The following is a staff post by Crystal Stemberger.
Financial freedom has been my ultimate goal since I started college in 2001. That was when I thought I’d be working in a white collar cubicle for 30-35 years, and be able to fall back on a nice pension when I decided to retire. By the time I graduated in 2005, pensions were a dying breed and I was going to have to rely mainly on a 401k. By 2010, thinking you had any control over when you retired in my company was hilarious.
Then I quit altogether in July 2011 to tackle self-employment head on. My husband then quit in January 2012 to help me out at home. So I am proof that plans change.
Where We Are Now
I kept my 401k since I was fully vested and the super low fees are fantastic. And we have my husband’s tiny pension account from teaching on standby. I also keep contributing to the Roth IRA that I opened in 2008 when I learned that they exist. My husband opened a Roth IRA in 2010 and we’ve been fully contributing to that one too. But that is pretty much where we came to a screeching halt.
When I started making more from my online business than we ever expected, I started using the extra to pay down our current mortgage. It’s at about $25,000 as of August 2012. But in April 2012, instead of using a large sum of saved money to pay off the mortgage as we planned, we found our dream home and started having it built down the road. So everything has been on pause since April as our mortgage broker requested. When the expensive closing is over in September 2012, we will have some decisions to make about our future.
Where We Will Be By October
We will have two mortgages starting in mid-September 2012. That annoys me. I think our first priorities will be to save a ton of cash over the end of 2012 so that we can build back up our emergency fund and pay off the current mortgage. It’s only at 4.5%, but it still frustrates me. Plus, any kind of debt is extra heavy on our shoulders since we became self-employed. The mortgages are the only debt we will have, so they have got to die.
The bright side of owning two homes is that we will be using our current one as a rental. That extra money each month will fully cover the current mortgage and property taxes, and it will even help a bit with our new mortgage. Once we own our current home free and clear, the rent will be enough to cover all of the property taxes of the first home and the new mortgage too. We’ll just have to cover the new property taxes.
Another nice thing about our current situation is that we rent out a spare bedroom of our own home to a pair of our friends. They are currently planning on staying for another year or more while they finish college. That monthly extra will cover most of the new property taxes, so we will only need a few hundred dollars a month from our own income for housing. We can then use extra income to pay off the new house within 5-10 years too (it will take us 6 years to pay off our current house).
After that, we will be opening a self-employment IRA or 401k. We looked into them late last year, but obviously some stuff popped up. I will need to look at the details again to figure out which one is right for us.
Our New Plan for Financial Freedom
I think a combo of our Roth IRA’s, a SEP 401k, and rental income will cover our retirement needs. If being a landlord doesn’t work well for us, we’ll sell our first house and invest the proceeds. We are aiming to have $3 million or more saved by age 50 so that we can live comfortably off the interest. This means that I will need to check in on all of our accounts regularly with an amortization calculator to make sure we are sticking to our plan.
What we can earn with our money is definitely going to determine how fast it grows, so that will be matter of hoping for the best dividends and interest rates as we go. My husband and I have both learned that there are just some things that you can’t control. But it is nice to have a plan anyway.
Are you aiming for financial freedom at some point? What are your plans?