Crafting Your Family’s Plan for Financial Independence

Today we’re showing you how to create a FI (financial independence) plan even while you’re raising your kids!

Financial Independence and Family

In this final episode for the season, I want to go back to a question I asked at the beginning – is it possible to become financially independent while raising kids? 

I had gone over some myths people have about the FI movement, including that you had to be high earners or that or that you need to be pinching pennies clipping coupons obsessively. 

Today I want to lay out some strategies and ideas on how you can create a path to financial independence that reflects what you value. 

Pace it so you’re also enjoying the journey. 

To do that though, you need a plan.

Which is why I’m happy Catherine Bryant is here. She’s a Financial Advisor at Coastal Wealth Management

She’s sharing some crucial things you need to consider when crafting a plan.  

I’m also going to share some takeaways I got from speaking with an early retiree here in the Triangle area awhile back that has been incredibly helpful for us on our journey. 

Through careful saving and planning, Justin and his wife managed to accumulate enough wealth to retire in their 30s, while raising three kids.

In this episode, we’ll look at:

  • big wins to focus on with your budget
  • Why your savings rate, not income matters more with becoming financially independent
  • ways you can start investing now

I don’t want you to put this off anymore. 

Let’s get started! 

Handy Tools to Start Your FI Journey

If you’re looking to get ahead with your finances as a family and look at pursuing financial independence, here are some resources to check out:

Thank You to Our Sponsor Coastal!

Support for this podcast comes from Coastal Credit Union!

If you live in the Triangle area of North Carolina and you’d like someone to work with you on your goals, you really want to check out Coastal’s Wealth Management team.

They’d love to help you start investing for retirement and more!

Creating a Gameplan for Financial Independence with Kids

While financial independence is a conversation that comes up more and more as more stories are being featured, for many families it feels out of reach.

I think that’s understandable because a lot of times the stories that are shown present a couple or a family that makes a pretty healthy income and then they drastically cut their spending and they’re able to retire in a short amount of time.

There are families that do that within the community, that’s the path they take and they’re happy with it, but that’s not the whole story.

When you dig into financial independence or financial freedom, and you’re talking to families and couples that are creating a path that fits them, you see that there are so many different ways, different pieces that you can go about with this journey towards financial independence.

Why Your Savings Rate Matters

If you talk to them, whether they’re high-income earners, whether they live in a big city or rural area or suburbs, there are few commonalities.

One of them is not so much focusing on your income. That definitely is a factor. Don’t get me wrong. But they’re going to talk to you about their savings rate. That is a huge thing.

How much of the income you have coming in is being saved and invested?

This matters because you need an income stream when you retire early or as that safety net become financially free.

Focus on the Big Wins With Savings

And when you’re optimizing your expenses, you have a decision to make. Where should you focus your attention?

Some people will tell you to skip the lattes and these little bits and pieces of your budget. And I do think that we have to examine like those money leaks. But if you are busy, if you were raising kids, you probably have your hands full already and you’re looking for wins that will give you a significant push in the direction you want. And so there are three major expenses that a lot of families, if they optimize or put them on the road to financial freedom and maybe independence in the three areas are housing, transportation and food. And you may have noticed that this season we talked about two of those expenses in detail about housing and about eating well on a budget. That’s because I know personally for us those were the major expenses that we needed to nail down.

Keeping Housing Costs in Check

I’ve done dozens of interviews with early retirees or families that are on that path. And housing was a huge win for them to be able to have that high savings rate.

They needed to cut the big expenses. And when I talked to Justin from Root of Good years ago, who retired in his early thirties with that was also another huge win for their family.

Justin: We thought we were going to have kids pretty soon. So we went ahead and bought the house that we thought we would need to raise somewhere between one kid and six kids. We didn’t know at the time how many kids we would want to have. So we end up having three kids and we’re done. But but we focused on buying a house that we knew we could afford at the time easily. And then knowing that, hey, you know, we can fix it up over time, we can we can do a little bit each year as our incomes grow, as we have more money coming in that we’re going to we’ll be able to afford to fix it up. And, you know, we’re it’s a work in progress. It’s always going to be a work in progress. The House is getting close to 50 years old now. But but it’s really just the mortgage. When we started out, it was four or five hundred dollars a month. It just wasn’t a very large mortgage. It’s the kind of thing where our mortgage payment ended up at twelve hundred dollars a month.

But by the time it was twelve hundred per month, we were both earning a lot more than my sole salary when we first started out right out of college. So our household income was, you know, went from 48000 to both. I was working and making a lot more. So we’re making maybe a hundred twenty thousand a year. So. So it’s all four dollars a month on a home. Twenty thousand dollar income is very doable, but that would have definitely been harder when we were fresh out of college.

Now, I realize that you might be listening and you already bought the house and you might be thinking, OK, well, we can’t change that, but do this exercise. What percentage of your gross pay and your take home pay is going to housing? And after looking at that and seeing that number, talk it over. Is there a way for you guys to significantly save, maybe move to a different neighborhood, maybe downsize or maybe moving somewhere else nearby that doesn’t have an HMO way that’s eating up your housing expenses? Now, this isn’t going to happen overnight, but it’s something to consider because if you want to go for this big win, you got to go for the big expenses.

Dump the Car Loans

Another expense for a lot of families. And when we were first married, this was definitely a burden on her tight budget was transportation talking car loans. For many families, it’s the norm to go ahead and get a car loan. But when we paid. Off the agenda, we decided as a family, we’re going to change things up. We were going to save a head for our cars and now we do buy them with cash. And it sounds crazy, but it’s been fantastic. You can still find great deals on cars that will last for years.

Again, I know this is not an overnight decision to make, but this is something to talk about. Is there way for you to downsize if you have to car loans to one or is there a way for you to start planning now? So once that car is paid off, you start building a fund. So the next car that you get is with cash or a theory small car loan.

Become a Frugal Foodie

And finally, let’s talk just a little bit about that third expense food. It’s a necessity, obviously, but with a lot of families and three, guilty of this for a while, too. It wasn’t necessarily the groceries. It was those lunches out. It was those dinners on the way home because you were tired. And, yes, on top of that, you go out for dates or family nights and then it adds up. It doesn’t take much. But if you learn some foundational culinary skills, you can have some delicious meals at home for a fraction of the price of what you would pay at a restaurant. And when you do go out, you’re going to be looking for those special experiences. So they mean more.

Justin: We cook almost all the meals at home. We just got done cooking part time tonight from scratch, but just saving a lot of money by not going out to eat, but still having a pretty crazy, amazing day meals at home just because we spent time learning how to cook. So really, food, housing and transportation, those three things are the big ones for everyone’s expenses. And keeping those three costs low goes a long way towards saving a lot of money.

So if you have a chance, please go back and listen to this episode’s about how to be a frugal foodie and how to get a great deal when you’re buying a house, because those are going to put you in a strong position.

Creating a Game Plan for Financial Independence

But just saving money isn’t enough if you’re trying to develop an income stream, why you retired, whether it’s traditional retirement or early retirement. You’ve got to have a plan and you’ve got to invest wisely, which is why Katherine suggests sitting down with a financial planner and crafting that blueprint.

One answer that I’ll keep popping up is do a financial planner, because the financial plan basically will put it all together for you and it will basically tell you if you’re going to run out of money. It’s going to happen close to this year. There’s no it’s not linear. It’s an absolute. Yes, but if you stay on the same track that you’re on, this is threw out the accumulation stage and the income stage, what you could plan on happening throughout retirement at all. It’ll tell you whether you’re gonna have a shortfall or whether you’re in a good place. Maybe you can do some estate or legacy planning. But it really gets down to your financial independence, comes from the knowledge that you’re going to have about where you are financially today, what it’s going to look like when you do retire and how do you transition to that income source.

Catherine Bryant: So a financial planner with you, you’re going for a traditional or an early retirement, having those accounts like your for one K and your IRAs set up and where you’re contributing as much as you can is a smart move. If you are thinking of retiring early, you do need to have additional accounts set up and contributing towards.

So if your plan really is if the member is really looking to retire before 59 and a half, if they don’t have a bucket of income producing resources, then they’re going to have to create that themselves. And the best way to do that is to do it based on their risk tolerance and based on what their goals are. You know, me with a financial adviser, open a brokerage account and start actively contributing to that. You know, you can even contribute on a monthly basis. Just have someone sweep in there each month so that as you’re nearing that early retirement, you’re going to have an idea of what money is going to be available to you. That’s not going to be penalized or come out and create a tax that for you. A lot of times we have clients that created a sleeve of dividend paying stocks. Yes. So they hold on to those or just take the dividend off of them. We meet with clients and they’ve been heritage or value of dividend paying stocks. So it just really for the people that are trying to plan to retire early. Your point about not being able to access some of those retirement plans with restrictions on it, you know, saving outside of that, you can do it in a brokerage account and just make sure that everything is growing and working while you’re still working.

Now we’re not. To get into specific financial and investing advice, because we each have unique circumstances. It’s really helpful to have a financial professional look over with you, not only your plans for investment, but are there any tax benefits that you can take advantage of. I do, however, want to highlight something that Justin told me, because I’ve heard this from a lot of early retirees, which is building a portfolio that is diversified and that’s simple to contribute towards and follow.

Justin: Yeah, I think you can probably summarize it one sentence by a low cost diversified set of investments from around the world. And you implement this, at least I do. We’re talking about Vanguard, Vanguard Mutual Funds or ETF s passive index funds that have very low costs, expense ratios under point two percent. In general, I think if you pick two or three funds like a total market index in the US, total international index and a bond fund, those are those three funds. You can create an extremely powerful investment portfolio. There’s really just focusing on that passive investment, letting the market grow over time, take advantage of low costs, take advantage of tax efficiency and, you know, put in more money each year and let it grow over 10 or 20 years and you’ll end up with a lot of money.

However, you create your plan for financial freedom and independence. Just please make sure that it reflects what you value, what matters most to you.

Support the Podcast!

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Music Credit

Like the music in this episode? Music is by Lee Rosevere and Music for Makers.

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