How the FIRE movement could help you as a six figure student loan borrower

Hello and welcome to the Student Loan Planner Podcast. This is Travis Hornsby, founder of Student Loan Planner. Today, I want to talk about financial independence. Financial independence is a topic that's been really heavily in the news lately. You've got stories about Suze Orman on Paul Pant's Ford Anything podcast that was talking about how she hates the FIRE movement. Well, what is the FIRE movement? Maybe you've seen it in the Wall Street Journal or the New York Times or the Washington Post. It's really been everywhere lately, and so I thought I would take some time to just talk about what it is and how it applies to people like yourself who might have a lot of student loan debt. FIRE stands for Financial Independence Retire Early. This FIRE movement acronym, F-I-R-E, kind of got coined in the early 2010s, maybe a little bit before that. It's hard to pin down the exact origin, but everybody just started calling it that, kind of like how the millennial generation just finally got nicknamed that. So the FIRE movement started off kind of in the fringes. I don't want to be impolite or anything, but Vicki Robin is more of like a free spirit. She wrote a book along with another fellow that kind of started the idea behind it. It's called Your Money or Your Life, and this book basically says that if you buy a $20,000 car and you make $60,000 a year, then what you just traded for that car was four months of you going into the office and having a job. You didn't trade $20,000, you traded your time, hence your money or your life. So if you think about buying a car, what you are really doing too, it's not trading $20,000 of your $60,000 salary, it's really trading $20,000 for your $45,000 salary because of taxes. So then when you look at the cost of buying a new car, it's really more like, say, five or six months of your take-home pay and five or six months of your life that you're trading to drive whatever you're driving. What if you could instead drive a $5,000 car that's paid for in cash, maybe a 2011 Hyundai Sonata with 100,000 miles on it, for example? It's safe enough to drive in the interstate, it doesn't rumble and freak you out when you're driving it around. It's not unsafe, it's got side curtain airbags, right? The transmission and engine work okay, needs some regular maintenance, which is not too difficult to do. So that $5,000 car compared to the $20,000 car might have saved you three or four months of your life. How about driving an older car now? How does that make you feel? Now a lot of people think that financial independence is kind of a silly concept, especially if you enjoy your job, which is the best kind of situation to be in, by the way. If you enjoy your job, you're in a situation where you don't have to worry about wanting to quit and feeling like you're doing the wrong thing with your life or you're depressed or you don't enjoy going into work. If you enjoy your job, if you like what you do, that's good. About 2 3rds of Americans either don't care for their job that much or don't really enjoy it, which is really kind of concerning, right? 2 3rds of Americans would rather be doing something else with their time than showing up to work. Even one of my family members who recently graduated from college said, Travis, it really kind of stinks feeling like this is what I have to do with my life, just going into the job and punching my clock, so to speak, and doing kind of something similar every day and doing something that I'm not super passionate about. So whether or not you love your job, don't like your job, or you just think of it as meh, you just like it okay, financial independence is something that might be able to help you out. So what does it mean to be financially independent? To be able to say that you do not have to work, that's what financial independence really is, is not needing to work for money. To hit that level, to hit that threshold, you need 25 times your annual expenses in investments. So investments means a brokerage account, which is taxable investment money that you didn't get any kind of special deductions on, it's not a retirement account, and includes your retirement accounts, like your 401Ks, 403B, IRA, things like that, and your bank accounts, your savings accounts, your home equity, your business equity, that kind of thing. That's your assets, subtract your liabilities, and that's equal to your net worth. So if your net worth is 25 times your annual spending, then you are financially independent and you do not need to work, you do not rely on your paycheck to make a living. Let's look at an example. Pretend we have a veterinarian with $80,000 of income. If she were to retire completely right now to maintain that $80,000 a year lifestyle, she would need 25 times that, which is equal to $2 million. That might be a tall order, and maybe that $80,000 a year veterinarian is a good saver. Maybe she only spends $40,000 a year. In that case, she would need 25 times her expenses of 40,000, which is equal to a million. Now, let me ask you this. How long would it take for a veterinarian to hit a million dollars? Well, let's think about it. If you had the ability to maximize your 401k, that would allow you to put aside about 19,000 starting in 2019. That's the maximum contribution that you can make as an employee to a 401k plan. That would give you, over 10 years, about 190,000 of contributed money. That would probably grow with the market, too, so you probably would be looking at between 250,000 to 300,000 in total assets at the end of the 10-year period if you maximize your 401k every year. So that gets you about 25 to 30% of the way there towards financial independence. If you have about 25% to 30% of the way there, you still have a long way to go. Now, what if that veterinarian put aside a couple thousand dollars a month in a brokerage account outside of retirement in addition to what she's doing for retirement? That might