You’re not reducing your taxable income, but you’re paying tax now putting it in the account, it grows tax free and it’s the one account that you can access when you separate from service from that company without having to hit an age limit or an age threshold.

Kat:
Okay, that makes sense. And the fact that Amber Lee, you said I would have about $2 million between my 4 0 3 B and my Roth IRA. Is that with me still contributing the same amount every year until I hit 45 or is that just from my current holdings?

Amberly:
Great question. What I calculated was you are doing your Roth IRA and maxing out at $7,000 a year with an 8% interest for the next 14 years. Then you are doing zero contributions for the next 20 to get you to 65. Though we can do stew 59 and a half, so 60 years old, so 15 years instead of 20, which is a different number of course. So that’s how we got to that calculation. Same thing with your 4 0 3 B. It’s saying $10,000 a year, I’m not using that $900 a month every two weeks figure I’m using the 400 ish. So saying you’re contributing about $10,000 a year for the next 14 years and then at 14 years that sum is never going to get contributed to again with an 8% interest rate.

Kat:
Okay, got it.

Amberly:
Your rate of return may be different based on the government plans that you have to choose from. It just might not be the same as you have if you’ve got a Fidelity account with your IRA. You can choose from anything to invest in, but with government plans, I know sometimes they only have you limited selection for what you can invest in and so therefore your rate of return might be different than the general stock market depending on what you can invest in. When I don’t know enough about government plans since I don’t have one, I’ve just talked to a lot of government friends and they have mentioned that sometimes their choices aren’t as robust as the general market.

Kat:
I see. Yes. We have access to Vanguard and so I am investing in the general markets like the VU and the V-T-S-A-X. Thank you to the book. Oh my goodness. What’s the name of the book that everyone talks about?

Mindy:
The Simple Path to Wealth by JL College?

Kat:
That one? Yep. The Simple Path to Wealth. Thank you Mindy. And I was like, oh, that’s easy. I can just do that. I like simple and easy because I have a very busy life and I want to give all the time that I do have to my students, so thank you for the simplicity.

Amberly:
Perfect. Then using a seven or 8% rate of return will be perfect.

Mindy:
I think I misspoke earlier in the episode. The rule of 72, assuming a 7% interest rate will double approximately every 10 years using an 8% interest. I’m sorry, 8% rate of return. A 7% rate of return is approximately every 10 years. An 8% rate of return is approximately every nine years and a 9% of return is your money will double approximately every eight years and then if you get a whopping 10%, which is awesome, it will take approximately seven years to double. So it’s a great way to think about your future money. If we are in a crazy stock market where we had, I think one year we had a 22% rate of return, oops, I only hit one two, it’ll double every three years. Now we’re not going to hit three years of 22% returns. That would be super awesome, but that’s not a realistic number to think about. However, an eight or a 9% rate of return is absolutely doable. So I like to do 8% and do every nine years. That’s a great way to think about it because if it’s higher, great you might have that could be an average.

Kat:
Okay. Okay, that makes sense.

Mindy:
One other question you had for us is should I sell the stocks that I have that are in four specific stocks that have not been doing well? What is your reason for holding onto them?

Kat:
The reason I’m holding onto them is because I know you’re not supposed to sell when low, but I don’t know anything other than that. So I don’t know when it would then make sense to sell because I don’t know what’s low and what’s not low other than when I went in. So I guess that would be what I would like it to get back to be at minimum. But

Mindy:
What if it never does? What if this is the highest it’s ever going to be? Do you want to own these stocks now?

Kat:
No, I think they make me feel uncomfortable because don’t, it’s a good amount of my money that I have accessible because I don’t have a lot of money accessible if you will. I have the 60 K overall in my savings for my 4 0 3 B and Roth and I have some savings in cash, but having $13,000 in these stocks, that’s maybe about 13% of my money. So it’s not nothing. Maybe if I had a much bigger net worth, I’d be like, yeah, it’s fine, I’ll just play with it. But I think because it’s a fairly sizable part of my wealth, maybe I should be doing something with it in order to reach my goals. But I also don’t know. I don’t want to be silly and sell one low like rule number one. Right. I don’t know.

