Every couple of months, I read an article about early retirement that knocks my socks off. This past week I read such an article and I'd like to share it with you. Here is Root of Good's recap of their million dollar journey.
Hopefully a few people are still reading this, because I'm going to shine a spotlight on what really worked. It feels weird analyzing someone else's personal finances like this, but detailed our estimated $200,000 in annual retirement income and what's working for me, why not look at someone else's?
As my old math teacher used to say, "There's more than one way to Main Street."
Here are some of the most notable items I found in their journey:
Big Income Not Necessary
While they did have two incomes, neither made close to six figures. At their peak, they combined to make $138K.
Frugality Wins the Day
It might not come off in this particular article as much as other Root of Good articles, but Root of Good is very frugal. When I read their monthly spending reports, I think, "That simply can't be." Then I read the explanation that goes with them and say, "but it is!"
In this article, the frugality comes into play when they point out that they didn't upgrade their starter home or their cars. These are typically the two largest expenses adding up to around 50% of spending. They took vacations using bonus miles by signing up for credit cards.
Saving a Lot of Money
When you aren't spending money, it becomes easy to save it. If that sounds too simple, perhaps it is because it really is that simple
Investing the Money in the Market
They poured the savings into the stock market and let it grow over ten years. Using a quick Rule of 70, if they even made 7% (which might be conservative), they'd have doubled their initial money. In two years, 2012-2013, savings and investment gains added over $500,000 to their net worth going from 697K to 1.24 million dollars.
Let that sink in for a minute. A couple whose combined income (before expenses of 3 kids) was $138K grew their net worth by $500K in two years! You simply can't do that by saving alone.
I noticed that they didn't do any special stock picking, it wasn't like they went to a broker such as AvaTrade and traded gold or precious metals at the right time. It seems like low expense, index ratios work. Slow and steady.
They did benefit by a very good stock market (S&P up ~16% and ~32% in those years respectively). You can call it luck if you want, but I'd like to focus on how they prepared well to take advantage of the luck with years of previous savings invested.
Making Very Smart Financial Choices
As you read through the article, you realize that Justin is extremely smart when it comes to personal finance details. Those small details add up over ten years.
Specifically these three moves stood out to me:
- It started in year two with real estate investment moves that lead to a 100K net worth gain.
- They understand taxes extremely well. This article shows them saving lots of money in tax-deferred accounts. As I showed earlier, they also have a plan to get the money out by paying few taxes.
- Throughout their investment history, they stuck with investments that had very low expenses, which allowed for maximum compounding of interest.
Plot Your Own Course for Success
The Root of Good plan to early retirement may not be for everyone. Not everyone wants to live as frugal as they do. If that sounds like you, you might want to look into making more money. Not everyone may have the ability to tax-defer so much of their income. There's still a lot you can build on here.
And so what if takes you 12 years to only have a million net worth instead of their 1.2 million in 10 years. You can live with that right?
Personally, we've built a real estate component to our retirement plan. It was accidental, but the results have been very promising for our net worth. While we initially bought the real estate at the wrong time (we intended to live there, but "life" changed our plans), being able to refinance them and rent them out has helped get them to a point where they have equity.
It is essentially the same idea as Root of Good investing in the stock market, but a different type of investment.
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