Modern FImily With Court
Episode 166
Episode Guide
Episode Timestamps
ChooseFI Podcast - Episode Show Notes
Episode Title: Achieving Financial Independence Through Mindset and Frugality
Episode Summary: In this episode, Court and her wife Nick share their incredible journey towards financial independence, discussing their frugal lifestyle of living on $25,000 a year, how they managed to pay off around $110,000 in student loan debt, and the mindset that drives their financial decisions.
Key Topics Discussed:
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Introduction to Guests
- Brad introduces Court and her family, highlighting their financial journey and struggles.
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Living on $25k a Year
- Court explains their fixed costs approach and how they've eliminated unnecessary expenses while living a fulfilling life.
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House Hacking Explained
- Discussion on how they strategically bought a home, utilized house hacking, and eliminated mortgage costs through roommates.
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Paying Off Student Debt
- Court shares details about their journey to pay off a combined $110,000 in student loans in record time.
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The Importance of Mindset
- Exploring how mindset and financial independence are intertwined, emphasizing that high income does not equate to wealth.
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Considerations on Student Loans
- Insights into their calculated approach to debt repayment and financial planning.
Actionable Takeaways:
- Focus on spending in three main categories: housing, food, and transportation.
- Do not equate high income with financial independence; prioritize reducing expenses instead.
- Evaluate your current spending categories and identify areas to cut back for greater savings.
Key Quotes:
- "Cooking at home 95% of the time allows us to enjoy great food without overspending."
- "Mindset is key to achieving financial independence."
- "Smart housing decisions can eliminate financial burdens."
Discussion Questions:
- What strategies can be implemented to achieve financial independence without a high income?
- How does one define essential expenses versus unnecessary expenses?
Related Resources:
- For further insights, visit Court's blog at www.modernfamily.com.
Podcast Description:
Join Court as she shares her family's inspiring story of achieving financial independence, overcoming student debt, and living a fulfilling life on a modest budget.
Listen to the full episode at: ChooseFI Podcast
Subscribe to our Podcast for more life-changing financial independence journeys.
Achieving Financial Independence through Strategic Spending
Financial independence is a goal many aspire to, and it is entirely achievable through focused spending habits and intentional financial choices. Court and her wife, Nick, exemplify how living on a modest budget does not mean sacrificing happiness or quality of life. They managed to thrive on just $25,000 annually by prioritizing their values over consumerism while eliminating unnecessary expenses.
Understanding Your Fixed Costs
To control your spending effectively, identify the fixed costs in your budget. These are the necessary expenses that do not fluctuate significantly from month to month, such as housing, transportation, and food. By concentrating on these primary categories, you can streamline your finances and maximize savings.
Housing, Food, and Transportation
Court emphasizes focusing on the "big three": housing, food, and transportation. She practiced house hacking by purchasing a foreclosure and renting out rooms to cover her mortgage, allowing them to maintain a low housing cost. This not only provided stability but also generated revenue that helped them pay off their mortgage in just two and a half years.
When it comes to food, cooking at home plays a crucial role in their financial independence journey. Court shared that they prepare 95% of their meals at home, enjoying high-quality food without overspending. This simple adjustment, plus infrequent dining out, significantly lowers their food bills.
Transportation can also be optimized by using reliable, lower-cost options rather than indulging in luxury vehicles with payments. Utilizing cost-effective transportation helps alleviate financial strain and contributes to savings.
Embracing a Frugal Lifestyle
Living frugally does not equate to deprivation. Instead, it's about making conscious choices that provide value and joy. Court and Nick consciously eliminate purchases that don’t enhance their lives, choosing activities and experiences that reflect their values and interests.
The Importance of Mindset
Mindset plays a key role in achieving and maintaining financial independence. Court highlights that having a frugal yet positive outlook was essential in their journey. The couple's shared goal of escaping debt and living a fulfilling life motivated them to prioritize savings and investment. Cultivating a mindset that values financial freedom over material possessions can significantly impact your financial choices.
Strategies for Managing Student Loans
Court and Nick faced substantial student loan debt—$110,000 combined. Their approach to managing this debt was proactive and aggressive. Payments included amounts well above the minimum, which expedited the repayment process and eliminated their loans in a few short years.
To tackle student loans efficiently, consider the following strategies:
- Prioritize High-Interest Loans: Focus on the loans with the highest interest rates first.
- Make Extra Payments: Whenever possible, apply any additional income to your student loans rather than spending it.
- Create a Budget: Consistently follow a budget that allocates funds specifically for debt repayment.
Optimizing Income and Savings
As you work toward financial independence, assess both your income potential and savings rate. Court suggests that many believe a higher income is synonymous with financial independence, when in fact, it’s more about reducing expenses.