Mindy:
Knowing what I know about these stocks, if I was in your position, I would sell them. They are $13,000. You have a 14 year timeline to reach financial independence and you don’t want to own these stocks. I would personally sell this is not a taxable event because you have lost money on these stocks. Correct. You bought them higher.

Kat:
Correct.

Mindy:
So you’re not going to be owing taxes on this. This is a time to maybe chat with somebody who is a tax professional who can look at this and say, Hey, this would be a great time to sell because you have some gains that you are going to put this up against, but you don’t want to own these stocks anymore then don’t own these stocks anymore. Amber Lee, what do you think?

Amberly:
One thing I always ask people whenever they’re feeling FOMO or some sort of missing out on individual stocks, my first question is, Kat, did you have a plan on when to sell these stocks when you bought them?

Kat:
No.

Amberly:
Great. So you went in blind, didn’t have a plan for what number it would hit to sell or what number it hit of losing to sell. So therefore no plan means you’re running blind and that’s a really anxious and scary place to be when it comes to individual stocks. So what I would say as Mindy asked, if you were offered these stocks today, would you go buy them?

Kat:
No.

Amberly:
Alright, we got a lot of nos here. So I think that probably means sell it, take the loss. It doesn’t mean you’re a failure, it doesn’t mean anything actually. It means that you tried something, you decided it wasn’t good, you got out before it got even lower or maybe even higher. It doesn’t really matter. And instead you’re going to put your money to work somewhere else.

Kat:
That makes a lot of sense. Yeah, thanks.

Mindy:
I love that. Okay. When I was reading off your numbers, I said, oh, you have $42,000 in cash. I’m going to talk about that again and this is me talking about it. Why is this money sitting in cash?

Kat:
Yes, I have 25,000. It’s actually in a cd. It might be a little bit higher right now because of the interest it’s earned in. Maybe it’s 26 or 27, so I can’t actually touch that for another five months or something. And then I have the loan that I said for $14,000 and I have about 14 or $15,000 in a high interest savings account that I’m just using to pay off the loan. So when I took out this loan, I knew I had the money for it, but I figured I could just make a little bit of interest and that would make sense. So I might as well just take out a loan because it was zero interest and I check that it gets paid every month because I do not want the 25% interest slapped on to and the minimum payment, it’s wild to me that they show you the minimum payment. It’s like, I don’t know, a few hundred dollars, but then you’ll be paying it for the rest of your life. So I’m like, yes, I do not want to keep this, but might as well get another thousand to $2,000 off from just having it in a high yield savings account.

Mindy:
Perfect. I love that answer because it shows you’ve been thinking about it. You’re not just doing something that you heard somebody say this one time. I love these conscious choices based on education and thinking things through the 25,000 in a CD that you can’t touch for five months. Do you have plans for that?

Kat:
I do, and I don’t plan to spend it on anything specific, but because I own a home that was built in 1911, there’s just always something and it often is quite expensive. I will say this is a brag moment. I built my own fence because they were asking for $15,000 and I was like, I am not paying $15,000. So I learned how to do that. I built my own couch. I learned how to do that so I to get around not spending money where I don’t have to, but the piping system, our plumbing is not great, so I might have to spend some money on that, but I’m hoping I won’t need a new car or anything for at least another 15, 20 years. If I’m like my mom, my car will last another. My mom’s car is now almost 30 years old, which is wild.

Amberly:
Yeah, no notes on that from me either. I think 25,000 is essentially a six month buffer for you for an emergency fund. You can also use it towards your house as you’re saying. So I probably keep something around there and having it in a CD or some sort of high yield savings account is exactly where that should be. Whatever makes you feel comfortable in regards to number of months for an emergency fund and you have a partner as well, so that’s really nice too because you can always rely on them a little bit if you needed something or something happened to your job. I have a question. Are you thinking of upping your income in any way by increasing tutoring hours or are you looking to live more right now?