give her 240,000 of contributed money, but maybe more like 350 to 400,000 of actual account balance at the end of the 10 years. So now she's up to maybe 60% to 65% of the way there, to the million that she needs to be financially independent. What if this veterinarian increased her income? Perhaps she would become a practice owner. She doesn't qualify for the typical practice loan where she gets conventional financing. She looks to the Small Business Administration to get a loan and she puts 10% down on a veterinary practice. Maybe the practice is a little bit smaller than the typical practice that's bought out by the corporate partners out there. So she is able to buy a $500,000 vet practice. Over 10 years time, she pays down this practice loan and then now she has a $500,000 asset plus whatever the appreciated value of that practice is in 10 years. So if she buys the practice over time and grows her income that way, she might be able to hit over a million dollars in 10 years and have enough to be financially independent. Now here's the big catch. I showed you how the math works, but what if you are a dentist, a chiropractor, a veterinarian, a lawyer, a physician, a naturopathic doctor, a acupuncturist, an air traffic controller, some of the random professions that have over six figures of student loan debt. What if you are in a situation where you owe more than double your income? In that kind of a scenario, you need to think about going for loan forgiveness. When you go for loan forgiveness, you're doing 20 to 25 years, you're paying a percentage of your income, about 10% let's say. So some of your income gets eaten up by that and at the end you owe taxes on that forgiven balance. So as a general rule, if you have about, let's say you have 300,000 of student loan debt and your household income is around 100,000, but maybe you file separately for taxes, so you're only paying on your income, which is say 50,000. So in that case you have taxes of about $260,000 all at once in 2038. In general, the very worst your tax bomb's probably gonna be is approximately equal to what you actually owe. So if you have 300,000 in debt and you prepare for a $300,000 tax bill in 20 years, you're probably gonna be okay. It's probably gonna be less than that because of the way the student loan repayment math works, but if you prepare for the 300,000, you'll be in good shape. So if you have a $500,000 student loan debt planned on a $500,000 tax bomb, you'll probably be good. Now, what does that mean for financial independence, for not having to work? Remember that I said in this veterinarian that we talked about with the 80,000 a year job spending 40,000 a year needs a million dollars to have financial independence to make work optional. If she had 400,000 in student loan debt, then she probably needs conservatively maybe 300,000 for the tax bomb, but maybe say 400,000. In this case, she would need about $400,000 extra for her tax bomb to feel comfortable at the point where the loans are actually due, at the end, where the tax bomb's actually due at the very end of the 20 to 25 years, which means in 10 years, she would probably need about half of that because of investment returns. So in other words, if she had 150,000 or 200,000 on top of that million, then she could be financially independent because her student loan payments are always tied to her income. So if she stops working or works a lot less or reduces her hours, then she's going to have an ability to walk away way earlier than she thought. Now, what does this mean in practice? The financial independence movement or the FIRE movement is something that I got into a lot myself. So when I was 22 years old, I went to work for a big investment company. I went through a rotational type program and then I was a bond trader for a couple years. That paid well. I was able to have a savings rate that was probably like 70% of my take-home pay. I socked away a lot of money and my main thing in that point in my life was I wanted to have some adventure. So I quit my job at 25 and traveled around the world and didn't really have any plans to go back to traditional corporate America at that point, which was kind of, you know, people thought I was crazy. And it was simply because I found out about this financial independence movement where I had enough money saved up where I didn't have to work for at least about 10 years. I wasn't fully financially independent, but I had enough to take risks in my life that were more exhilarating and thrilling and exciting. So at that point where I traveled around the world, I realized like, you know, this is not the life that I want necessarily forever. I'd like to have a family. I'd like to meet someone. I'd like to maybe get married one day and have kids. So I met my now wife around that time and now we are working towards financial independence together, but she's not exactly that interested in the financial independence movement. She cares a lot about being passionate in her job and working to help others because she's a physician and she really loves what she does. So if that's you, don't feel like the financial independence movement is not for you just because you don't like the idea of walking away from your job. You don't have to. So the FIRE acronym, Financial Independence, Retire Early, the retire early part is what gets the most heat because what that part means is people who retire from their jobs at like 30 or 40 years old or 45 or something like that. And then the media is like, well, this person's really selfish for quitting their job and not doing work and just swanning off around the world when they have family and friends that they are kind of ignoring or obligations that they're ignoring or something like that. It doesn't have to be retiring early from your job. What it does mean though is when you hit the financial independence point, financial independence is just freedom from financial worry. Financial independence is having enough money where if your