“Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations. You have to pay attention to money, but it shouldn’t be about the money.” –Tim O’Reilly
The first time we discussed selling our condo with any seriousness was in the middle of our eleven hour flight from Paris to San Francisco. That was Friday, August 18th. I remember feeling nauseous the next day—as we reunited with our home of almost six years after several weeks away—questioning why we would choose to forsake its many comforts, not to mention the dining nook renovations we’d only recently completed. On Sunday, jetlagged and up before sunrise, I wrote down the pros and cons of selling, trying to make sense of my conflicting thoughts.
The list in favor was overwhelming. The tidied up version now appears self-evident; corralling so many disparate emotions to get to this point was anything but:
Liquidating the equity in our condo should give us the money to pay for Stephanie’s grad school tuition (circa 2019–2022).
Renting should reduce our cost-of-living in the interim, allowing us to further bolster our savings while also making it easier to relocate if Stephanie attends a school outside of San Francisco.
Both of the above greatly reduce our dependence on my single source of income, should that change in the interim, or as a result of relocating.
Having lived in our condo in the Mission for almost six years, we were getting a little bored; in retrospect, while all the reasons above were cold, calculated, and driven by economics, this one we feel on a day-to-day basis. It wasn’t until after we moved that we realized how much we needed a change of scenery and routine.
Last year I started tracking all of our monthly expenses against our income to put a number on how much we had leftover to save. Considering that we’ve tried to curb unnecessary and excessive spending since Stephanie quit her job in 2014 and went back to school in 2015, I was still shocked to discover our total cost of living at the end of 2016. After taxes, 29% goes to the mortgage and related expenses while another 38% supports our lifestyle, which leaves 33% to save. We are fortunate to be able to save a third of our net income for retirement—a rate I’ve deliberately worked to increase over the last 3 years—but when measured against the “financial independence” yardstick, not-so-early retirement sits over 20 years away.
That said, early retirement is not my goal. I’m not sure what my goal is. Periodic retirement? Work hard for a handful of years, step away, and then return—unconstrained by prior comforts, habits, and expectations. When viewed from that perspective, those unfathomable 20 years start to look more attractive: a series of several jobs (seeking that ever-elusive purpose), punctuated by sabbaticals of adventure and self-discovery.
So you just got a new job, or maybe your first job ever, and one of the benefits is a 401(k) retirement plan. You’ve been trying to come up to speed, but now you’re being asked to make a bunch of complicated investment decisions that will have an impact at the end of your career—before it’s even begun. Here are 4 simple steps to get you started:
Ten years ago I embarked on my retirement savings journey by opening a Roth IRA. The research I did at the time gave me the conviction to make post-tax contributions in the present—to avoid paying taxes on the projected earnings 35-40 years in the future (while also hedging against the risk of higher taxes). It seemed like a no-brainer. Later, when I had access to a Roth 401(k) at work, I followed suit and contributed even more, rolling that balance over to my Roth IRA between jobs.
But it turns out that I fundamentally misunderstood how our progressive tax system works. In short I’ve been paying the full marginal tax rate on my contributions (25-28% Federal + 9.3% CA), but if I had put that money in a Traditional 401(k) instead, I could have avoided paying those taxes, and I would very likely have paid little to no effective tax on any future distributions (depending on my cost of living in retirement).
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I didn’t think I had anything to add beyond Scott Adams’ 9-point financial plan (which got me started on this path 10 years ago), but I did wonder whether others might benefit from keeping a yearly log of their financial decisions and plans, as I do on my blog. So I distilled Adams’ list down to what I thought were the 4 most important pieces of advice, and then added my own. Here it is: