The Road to FIRE

I’ve received my first rent check. It came in the mail. And it feels a little magical.

I’ve managed to rent the house I spent less than $30k on for $9.6k/year. There’s no mortgage. With taxes ($800), insurance ($400), and some money put away for maintenance ($1k) and vacancies, my annual net looks to be about $7.4k.

So the question I have now is, could I live on that?

For the past few years my expenses have hovered around $20k/annually. But that has included about $8k/year in rent, several thousand per year in work/school-related transportation costs, and several thousand dollars per year in food costs that could be minimized by having more time to cook at home and keep a garden. I think my lifestyle will change drastically once school is over with and I have a place for a garden of my own.

Right now I have over $50k in a high-interest savings account that I am looking to use to buy another house. So, what if I bought myself another house with that money, but to use as my own home rather than rent out? I’ve been looking for a house in the $25k price range for the past month or so, I have a feeling I will get lucky with something in the coming months. The question is, if I do get such a place, and move into it, could I live on the income from my rental property alone?

I threw together a budget to see what that might look like:

I’m pretty sure I could live a pretty good life on this budget. I would have to get rid of my car and trade it in for either a bicycle or, if I want to get fancy, a moped. I couldn’t afford a cell phone, but I probably could afford a wifi-phone either by carrying around my laptop or an old PDA. There wouldn’t be any need for TV. I do like to watch a show now and then but I could download/stream whatever I wanted.

I couldn’t go without the internet. It saves me too much money and provides far too much entertainment and education. Though, if I could arrange to share it with a neighbor, I might be able to save a little here too.

I’d have no problem not buying any alcohol or tobacco. Though I’d be making homemade wine and planting some tobacco plants each spring.

I might be able to afford private health insurance, given my age and good health. But at this income level I’d qualify for free coverage.

Gifts and charity are kind of like taxes. It’s the price I pay for being a member of society.

As far as travel goes, I’m sure I’d take some long bike-camping trips. The only costs are an increase in bike maintenance. I recall I rode my bike from New Hampshire to Niagra falls in high school and managed to find free places to pitch my tent, plenty of free fuel for my collapsible wood cook-stove, lakes and rivers to bath in, and food was no more expensive than my local grocery store, though I had to eat a lot more of it. I think my travel would be limited to this type of affair, not that I’m complaining.

Media, like video games, movies and books, I already don’t spend very much money on, despite my love of them. I buy them all second hand over the internet and I don’t like to hoard things. So after I’ve watched a movie a few times or played through a game, or read a book, I post it for sale and it’s typically gone within a few weeks. So really, the money in those categories is mostly just covering shipping and transaction costs. Plus the public library covers a lot of these needs.

Food would be the biggest adjustment for me. But one I’m eager to make. At $2/day it would be lots of rice and beans together with whatever I could get out of the garden. Meat would have to be reserved for things I can either catch or raise myself. But I could certainly raise plenty of chicken, maybe pork and lamb as well. I’m also eager to try aquaponics. And there’s no shortage of venison in the fall from going hunting with my family and friends. No doubt, securing my food would become a part-time job. But a pleasant one I’m looking forward to, rather than something I have to outsource.

I’ve only budgeted $465/month, $100 of which is to be saved. So the annual expenses would only be $4.4k, leaving me with a surplus of $3k/year to be reinvested or used for emergencies.

I think I could enjoy myself on this budget. Life would be simple and stress free. I don’t think I would quite be satisfied enough, though, to get me to stop working completely.

For that, I would require just a little step higher in expenses. What I really have a longing to do with all my free time is fiddle with robots, alternative energy and alternative transportation. But that requires a bit of capital for tools, materials, batteries, pv-panels, etc. Not much though, it could almost be self-funding. Whenever I build something I could build two or three, one for myself, and one or two to sell. But I would like to have $5k-$10k/year to put towards this kind of experimenting.

The other thing holding me back is food. I’d like to be able to spend closer to $150/month on food. Just so I can afford tropical fruit that I can’t grow, chocolate, coffee, dairy, some seafood, and the occasional piece of beef or buffalo.

So really, to have enough that I wouldn’t even consider going back to work, I would need to get my passive income closer to $15k/year instead of my current $7k. In addition, given I’m so young and who knows what the future holds, I’d like my net worth to climb every year rather than stagnate. I’d also like to be able to get out of the real estate business and deal exclusively in stock by the time I’m 40 years old or so. So maybe getting my passive income up to $20k-$25k/year would be more prudent.

In Conclusion

I won’t quite be ready to declare myself financially independent with the purchase of the next house.

However, I think I really only need one more income property + a property for myself to live in, in order to consider myself financially independent. I have one year of law school left, over $50k to work with, plus the $600/month I’m netting from my current property.

Hopefully I can make this work before I’m faced with graduation and the need to get a 9-5.

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  1. bigato
    Posted May 14, 2011 at 2:23 pm | Permalink

    Mike, would you share some pictures of your collapsible wood cook-stove? Did you build it or bought it? I’ve used alcohol stoves with very good results for this same kind of travel and even for everyday cooking when I was living alone. After a lot of experimentation with homemade alcohol stoves, I learned enough to build my own from beers cans, tuna cans or what is available. The problem is, alcohol costs money. The advantage is that it can be used indoors. And here in Brazil you can get cheap alcohol almost anywhere; it’s used for car fuel.

    In my travels I used to sleep in a tarp (lighter than a tent).

    You also may want to take a look at rabbits for meat. If you are gonna raise chicken, you will probably want grow some corn for them. Which you can also use as food in a lot of ways. Chicken also eat a lot of grass, so they are better left to free roaming. In my childhood I lived in a farm and that was part of our everyday life. Also meat tastes much better when they are left to walk around. One of the “problems” with chicken and rabbit is that they reproduce too much. You will have to sell some of them or some of the eggs. You also have to protect your garden from them.

    If you live this way, and eat mostly whole rice and vegetables, with little meat, and if you are willing to always learn about your diet and health, restrict smoking and alcohol, you do not even need health insurance neither to see any doctor.

  2. Posted May 15, 2011 at 10:42 pm | Permalink

    @bigato Good idea about the rabbits. I always forget about them. I use to hunt them when I lived in my tent in the desert.

    I don’t have the stove anymore, but you can find them all over the internet. I bought it. It was something similar to this.

    I know all about alcohol fuel in Brazil. I’m always pushing for us to do the same thing here. I converted my old motorcycle to run off 100% alcohol. It’s hard to find here though. I’m looking forward to making my own from garden waste.

  3. tjt
    Posted July 14, 2011 at 8:37 am | Permalink

    How in the world did you buy a house for 30K and rent it for 9.6K/year? Does the 30K include money for repair (which I’m assuming was required)?

  4. Posted July 14, 2011 at 7:16 pm | Permalink

    @tjt yeah, I got it for $23k and spent just under $7k fixing it up. Here’s a post on it:

  5. Joel
    Posted September 17, 2011 at 2:25 am | Permalink

    Are you sure you would want to go entirely into stocks? I would expect a typical stock to lose value in a typical year, if our economy were bumping up against the limits to growth.

    I’m not certain that the economy is on a long-term downward trend, I’m just saying I wouldn’t want to risk it.