boss comes in and says, hey, we're going to make you work until 8 p.m. instead of 6 p.m. because we just need those hours covered and we're gonna make you take on more patients. We're gonna cut your lunch break smaller. We're going to eliminate your vacation time a little bit. We're gonna make you do more work that's not really compensated that fairly. Then what you can do if you're financially independent is say, you know, I'm just not gonna do that. Thanks, but no thanks. So one of the people I know that went down this road of student loans and hit financial independence is the guys in the Choose Five podcast. So one of them is a pharmacist and he paid out all of his student loan debt and then he realized that he could be financially independent. So he worked towards having enough saved to not have to work. And at some point, his boss gave him some kind of not too great requests and he just said, you know, this job doesn't work for me anymore. I'm done. So what I want to show you is that even if you have a ton of student loan debt, it's still possible to achieve financial security for your life. Now, let's talk a little bit about the how of the financial independence movement. So say you want to be financially secure. Say that the idea of retiring in your 30s or 40s is really exciting, but you think that that's just not possible with student loan debt. Or maybe hitting a point where you no longer have to worry about money before your 50th birthday is super exciting. In that case, you've got to have a high savings rate, which means you've got to save more than 25% of what your take home pay is. With your student loans, the first thing that I would want you to do is regardless if you're gonna pay down your loans or go for forgiveness, I want you to think about your retirement savings. I want you to take advantage of your pre-tax retirement accounts and maximize those. And then if you still have not, you spent all the money that you've got to spend on a retirement, then you could also do a Roth IRA or you can do a backdoor Roth IRA and put away an additional $5,500 a year per person, by the way. So you can do your $19,000 contribution to your 401k in 2019. And then I believe the Roth IRA contribution might even be going up too, but you could contribute about roughly 25,000 total to retirement savings. After that, if you're going for forgiveness, you're going for more of the tax bomb approach. So you're paying as little as you can in your student loans and you're putting money into the brokerage account for the tax bomb. If that's you, then what you would do there is with your brokerage account, you would want to put more money than you actually have to put away for the taxes in that same brokerage account. So for example, say that you need to put aside $500 a month for your tax bomb, then you would want to be putting aside more like $1,000 a month just to be safe, but also to have extra money left over so that you could spend it when you're older. So if you wanted to be financially independent, then let's have as high of a savings rate as possible without missing out on any of the fun stuff. So from my experience, most people live in a space that is larger, nicer, in a fancier neighborhood than they absolutely have to have. Also, another thing people do is a lot of people will go ahead and buy a property that is before what they actually need. They'll buy ahead of time. So for example, you have a couple of kids or you know you want to have a couple of kids, and so you buy a home that's a four-bedroom, free bath in a good school district, but you buy it when the kids are still in preschool, or you buy it when the kids are maybe not even born yet, for example. So rather than do that, what's probably a little bit more efficient is to work your way up to what you actually need. So if you're married, and you might only need a one-bedroom apartment, right, if you don't have any dependents. If you really have to have a two-bedroom, okay, that's fine. I get people want to visit you, and you want to have space for family and friends to visit, things like that. So when you do have kids, though, try to resist the urge to buy the very top end of the house that you want to buy. You know, the HDTV industrial complex has people chomping at the bit to drop three times or three and a half times their combined income on a house because it's basically manufactured what we're supposed to be spending our money on mentally. If you think about the house in America that exists out there, in a lot of places, it's not even almost affordable to have a house anymore. It's the American dream to have a home, but a lot of times it's very, very difficult to buy one and still make a good financial choice because homes, in a lot of cases, are not necessarily great financial investments. At the very best, they might increase in inflation long-term at a national level. If you happen to buy a house in like Austin, Texas, or Seattle, or Portland, or California at the right time, then you might be sitting on like 50% gains in your home price. So you might think that buying a house is the best thing you could possibly do. But with rising interest rates and the new Trump tax bill with the interest that is no longer deductible above 750,000 for a mortgage, this could face a lot of headwinds in the home markets that are around the country right now. So that's not a good thing. So if you want to be financially independent, buy a house that's no more than two times your joint income. Don't spend more money than you have to on your home because that means you're going to spend more money on maintenance, on repairs, on everything from lawn care to plumbers to everything that goes wrong with the house that you're now responsible for. Also, you'll spend more money on property tax, insurance, et cetera. I'm not saying go and live in a shack. Please don't hear that. I'm simply saying that if you're making $100,000 as a family rather than buy a $350,000 house, which is what you'll get approved for, buy a $200,000 house. If you cannot find a $200,000 house that you like, then rent instead of buy. It's not a good investment to take out a 30-year mortgage and to buy a home in a high-cost-of-living area. That's just a recipe for working until you're 65 to 70. There's nothing wrong with that if that's what you enjoy. I, you know, we at Still Home Planner, we don't make any judgments on your lifestyle. That's not our job. Our job is to make sure that you have every option available to you to live the life that you want to live. So that's the first step is control your housing expense. Now for your cars. So many people out there, they like to drive brand new vehicles, they like to lease them, they buy them at the dealer, 0% APR, 1% APR, and you think you're getting a good deal. Well, here's how there's trickery involved with that. If I took a $1,000 couch and gave you 0% financing, but I marked it up to a $2,000 couch, is that a good deal? Is that a good interest rate? The answer is of course not. So if I own the financing arm, especially, then I could mark up an item way above the actual cost of production, charge an artificially low interest rate to make you think that you're getting a good, a steal of a deal, and then I kind of trap you in that cycle by having these high car payments, which prevent you from ever building up an emergency fund that you would need to be able to pay cash for a vehicle, which is the concerning part, right? So for the second big thing that keeps people from being financially independent is your vehicle choice. If you buy the $5,000 car in cash, you will be well on your way to financial independence. However, if you lease the brand new model every couple of years and pay $300 a month, and you believe that's a good decision, then that's actually lighting money on fire and blowing it up. It's wasting money because you're buying an appreciating asset, and you could actually drive a vehicle that's paid off for probably five to 10 years and then still sell it for probably 2,000 bucks at the end of it. So if you buy a $5,000 car, it's pretty much never going to get below $2,000 in value for a very long time. So you have a very minimal depreciation. You just have the cost of ownership. Well, yeah, you might have slightly higher cost of ownership on a $5,000 car than a $20,000 car, but you'd be surprised. There's also higher expenses involved with owning a newer car, like higher insurance costs, and whenever something seems to break, to be quite honest with you, it seems to, in a lot of cases, cost more. Like when I had a 2004 Honda Civic, when something broke, it was like a manual switch that we just had to replace. I had a 2000 and something Chevy Equinox that had all the bells and whistles on it, and when the mirror got smashed off, that was around exam time when I was in college, and these, I think, guys at one of the fraternity houses took a bat and just knocked off a lot of people's driver's side windows, or mirrors, and so that was a $450 fix for a mirror, and I was thinking, golly, maybe what I should do is just go literally buy a Walmart mirror and use some duct tape, and then I have a driver's side mirror, but my parents weren't in love with that idea, and so they made sure that I got the $450 mirror because it had the electronics in there to adjust it upward or down, or left or right, and then the Honda Civic that I had that was adjustable by my hand. My Honda Civic had had the little roll-down windows, too, if you remember those. A lot of folks that are my age probably have never even seen one of those except when they were kids, right? But they don't break. You don't have as many problems with them. They're a lot easier to fix, so I'm not saying go drive a dinosaur. I'm just saying that if you take a positive attitude towards driving an older vehicle instead of a, oh, shoot, I would love to be driving the new model. This is so embarrassing to be driving a 2011, then that's going to enable you to increase your savings rate probably by 10% of your income in a lot of cases. So the housing, the cars, what about other hacks to achieve financial independence? If you have a grocery bill that's over $400 a month, listen up. You can shop at a place called Aldi's that's available in a lot of cities. It's run by a German company, the same company I think that has Trader Joe's, but don't quote me on that. They will pretty much get you out of there for almost an unlimited amount of food for less than 100 bucks each time you go. So my wife and I like to go to Aldi's and shop there, and it's amazing how cheap the groceries are compared to a place like Whole Foods. Don't get me wrong, we go to Whole Foods too, but when we go to Whole Foods, we try to go for specialty items. It's kind of in our neighborhood, so we go walk there and maybe get like a gallon of apple cider or something like that, whereas with Aldi's, we can go and buy a bunch of meat, chicken breasts, turkey breasts, vegetables, frozen fruit, really the works, and it always seems to somehow be super cheap because it's just a very efficient store. So if you're gonna buy groceries, buy in a smart way rather than just throwing another thing in the basket. I think that you should absolutely splurge on certain things you love. Like for me, it's gonna be kind of weird, but I have like this dollar coconut water that I love to buy whenever I go to grocery stores that have it. It's not healthy, it's not necessarily a good use of money, but it's a buck and it's just this little fun thing that I do as a tradition that makes me happy. And that dollar, that makes me happy for even a short amount of time. That's a pretty good investment. Contrast that dollar coconut water or maybe your $3 latte or your $6 Chipotle burrito bowl or your $20 nice dinner out when kind of a modest expense plays, then look at that compared to that housing cost that we talked about. Housing costs will always destroy somebody who is frugal with their lattes, but not with their