Early Retirement sounds like a dream, doesn’t it? Mr. Mad Money Monster and I subscribe to the school of thought that the little stuff pays off big, and the big stuff pays off BIGGER.
Create The GAP
Don’t get me wrong, we are constantly racking our brains trying to implement savings hacks for all of life’s little expenses. When we do find a new one, we end being happier than a cat high on nip. Yup. But our main wealth-building strategy on the path to FIRE is the process of creating a gap between our income and our housing costs and investing the difference. Keeping our housing costs low has a trickle down economic ef
fect. Not only does it keep our mortgage reasonable, it also keeps other associated expenses low.
Think: Property Taxes, School Taxes, Electricity, Heating, Maintenance, etc.
After nearly falling into the bigger is better housing trap over a year ago, we have learned our lesson and are refusing to upsize our home to match our income. This is not the NORM when we look at our peers. And we’re totally okay with that. Since last year, our income has increased and we could easily afford to live in a bigger (AKA more expensive) home; however, we have chosen to be content in our small, easily affordable home while watching our available financial resources go up, up, and away! Staying put has created a huge financial gap that we are now using to invest for early retirement.
The income – housing gap is the Main Course of our early retirement hack.
Of course, vehicles are the second biggest money suck for the average person. We like the idea of buying pre-owned vehicles for reasonable prices. It goes without saying – but I’ll say it anyway – we also like our vehicles to be payment free. This is another gap that can be created to build wealth. If the housing gap is the main course of our wealth-building strategy, then the vehicle gap is the side salad. Toghether, we almost have a complete meal. Nom Nom Nom!
Invest The GAP
If I allowed myself to operate unchecked, I would happily spend The GAP on fancy restaurant outings, highfalutin vacations, or those to-die-for $300 boots I’ve had my eyes on for YEARS. Yes, years. But, since I know better than to allow myself to operate unchecked, I make sure Mr. MMM and I invest that money. Investing, for us, means we either pay down our mortgages (on our primary home or rental) or actually invest it in stocks. Either way, our Net Worth gets a boost. When we do invest the difference in the market, we prefer the stodgy old man method of investing. That means low-fee index funds. It’s minimalistic (which we LOVE) and it works! Thank you, John Bogle! Plus, since neither one of us has a PhD in finance, we can both understand this method. Woot Woot!
Hint: See The Boglehead investing philosphy here.
Here’s The Super Simple 5-Step Guide To Increasing The Gap
- Track Your Net Worth
- Track Your Spending
- Know Your Income
- Know Your Expenses
- Do EVERYTHING Possible To Increase Your Income And Decrease Your Expenses
HINT: HOUSING IS LIKELY YOUR BIGGEST EXPENSE