It seems almost impossible to think about long-term finances in the midst of a global pandemic, however, we have to assume that we’re not headed for complete and utter global collapse. My wife has been obsessed with the FIRE (financial independence, retire early) movement for some time, and while I’ve been with her in spirit, I haven’t been really focusing on it. For one, I’ve considered my finances very tight, and haven’t seen much room for cutting back in my budget. Two, I’m focused more on investments and entrepreneurial opportunity, and this FIRE movement is something a bit new for her. That said, I’ve been anticipating a recessionary event for over a year now, and have been trying to escape what some call “wage slavery” for even longer. So the ideas of the FIRE movement aren’t foreign to me to begin with.
Being home in self-isolation these past two weeks or so has led my wife and I to question everything about our current situation. Our biggest liability right now is our home. We’d already come to the conclusion that we’ve got too much house, and have long term plans to downsize as a way to save money. She still owns her starter home, which she rents through a property management company, and will have fully paid off this month. She’ll be completely debt free. Me, not so much. I’ve got less than ten grand left on a car loan, plus more than twenty in student loans that I’ve accumulated.
We’d been discussing getting rid of my car; her’s is fully paid off. And while I’m currently near break even with regard to the value of the car and the loan, something tells me it’s going to be very hard to unload my car right now. I’m assuming a private sale is going to be damn near impossible, and selling to a dealership will pretty much guarantee me a balance on my loan.
The FIRE community likes to talk about the rule of 25. It states that you need 25 times your annual expenses in order to maintain your current standard of living. It assumes a four percent growth rate of savings to use as income. When you break that down by month, that’s three hundred times. When you think about each dollar of recurring expenses, it really puts things in perspective. So we cut our Hulu and Netflix subscriptions, and cancelled our Amazon Prime subscriptions to cut down on impulse shopping.
We canceled our housekeeper (a sure sign we’ve got too much house!) last week because we were isolating. (We paid her anyways.)They normally come twice a month, at $135 a pop. That’s $6750 of savings we’d need to maintain. Since we were all home last week, we went on a cleaning rampage to straighten up the house. It might have just been cabin fever, but if we can keep it up through this week I may be able to convince my wife to cut that expense.
Besides our mortgage expense, our largest recurring expense is childcare. We’re currently spending over $300 a week on daycare for our two kids, somewhere around eighteen thousand a year. There’s a bit of tax savings from my wife’s TSP and childcare credits, but we’ll leave that aside for the moment. When our state closed the schools, we decided to pull the kids out of daycare for two weeks, anticipating that the pandemic would escalate and they would be forced to close the day cares. Last week was my wife was home with me on leave, but this week it’ll be just me with the girls all day long. It’s going to be tough, but if things work out this week we’ll likely cancel daycare altogether so we can save that money.
There are a lot of risks to this strategy, but I think it’s going to work out. I’ll have more time to spend with the kids, and have more of a direct impact on their studies and behavior. We’ll save lots of money, and it will force me into a complete work from home lifestyle. I just won’t be available for remote service calls, which will force my employer into making some changes to the way we operate, mainly by eliminating my commute times. On the flip side, it could backfire. Getting actual time for deep work like I’ve been accustomed to will prove hard to do with the kids in the house. Of course, if work fails and I’m forced to take a traditional corporate job with a lot of face time, we’ll have lost our holding spot in day care and have to go back on the wait list.
The financial upside is just too great not to try though. If I can manage to maintain my current hours for my day job, which is likely, my wife and I will not only be able to save a lot of money, but I should have more time overall to spend with my kids, and be able to stay home and focus on my side projects. It’s the equivalent of a large raise, and could work out very well if I can hold my day job.