housing. I've never seen somebody that can drink so many lattes where they can justify cutting that out to spend more money on housing basically. Like the latte effect of just, oh, just cut out your Starbucks, that doesn't really make that big of an impact. Now there is such a thing as death by a thousand cuts. If you have all kinds of leakage in your budget where you're just throwing money on everything, you've got the CrossFit membership, you've got that membership, you've got the New Yorker subscription, the New York Times subscription, the Economist subscription, the Wall Street Journal subscription, right? You probably have a ton of memberships that you're not even really utilizing that much. Like think about your Spotify, your Netflix, your Hulu accounts, your cable a lot of times, your internet packages. When is the last time you looked at how many things were being charged in your credit card on a monthly recurring basis? The software as a service model, it's like SaaS, it's kind of a business that a lot of people get into. It's super profitable because a lot of times you just get people signed up for a automatic recurring monthly charge and people are just so desensitized to it and it's just a recurring revenue that's like an annuity and it just lasts and lasts and lasts and people don't even realize that they're paying in a lot of cases. So that's why your Spotify is your Netflix of the world, that's why they charge the monthly payment and that's why they started out charging a low monthly payment because they desensitized you to paying it and so when they raise the price from say $15 a month to $29 a month, which they'll do at some point, then you're used to paying that monthly fee and you're like, oh, you know, $15 versus 29, like that doesn't sound like that big of an increase. But then if you make that on an annual basis, then actually that's a pretty significant jump. So look at your memberships and your subscriptions and ask yourself, which of these ones am I actually using and which ones should I cancel? Now, we've done housing, we've done cars, we've done food, what about other things in your life? Clothes should be fairly straightforward. You can buy very cheap, very high quality clothes now, so either spend a lot of money on your clothes and the idea that you will have them for a very long time or if you're gonna be really into fashion, you know, my wife really loves fashion, she buys tons of stuff from Zara's, you know, fast fashion kind of places that you can buy online and it's fairly cheap, she has shifted more to like the invest in a nice stuff strategy. But I have to admit, my favorite jeans are like $20 jeans from like Old Navy or Walmart, regular jeans, and they don't necessarily look super fancy, but it enables me to have very comfortable pants that look okay and it's not gonna get me thrown out of any restaurants, right? And I'm able to wear those for a long time and it saves me a lot of money. So that's how I kind of keep my clothing expense kind of low. For other things in your life, you know, try to go to the movies on the night where they give you a discount. When you go on vacation, try to find that special deal on the airline miles that you can get if you travel hat credit cards. Try to fly a budget airline like we took Wow Air to Paris and so our flights were like $700 round trip for two people. It's pretty amazing to Paris from the Midwest. There's so many hacks to increase your savings rate. Now, you're gonna lose 10% of your discretionary income to your student loans if you're going for a forgiveness strategy. That is roughly equivalent to 7% of your pre-tax earnings if you account for the deduction on average. So you will lose that. Now, if you're trying to pay back your loans really fast, by all means do so. Get rid of the debt as fast as you can. The only thing that I would say is try to put money into retirement accounts, even while you're paying down your debt because you can't go back in time and get rid of your debt and put the money into the retirement account so you didn't put in while you're trying to pay down your debt. And if you have a student loan debt that you need to refinance, get a $200 to $2,000 cashback bonus by going to studentloanplanner.com forward slash refi, R-E-F-I, and you'll get bonuses that range depending on the season, but they're anywhere from hundreds of dollars to even over, well over $1,000 for refinancing your student loans and getting a lower interest rate, which will get you out of debt sooner. So if you need to pay back your student loan debt, please do. I'm not saying you shouldn't and go for a forgiveness strategy. The math doesn't suggest a forgiveness strategy is the right thing to do. I'm simply saying that, okay, 7% of your debt, or of your income, rather, let's just say that that's eaten up based off of having student loan debt. So you have 93% left over of your pre-tax salary to do something with. So say you lose 15% to taxes. It might be 20%. So now you have about, let's just say, 70 to 75% of your pre-tax salary available to you, 70 to 75% on average to do things with. If you can be very bare bones and live off of, say, 40 or 50,000 a year, if you are making over six figures, which a lot of people are, if you're a physician or a dentist or something like that, and especially if you have a spouse who's also earning money, then you can hit financial independence very quickly with a high savings rate. In fact, a lot of you that are going for the Public Service Loan Forgiveness Program that do not have to deal with a tax bomb, all you have to worry about is paying the 10% of your income payment, and then your loans are forgiven. So you can hit financial independence probably a lot easier in 10 years. And then the PSLF program kicks in and then you no longer have to worry about your student loan debt. So a lot of you physicians out there could be financially independent. Coming out of residency, you maybe have $60,000 in salary, and then you have