Kat:
I will say my actions might be contrary to how I feel because I’m constantly taking on new tutoring positions. I think part of that is it’s so easy. Science is high in demand and I’m good at what I do or at least I would like to think I am. But that being said, I feel like between my position for work is very demanding and tutoring on the weekend and I usually do homework and prep before it and stuff. That takes a lot of my time. So I would like to say I would lower tutoring or I should do that for my mental health insanity, which would probably make it that I wouldn’t have to retire early. Yeah, I’m so focused on the financial freedom. I know the value now of compounding interest thanks to you guys. So I’m like, yes, let’s just get there. I want that freedom feeling, but I also hear you guys talk about all the time that it’s the journey and not just this end number, and it’s really hard for me to absorb that when I feel like I have no free time and I’m just working for other people, but I know I’m part of my own problem. So yeah,

Amberly:
Completely understand. As someone who loves to be busy, I get that. So it sounds like from what I’m hearing is that maybe increasing your income isn’t as necessary based on all the numbers that you have. It also might not be best based on your mental health and instead it might be really great for you to do those calculations we were saying so you can see what time to stop contributing to your retirement accounts and you can maybe even increase your spending just a little bit. Now if you are looking at what you’re putting into an actual brokerage account or a 5 57, as Mindy had said, so you can access that money at 45, but you might even have a little wiggle room to go and do more fun things as you’re saying you might want to do. What do you think, Mindy?

Mindy:
I think that we, Carl and I did it completely wrong. We plowed every dime we could into our retirement savings, into our brokerage accounts, into we were busy, busy, busy all the time. We’d do the live and flipping, so we would go before kids, we would go to work eight hours in some cases we were driving an hour each way to and from work and then come home and work another five hours on the house, go to bed, get up and do it all again. We didn’t enjoy our life and that is one of my biggest regrets because now I’m sitting on a nice PHI number that is more than I need and I could have been having so much more fun. Enjoy the journey because if it takes you, let’s say that you can crank it out and get there by age 45 or you can pull back just a touch, keep all the things that you love that mean something to you and now you have to retire at 46.
That’s a way better life. So I would encourage you to run your numbers. Look at the different options that you personally have. I love the Roth account because you’re paying taxes now and it’s growing tax free. You pull it out tax free whenever you decide to pull it out. The Roth ira, you can always pull out the contributions. I love the freedom that it gives you in the flexibility and what was that quote again? I realized what I really want is time freedom more than anything else. So I would just focus on what does that time freedom look like to you? If you could get away from the 40 hours of teaching or 38 hours of teaching per week, but then you could bring back tutoring for 10 hours a week and that covered your expenses, maybe that’s a great trade off or maybe that doesn’t quite cover your expenses, so you need to figure out another way to do it. Have you ever thought of making a science YouTube channel fun with cat science, fun with cat? There’s so many ways to make money online. If you love talking about science, talk about science. I’m probably not going to watch your show, but I will send my kids there.
But I think you’ve got a great foundation. You’ve got an amazing foundation for somebody who’s 30 years old, you’ve got a great foundation and I don’t see your goal of 45 or 45 ish to be something that’s like, oh my goodness, that’s never going to happen. I can see that as absolutely happening. Maybe it doesn’t happen at 45, maybe it happens at 46 or 47. That’s still way lower than 65. So you have all that time to go and enjoy your life with no job.