Take proactive steps to increase your earnings through:
- Negotiate Raises: If you feel you deserve it, approach your employer with a well-prepared case for a raise.
- Explore Side Hustles: Engage in side jobs that can boost your income without compromising your work-life balance.
- Invest in Your Skills: Continuous education can open opportunities for promotion and higher-paying roles.
The Role of House Hacking
House hacking is an effective way to alleviate housing costs. This strategy involves purchasing a multi-bedroom property, living in one part of it, and renting out the others. This can significantly cut down or completely eliminate your mortgage payments, allowing for greater financial flexibility.
Consider these tips for successful house hacking:
- Choose the Right Property: Look for properties in desirable locations where rental demand is high.
- Screen Tenants Thoroughly: Ensure that you are comfortable with your tenants, as a good relationship can lead to a smooth rental experience.
- Stay Engaged: Maintain communication and be proactive in addressing any issues that may arise.
The Power of Budgeting and Spending Reviews
Regularly evaluate your spending habits to identify areas for improvement. By reviewing your expenses, you can find additional ways to cut costs or eliminate unnecessary expenditures.
Action Items for Financial Clarity
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Analyze Your Spending Categories: Regularly check where your money goes to uncover potential cuts.
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Set Financial Goals: Establish clear, actionable goals that guide your spending and saving decisions.
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Track Your Progress: Keep a close eye on your financial journey, noting achievements and areas in need of adjustment.
Conclusion
Achieving financial independence is possible by adopting a frugal mindset, strategically managing your spending, and prioritizing the things that truly matter. Court and Nick's journey illustrates how aligning lifestyle choices with financial goals can lead to fulfillment without financial strain.
By implementing these strategies and remaining committed to your financial vision, you too can pave your path to financial independence. Focus on what brings you joy, eliminate the unnecessary, and watch as you move closer to your financial goals.
Court joins the show to share how she and her wife tackled six figures of student loan debt and achieved Financial Independence in their early 30s with a family.
Achieving Financial Independence
Although they only spend around $25,000 each year, the family doesn't feel deprived at all. They have eliminated all of the fluff from their budget and the bulk of the spending is due to their fixed living costs.
Eliminating Expenses
By focusing on what brings them joy, they have been able to avoid spending money on the traditional traps. For example, they do not have TV or cable. But they do have annual passes to ski launches, zoos, and sports parks.
House Hacking
One way they dramatically cut their housing costs was through house hacking.
They bought a four-bedroom townhouse in Florida during a foreclosure for $169,000. By taking in roommates, they were able to pay off the entire mortgage in just 2.5 years. After they moved to Canada, they rented it out for a profit. However, two years of long-distance landlording led them to sell the Florida townhouse at a profit. With those profits, they were able to cover the costs of their new home purchase in Canada.
Developing A FI Mindset
When Court graduated from school, she started paying over $1,000 to student loans each month. She maintained a minimalist lifestyle that she had developed in college. The goal of eliminating her student loan debt had ingrained in her the mentality of frugality.
During this intense debt pay-down process, she lived across the street from her office. She would bike or ride her scooter to work. With this effort, she was able to pay off her student loans in 2.5 years!
Once the debt as gone, she continued to live with this mindset. She wanted to continue to use the money she was able to save responsibly. She still enjoyed a happy and fun life, but stayed frugal. Travel rewards became a big part of her life because she wanted to travel without going into debt. With that, she visited 25 countries in the past 10 years.
When Court met Nic, Nic was in the process of paying down her student loans. Like Court, she was extremely frugal.
We were both aligned, I guess, with not spending money we didn’t have.
The mindset of frugality and joy based spending was something that Court and Nic shared from the beginning of their relationship. Both were naturally savers. Although they had a combined total of over $110,000 in student loan debt, they were both on a mission to conquer that debt as soon as possible before they even met each other.
They never had any crazy conversations about money, but they decided to keep their expenses low naturally. With that, Nic was also able to pay down her student loans in 2.5 years. Once Court found the idea of FI, Nic was on board with making it happen.
Student Loan Debt
Although she was debt-averse, Court racked up around $70,000 of student loan debt. She paid it off quickly, but the inception of the debt was interesting. Before she went to college, her life revolved around hockey. With that, she wanted to play hockey at a D1 school without any thought of money.
When Court got to college, she thought she would be an engineer. But she switched out within a day. So, the debt of school piled up without a clear path for paying off at first.
After graduating with her B.S. in Economics and Math 2008, she decided to pursue an M.S. in International Business in order to figure things out. Since there weren't many jobs, it seemed like a good option. She moved to Florida and literally shared a bed with a friend to keep rent extremely low. Once she was in grad school, she started to realize exactly how much debt was hanging over her head.
During school, she attended a job fair at the University of Florida. She found an energy company that was hiring for a rotational program that let you try out many different departments. It was the first and only interview she did and she landed the job! It turns out she loved the field.