your attending salary, let's say that's 250,000. Well, if you sock away 60% of that and you live like a resident for, say, four or five years after training, you'll have your PSLF kick in and you will have put away a lot of money for investments. And so you might have several hundred thousand dollars at the end of PSLF, maybe work a couple more years, and then you could be done with medicine forever if you were willing to live like a teacher because you'd be financially independent because your $1 million of assets throws off, let's say, 4% a year of spendable income. So that's $40,000 is 4% of a million. So if you spend $40,000 a year, then you could go into medicine and be done in 10 years. Now, my wife will remind me that I did not go to, she did not go to medical school. This is her talking usually. She'll say, like, I did not go to medical school and then go to residency and then go to fellowship to just hang up my cleats and say I'm done after a short working career. That's not what I wanted to do. That's not why I got into medicine. And I understand that. I'm not saying that you have to do that. I'm simply saying that imagine if she was financially independent and she could go to her boss and say, I want more vacation this year. Or imagine if you could go to your boss and say, I really want to work three days a week instead of five. Or, hey, you know what? I'm just not going to work Saturdays. I had a lot of dental associates, they get called in every other Saturday to do work and they're only making $120,000 a year because they're in saturated areas with tons and tons of dentists and they don't have the ability to say no because they need the money. And they want to live there in that higher cost of living area where they don't need dentists as bad. So, a few more examples because I'm a big believer in examples. Let's say you have a couple that has $300,000 of student loan debt and we'll say they have about $50,000 of income each. We'll say that only one of the spouses has the debt so they file separately for income taxes. And then their payments for the Pay As You Earn plan, for example, would be only $60,000 over 20 years. Now, their tax bomb would be about $264,000. So, how long would it take them to reach financial independence and could they reach financial independence? So, we'll say that they have that $100,000 income that grows at like about inflation. We'll say that their savings rate is 40% and that they would like to have $70,000 a year of spendable money in retirement. So, at the point of the tax bomb in 2038, 20 years from now, if they had 40% of their after-student loan payment money that they're saving, so that's roughly like 37,000 a year or so after taking into account the student loan payment, then their net worth would be about 1.4 million after paying the tax bomb. And they could live off of about $57,000 per year of income at that point. Now, we're not exactly adjusting for inflation here and doing all of that. This is for really illustrative purposes, but this is still really interesting to think about that this is even possible. So, what if we changed the math around a little bit? What if we said instead of 40% savings rate, we would have them do 50% savings rate? In that case, they'd have 1.8 million instead of 1.4. And then they would be able to live off of 75,000 a year in 2038, so they would hit their goal. So, despite having $300,000 of student loan debt, the better decision for them would be to put the money into investments instead, grow their wealth, and then they could be financially independent 20 years after they started working. Well, a lot of people finish four-year type programs at 26 years old, maybe that's you, because you went out of undergrad and went straight into the four-year program. Some people take a little bit of time off from undergrad and they go back, so a lot of people will start making real money after their training around 30, let's say, if you took a few years off. So, in 20 years beyond that, then you'd be late 40s, early 50s. To be financially independent at that point is the perfect time, because that's when you will probably want to be able to help support your kids to go to college, or to have more flexibility in your life around when you retire, because a lot of people, let's be frank, a lot of us will not have an option of when to retire. We're going to be forced into retirement because we won't be able to do what we like anymore. And that's unfortunate, but it's true that a certain percentage of us, maybe 10, 20%, will be forced into retirement because of health problems. So, if you're forced into retirement because of health problems, you want to have been a very good saver so that you have the adequate resources to not feel strapped in retirement. So, the additional savings from 40% to 50% savings rate makes a big difference. It allows you to have more money socked away so that you can achieve the financial goals that you want to. Now, at a certain point, the better solution is also to, frankly, just go earn more money. Because if you're making 50,000 a year and you're going for loan forgiveness, so this is really an example of somebody, this is like a teacher making 50,000 married to, let's say, a naturopath or a chiropractor with 300,000 of student loan debt who's also making about 50,000. So, this couple is a very typical couple. They might not be able to increase their incomes very much. But let's say that this is a different scenario. Let's say that the couple has a different kind of debt. So, we'll say that they are a orthodontist and a pediatric dentist who both have loans. And we'll say that they have a million dollars of student loan debt combined. And we'll say that their income is 225,000 for the orthodontist. And we'll say about 180,000 for the pediatric dentist. So, in this scenario, their tax bomb at the end would be about $750,000 on their million dollars of student loan debt. But their combined income at 225,000 plus the 180,000, it's about a