Kat:
Thank you for spending so much time chatting with me today and for the, I think definitely playing with the numbers will be fun, and it’s not about even all of this for me. It’s not about exactly stopping working at 45. I can’t even envision myself not doing anything as I feel like a lot of people in the fire community, not everyone, but a lot of people don’t exactly stop everything when they do fire. I think I’ll always be doing something, so I would probably have more of a barista fire if not for just being engaged with my brain and too much time by myself. I think I would lose my mind if I’m being honest. But yeah, it’s cool to know kind of where I’m at with things and what might be possible. And I’m definitely nowhere near having $425,000 invested, but I hear you on saying that what I want in life is more time and I’m already choosing not to do that for myself. So maybe if I change that, it would just make things more enjoyable

Mindy:
If you’re thinking about, oh, I’m not sure what I would do in retirement. Start a bucket list.

Amberly:
Well, Kat, any other questions for us?

Kat:
I think you guys answered all my questions. Thank you so much for your time and thoughts and this was so fun. I was so excited to meet you and you’re here, you’re real people. It’s great.

Mindy:
Alright, Kat, I really appreciate your time today. Thank you so much for coming on and sharing your numbers with us and we will talk to you soon. Alright, Amber Lee, that was a super fun episode with Kat. What did you think of the show?

Amberly:
Well, she’s super smart and is already thinking about her future and I just love that she’s not just thinking about her future, but she’s thinking about her past and what her parents were like and how she’s like today. And like you mentioned in the episode, what she wants to do with her life at 45 she should start doing today. And I think that she’s in such a great position to start funneling money towards her future, but also really focusing on maybe doing some fun things. What do you think

Mindy:
One of the best things that she’s doing is keeping her expenses low and that allows her so much opportunity. She’s got the opportunity to contribute to these other accounts. She’s got the opportunity to max out a Roth IRA, which I hope that she does. She’s got the opportunity to add in a little bit of fun spending because the delta between what she’s spending on her life and what she’s making is so vast. So I want to encourage people to keep everything in that means something to them. If you’ve got, you want to have breakfast every Monday with your daughter, then have breakfast every Monday with your daughter breakfast out. If you want to have a date every Friday night with your partner, then have a date every Friday night with your partner. Don’t cut things out in the name of, I want to get tophi as fast as possible because let me tell you I did and it’s not all that fun. The journey kind of stinks, so don’t do it like me. Be like amberly. Be like Kat will be soon and keep the fun stuff in your life.

Amberly:
My only concern for her is this pension. We don’t know enough about pensions to give all that much information for her, but retiring at 45 when a pension is 50% at 55, I’m really curious what that’s going to look like for her and she’ll be taken care of with the investing that she’s doing. I’m just so curious. I hope she gets back to us about what that actually is going to look like for her. If she were to leave work at 45 and hopefully all that time and energy she’s spent contributing towards, it does give her some sort of payback.

Mindy:
Yes, I hope it does. She has 14 years to figure it out and perhaps in 14 years she decides, you know what? It is worth it for me to stay an extra 10 years and get that much more in my pension. Maybe she has lost all of these things in her life that are making her feel so pressured with her time and now she truly enjoys only teaching or teaching and tutoring and she’s lost other things and we’ll continue on. That’s what’s so great about the beginning of the FI journey. You have a big horizon. I would encourage her to continue to revisit her numbers either quarterly or annually just to see where she is on track. I would also encourage her and anybody else listening, not to get too bogged down with dips. We are in a period of economic uncertainty right now. The stock market is reacting rather ly up, down, up, down. It’s kind of a roller coaster. So if that gives you a lot of nerves, take a step back and don’t look for a while. Look again in a month, look again at the end of next quarter, but keep an eye on your numbers to see where you’re going. Watch how they are progressing and how you like your life. If you don’t like your life and your numbers, keep going up, make some changes.

Amberly:
I agree with that completely. Thanks Mindy. That’s a really great summation.

Mindy:
Alright, Amber Lee, should we get out of here?

Amberly:
Let’s do it. Bye-bye.

Mindy:
Alright, that wraps up this episode of the BiggerPockets Money Podcast. I truly love these conversations with people who have retired before. It was cool before anybody wrote a blog post about it and I love Diana’s story. Thank you so much for joining me. My name is Mindy Jensen saying out I zoom, bloom.