Court's Career As An Energy Trader
From that first position, Court loved her job as an energy trader. She enjoys the shift work because it opens the ability for a lot of travel. She has been an energy trader for around 10 years and still loves it. She never has to work more than 40 hours and is able to leave work at the office. When Nic worked, she was a shift work nurse, so they were able to match their schedules up for many travel opportunities.
What Is An Energy Trader?
Once energy is created, it cannot be stored. That means that it has to go somewhere. Usually, it has to go from a rural area of creation to a transmission grid of a load city.
Court works in the West Coast region. She is constantly looking for different opportunities to either have very high or low price energy moved to a different region. Once it is moved, she will sell it high or buy it low. Throughout the day, she buys the transmission opportunities. After she finds the power, she has to piece together a better pathway than all of the other companies.
Shift Work
Court loves the shift work that her position offers. She works 12 hours shifts from 6AM to 6PM or 6PM to 6AM. Although not everyone can handle the shifts, she loves it. Since you work 12 hours in a row, you get more days off.
Right now, she is working part-time. So, she works 3-4 shifts in a row. Then she has two weeks off. That means that she is only working 73 days a year or 20% of the days each year. When she was working full time, she would have 10 chunks of 12-14 days off at a time each year.
At one point, she left the world of shift work but didn't love it. With only three weeks of time off, it was hard to get used to. So, she returned to shift work part-time.
Becoming An Energy Trader
You don't need an MS degree to be an energy trader. You will need a B.S. degree. If it is in the energy field, that would be preferable.
Court made around $60,000 in her first 18 months. At that point, she got a bump to $70,000. As a part-time employee, she now makes $56,000 base salary plus bonuses. Her position at part-time is fairly unique, but the power of FI has allowed her to ask for this role and land it.
Before switching to part-time shift work, Court was working an office 9-5 with an insane amount of travel. So, she reached out to her old boss to fill a part-time gap she knew they had. Nic, her wife, encouraged her to make this transition because the other job wasn't working for their family.
Financial Independence
Court and her family have reached FI for a family of three. However, they hope to be a family of four at some point. So, she is still working part-time. With that, they will reach FI for a family of four in 2021. It has taken them around nine years to hit millionaire status and are now sitting around $1.2 million in net worth. Although they only spend $25,000 each year, they are using $35,000 as their FI annual spending placeholder.
Working part-time has started a nice transition into early retirement. When baby #2 is born, Court is planning to go on 18 months of paid parental leave. It will provide a nice glide path of around $25,000 to fund their first year of retirement.
If you don't include their car or house value, their net worth is around $875,000. So, they are able to make a safe withdrawal rate of around 2%. With index funds and geoarbitrage, they've been able to make their early retirement plans a reality.
Retire Early In Canada
Since they've decided to move to Canada, it has affected their FI plans. With the currency exchange rate, they get an extra 35% bump on their investments.
Canada has some other policies that will help their early retirement plans.
Child Credit. When they are retired, they will get around $6,000 each year per child from the government to spend after tax.
Health Insurance. When they moved to Canada, they were able to take advantage of the healthcare benefits. You and your family get $500 to spend each year on everything from a spa to a specialist and everything in between. Plus, you will have access to a doctor whether or not you are employed. You don't have to worry about copays or deductibles. You can simply be treated at the hospital and go home without worrying about the costs.
Taxes. The taxes in Canada are reasonable for Court and Nic. They do not have a provincial tax in their home province. The federal amount of income that you can withdraw tax-free is $15,000. With that, they will not be subject to taxes when they withdraw their $25,000 for expenses each year.
Overall, the move to Canada seems to have been a great move for Court and Nic.
How To Connect
You can find out more about Court's story on their blog Modern FImily. Or follow them on Instagram @modernfimily
The Hot Seat
What is your favorite blog, podcast, or book of all-time?
Blogs:
Books:
Podcasts:
Check out Court's blog for more of her favorite FIRE resources!
What inflection point in your life was especially memorable or meaningful?
Becoming a parent. Although she knew that she wanted to be an involved parent, she didn't realize how much this would matter until her daughter was born.
What is your favorite life hack?
Being genuine, kind, and grateful. And figuring out how to live life on your own terms.
What was your biggest financial mistake?
She missed the opportunity for amazing market returns by focusing on her student loans. However, it was a 'mistake' she doesn't regret.
What advice would you give your younger self?
Realize that there is no one else looking after you and your career as much as you are. Make sure that you are thinking about the life you want to live in 10 years. If you feel like you need a raise, then you need to bring it up yourself. It is unlikely that your boss will bring it up for you.
Bonus! What purchase have you made in the last 12 months that has brought the most value to your life?
An essential oil diffuser for peppermint and lavender oils.
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