little over $400,000. So, if they had a 50% savings rate over 20 years, they would have an amazing, absolutely amazing sum at the end of those 20 years. So, if they saved half of their income and they're making 400 something thousand, then at the end of that 20 year period, they would have roughly $7.7 million. They could live off of $309,000 of income. And you would have to, of course, pay that giant tax bomb payment, right? So, you would actually lose about 750,000 of that towards the tax bomb, but you wouldn't care because you'd be super financially independent, right? What if they tried to retire earlier? What if they were comfortable with living off of say $60,000 a year? So, in that case, with a high savings rate with making so much money, they could have hit a point where they would have over 1.5 million they need to live off of 60,000, because 1.5 million times 4% is about 60,000. So, they would pass that in 2024, if we're assuming they're starting today putting all that savings away. So, they still need an additional amount to set aside for the tax bomb. So, they might work until 2025 when they have a little over $2 million, roughly $2 million. So, the 1.5 would be allocated for their living, and then the rest would be allocated towards the tax bomb. Now, here's a unique problem and a unique question. How many high-income professionals that are making $400,000 a year combined, how many of those people are comfortable living off of $60,000 a year? The reality is not very many, because if you're making that much money, you probably have friends that make a similar amount of money too, and that means it's keeping up with the Joneses. You wanna do the private schools, the fancy trips, you wanna enjoy the fruits of your labor, so you got to eat. That's okay, there's nothing wrong with that. I'm simply saying that you have a lot more options than you think. So, if $60,000 is too spartan of a retirement, and you'd rather have $100,000, then to have $100,000 to deal with financial independence, you'd have to have about 2.5 million. If you put away 50% of your income at this income level, then you would hit financial independence in a little under 10 years. And if you did the full 10 years, you'd have enough for the tax bomb and for living on $100,000 a year. So, this is with a high, high, high savings rate. And to be frank, you're losing 7% approximately after deduction for your student loans. So, it's 10% is your discretionary income, right? So, that's your adjusted gross income on your tax return minus a deduction for your family size. So, you would have this couple $100,000 a year of savings. You'd probably have to live off of like 50 or 60,000 to achieve this 50% savings rate because you'd have very high taxes too. But if you are smart with your money, if you buy a practice, like a dental practice, then you could shield a lot of that from taxes and grow your wealth that way. So, I simply want you to know that a lot of things are possible. So, if you're a teacher, you're probably really good at saving because you don't necessarily have that much that you need to spend money on because you're used to living on a $50,000 salary. So, in your case, as a teacher, you could actually hit financial independence too and not have to work unless you wanted to because you could simply have your 20 or $30,000 that you live off of be your amount that you need to put money away for. So, you could put aside 25 times times 30,000. You know, that would be, say, roughly 750,000. And if you had 750,000, if you have a $50,000 income, you probably are in a very low tax bracket. And you, frankly, could pick up some extra shifts or some extra work. You know, a lot of the teachers that we talk to, they're doing PSLF, but they're also picking up shifts on the summer, doing other kinds of jobs to make some extra money. In some cases, we even have people with degrees that are advanced professional degrees. They decided they just wanted to be a teacher because they just didn't enjoy the field anymore. And they still have the big debt that public service loan forgiveness is a program that you can use in any, not-for-profit or government employer. So they, in an extreme case, I even have heard of somebody doing emergency relief work, you know, as a veterinarian during the summers while they're doing teaching during the school year. I've heard of people doing side work as a practitioner of whatever their degree is in while they're also being a teacher for public service loan forgiveness. So, no matter if you have 50,000 of loans that you need to pay this down very quickly, or you have 500,000 of loans that you need to go for loan forgiveness, you can achieve this amazing point in your life where you don't have to work unless you absolutely want to. So there's some resources here that I want to share with you if this is interesting to you. The first is, you know, our student loan consulting service is really designed around achieving whatever it is you want to achieve in your life and showing you how to get there with your student loan debt and managing it the right way. So if you're like, wow, this is amazing, this has jived with me so well, I really want to find out what are the next steps and how I can do this, even though I have a ton of student loan debt that's as big as a mortgage, then book a plan with us, studentloanplanner.com forward slash book. It's like 300 to $600 depending on the debt that you have. And you'll talk to one of our CFP or CFA professionals that's going to help you understand what to do with your loans. And if you want more ideas on how to get that help and what that help looks like, you can go to studentloanplanner.com forward slash help and get an idea of what our service is like and what it entails and what's included and things like that. Now, if you are interested in this, you probably want to read more websites and listen to more podcasts than just this one. This podcast is just targeted towards people who have a lot of student