A Sub-Optimal History

StudentLoansWhile Mr. TOC is fascinated by the world of financial independence and early retirement, Mrs. TOC has been drawn to posts by people who are sharing their stories about escaping mass amounts of debt.  It seems odd that I rarely think about debt much anymore, since it was only last year that we paid off the last of our student debt, leaving us now with just the mortgage.

That got me thinking about why I wanted to start a blog to begin with.  In my first post, I mention that I wanted to be a voice for people who haven’t always made the best financial decisions.  While I’m proud of what I’ve written so far, there’s no shortage of similar content on the web.  Today, I want to talk about our life prior to learning about Financial Independence.

I will admit, the TOC family had a waterfall of income early in our marriage.  We lived in a small condo with no kids or pets, and both had engineering gigs.  It was overwhelming really, never in my life had I had access to so much money.  It should have been great, but for one problem.

I didn’t want my job.  It had a horrible commute and was nowhere near the dream job I had set out for.   Desperately wanting a new job actually was a blessing in disguise.  Because I knew I was looking at taking a huge paycut by going back to school to do something else, or to work in a much lower paying field.  So I felt I had to payoff my loans before I could do something like that.  Unfortunately my decision to go to private school saddled me with with ~$62,000 in student debt.  That made eliminating my student loans the first priority.

So how did we do it?  I actually didn’t remember the details, so I logged into Navient (bringing back painful memories) to look at our old statements.  As I mentioned before, Mrs. TOC and I never has as much disposable income as we did early in our marriage.  We both were already pretty frugal, with me just having spent the last 2 years on a grad student’s income.  That left us with lots of savings each month.

I don’t remember all the details, but I do recall that our total monthly income after taxes and other deductions was around $7000 a month.  We kept our expenses relatively low for two young people who made so much money… I think around $3500 a month.  That left us with about $3500 in savings. I remember our goal was to move $2000 a month into our savings account and anything else would go towards debt.  This budget meant we were putting, on average, $1500 towards debt every month!

Without realizing it, we adopted something akin to Dave Ramsey’s snowball technique.   My loans consisted of two large, low interest (~3%) $10,000 loans and several smaller loans that were typically between $2,500 and $5,000 and had interest rates varying from 4.5% to 8%.   We paid off the highest interest loans first, eventually taking out all the small loans one by one letting the payments grow with each defeated loan.  After our first two years of marriage, we successfully paid off all the smaller loans!

But before we took on the larger loans, life really started happening. During years 2-4 of marriage we adopted a dog, moved three times and had two kids.  On top of it all I changed jobs 4 times!  We also purchased a slightly used car, adding substantially to our non-mortgage debt.  Needless to say paying off the student loans fell off the map.

Two kids and two jobs really made life crazy.  I was starting to feel miserable, like I was sinking deeper into a dark pit and any fulfilling career I thought I might have was being replaced with the reality that I needed to earn enough money to support our growing family and budget. Fortunately for us, along with all the additional financial responsibilities, we also were making more money than ever.  It didn’t feel like it, but thanks to raises (and job hopping actually) we were making nearly %50 more than when we first got married.

Still, life seemed needlessly hard.  The big house, the car, all the random things we’d bought, none of it was making us any happier than we were before.  I began to wonder why people who earned a lot like us worked full time for so many years?  If we could save twice as much as most people, why couldn’t we retire twice as early?

I got on Google one day in late summer 2016, and searched for “retire at 40”.   Needless to say the first thing that popped up was Joe’s blog at retireby40.org.  His blog alone is awesome, but he also has a page dedicated to other blogs, which meant I was soon to be consumed by FIRE.   All of a sudden I had an out, a way to have time for everything!  I brought it up with Mrs. TOC, and she was all for it.  We just needed to focus on what we found important, cutting out the rest.

And so we have.   The first thing to go was the last of our debt.  With Mrs. TOCs blessing, we gutted our 6 month emergency fund to pay off my student loans in one massive payment.  And it feels great.  I’m glad I wrote this post, because it reminded me how far we’ve come.  Getting out of debt really does feel like dropping a heavy weight off your shoulders.

That being said, these days we know that the student loans were only the beginning.  Our student loan debt amounted to only about 2x our annual spending.  While this seems like a lot for most people, our goal now is Financial Independence.  This means we need to save 25x our annual spending.  While this might seem crazy high, the debt snowball continues on into an investing snowball.  In fact, we plan on hitting our number by 2024.

Saving aggressively for financial independence is not a choice people our age typically make.  That’s why I don’t think of it that way.  We aren’t really saving, we are buying time, and as much of it as we can.  This is the optimal choice for our family.

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