loan debt. So I'm approaching it from your kind of vantage point on your unique financial troubles that are not necessarily addressed in other podcasts that are targeted to the broader audience. So if you're listening to podcasts, I would suggest the Choose Fi podcast is one of my favorite. I was on that show actually, I think it's episode 78. You can just type in Travis Hornsby Choose Fi and listen to that episode. It's probably one of the better ones that I've done. There's another podcast too called the Fire Drill Podcast. It's a couple friends of mine, Jay and Gwen is what they go by and they're really interesting people. Just one of them's a tech worker, one of them's a former corporate America, kind of an employee, both taking on different takes on financial independence and what that looks like. There is the BiggerPocketsMoney Show, which is also a really good podcast, especially if you like real estate. In terms of other websites to check out, MrMoneyMustache.com is the one that allowed me to realize that I could not work unless I wanted to. There is other ones too if you're a professional like Physician on Fire is a very popular one. The person who owns that site is a good friend of mine and I think that his site is really an excellent resource for anybody that's interested in financial independence. I'm just gonna rapid fire mention a few. You can look up Madfientist if you like spreadsheets, Frugal Woods if you like moving to the middle of nowhere in the Northeast and building a log cabin in the woods, Early Retirement Extreme if you wanna live on $8,000 a year in an RV in the middle of the woods and have the most extreme frugal lifestyle you've ever dreamed of, which is I think a little bit too hardcore for really anybody, including me. J.L. Collins and H is a very good site for folks that want to talk about how do they invest, what is the simple way to manage your own money and not have to pay a professional to trust that they're gonna do it for you. Root of Good is another good one. Go Curry Cracker. Go Curry Cracker is a couple of folks that are, I think the guy in the relationship was a Microsoft worker. I forget what his wife's profession was, but they're good people and they travel all around the world. They go to Taiwan, they go to Asia, they go to Latin America, they're in the US sometimes, in Europe, they're all over the place and they do it with a two-year-old too. So if you have kids and you wanna learn how to be financially independent, that's a pretty cool one. 1500 Days, Our Next Life, couple that just retired recently, Early Retirement Now, Millennial Revolution, Millennial Boss and also Millennial Revolution, I should say, is really hilarious, especially if you have any friends that are in Canada because they viciously attack the cult of home ownership is what they call it, which is kind of interesting. And if you want to check out some forums, there is the Choose Fi Facebook group, there's Mr. Money Mustache forum, there's also a Reddit that's dedicated to financial independence. So I would check that out too, if you're interested in learning about financial independence and just the idea of not having to be worried about working anymore. It's really amazing freedom when you realize you don't need to rely on your paycheck to live anymore financially, it's really cool. A few books that you could check out, The Richest Man in Babylon, talks about some more philosophical things, Your Money or Your Life, we mentioned that, The Millionaire Next Door is great if you want to realize the people who are actually rich are not at all the Hollywood and professional athlete types that the media kind of tends to focus on. It's a lot of times the person who owns a mobile home dealing business that wears blue jeans to work, that's your typical millionaire, it's really kind of interesting. A Random Walk Down Wall Street, if you want to learn about investing and why it's very difficult for even people that are super smart to pick stocks and know how to make more money than the traditional index funds. The Simple Path to Wealth is a great book about index funds and learning how to manage those. A couple other ones here that would be coming out, so I actually have a book, it's not a very good book, but 25 is a New 65 if you want to see how crazy I was back in the day. It's on Amazon for 99 cents, so it won't break the bank either. But the most important thing to realize is there's so many resources out there, it's never been easier to get so many hacks on life from everything from healthcare expenses to travel expenses to how to cover your student loan payments. It's just amazing out there. I hope this episode's been fun, had some kind of life-changing ideas in here that you might not have thought about before, and I want you to get a student loan plan. I think that that would be in your best interest to do that, unless you're an obvious refinancing case. So reach out to podcaststudentloanplanner.com if you have any comments or ideas or want to talk about what's going on in your life and to see if we might be able to help you, please feel free to email us and reach out. Know that financial independence is not just a dream, it can be a reality. Might take a little while, you might have to sacrifice some things along the way to get there, but it could be one of the most rewarding decisions you ever make, because if you're not in your calling right now or you want the option to have a calling that you fulfill later in life that is not what you're meant to do right now, then you want to try to be financially secure. It's very important to think big picture on this, to think about how do you best use the limited time you have on this earth to have the maximum impact on whatever is most important to you. So I hope you've enjoyed this episode. If you want to hear anything, please reach out to me, please share this podcast with friends, and until next time, get a plan for your student loans and don't stick your head in the sand. Bye.