On October 7th of this year (2017), we reached a major milestone for the Frugal Hackers family. We managed to save & invest $500k (or half a million) US dollars over the last 7 years of working (4 years for Mrs. FH). And both Mrs. Frugal Hacker and I are both under 30. Well, technically I just turned 30 a few months back, but Mrs. FH is still 27. This puts us at exactly half our goal of reaching a million dollars in net worth to achieve financial independence and therefore early retirement. This is the magic number that we need to be happy, i.e. not be dependent on a daily job for a day-to-day living expenses and financial well being.
Track our net worth progress together with us here: The Frugal Hackers Net Worth Tracker
Almost paradoxically, moving to one of the most expensive cities in the world has surely paid off. We talked about the crazy benefits of moving in an earlier post. San Francisco isn't for everyone, but if you can learn a bit of software, coding, and programming on your own, this place can be the mecca to help you save a pretty penny every year (we are currently saving ~$150k/year from earnings alone). The idea is to move to a high cost of living city where companies pay you more just to help you afford rent and other basic living amenities. But even though you're getting paid more, you still find clever ways to spend less than everyone around you in your city, and save the rest inside investment vehicles. Once you've saved up enough money (a million dollars in our case) in 10-15 years, you move out someplace cheaper but still get to keep and enjoy all the money you earned and hopefully saved.
So even though it took us 11 man years of combined working (7 for me, and 4 for Mrs. FH) to get to $500k in savings, the next $500k will come to us a lot faster, ideally in the next 5-6 man years of combined earnings/savings. We talk more about how and why later in the post below.
Our Balance Sheet
Here's what our balance sheet looks like as of Oct 2017 (all amounts in USD, unless noted otherwise):
Mr. FH Checking Cash = $17,184.91
Mr. FH Canadian Cash = CAD $6,081.72 = USD $4,878.06
Mrs. FH Checking Cash = $7,013.89
Total Cash = $29,076.86
Mr. FH Wealthfront = $187,131.21
Mr. FH 401(k) = $55,024.31
Mr. FH Roth IRA = $5,649.30
Mrs. FH Vanguard = $16,689.00
Mrs. FH Wealthfront = $7,069.99
Mrs. FH Roth IRA = $5,725.39
Stock Option Early Exercise = $23,034.00 (can be pulled out anytime before Feb 2018)
Total Equities = $300,323.20
Home Value (before selling costs) = $850,000
Mortgage Balance = $662,552.25
Other Debts = $0
Total Net Worth (Assets - Liabilities) = $516,847.81 (as of Oct 2017)
Breakdown of our net worth in percentages:
Mr. FH Savings 48%
Mrs. FH Savings 10%
Home (split evenly) 36.3%
So What's Next?
So we've reached $500k, i.e. half our financial goal, after just 7 years of working, living frugally, and saving judiciously. What does the path look like to reach our final desired destination, i.e. a million dollars? Well, it turns out it should be much quicker to get to the next $500k thanks to our higher paying jobs (due to better and longer experience), a hotter tech market, and higher stock market returns due to compound interest on a larger principal base.
In roughly just 2 more years, we should be at a net worth of a $800k. And then in another year (or less), we should be able to hit our magical number: $1 million US dollars saved and invested over our combined lifetimes, at the young age of 30 and 33. At that point, should we choose to, we can quit our primary $300k/yr producing day jobs and go "retire" in Vancouver. Of course, knowing us, we probably wouldn't be able to sit tight there for very long. So we'll probably end up finding ways to earn even more income through fun things that don't involve a 9-5. We both enjoy mental challenges, so we're going to try to find a way to enjoy our lives without any of the bureaucracy of normal jobs.
How are we able to climb from $500k to $1m so quickly, in as little as 3 years? As we shared in our story, Mrs. FH and I currently earn a combined income of $300k working normal engineering and accounting jobs (normal for SF standards, that is). However, we save a decent chunk of this amount after taxes, in fact ~70% of it, by living very norm core, unimpressive, simple, basic lives. We cook food at home, we clean our house (including bathrooms) ourselves, we don't own a car, we bike to work, we don't go out and party, we don't smoke or buy coffee or alcohol, we max out our 401k's diligently, we take every deduction legally possible to minimize our taxes, and we buy all our groceries from Costco. From the outside, we try to look like an Amish middle class family living in rural Minnesota or something.
All of this allows us to save a whopping $150,000 every year. Tack on another 10% growth onto our equities, so around $30k, and that adds almost $180k to our net worth every single year. In the next 3 years (or 6 man years), these additional savings should increase our net worth by another $500k.
Like we said in an earlier post, financial independence isn't optional. Even if you choose to never quit your job, we believe it's crucially important to get yourself in a financially secure position so you don't feel like you have to keep working if you choose not to one day. You could end up getting laid off one day, or you might just wake up one day and find your job utterly boring and monotonous. Ultimately, financial independence is one of the powerful trump cards one can hold in their back pocket, ready to be played at any point in one's lives to end the 3-letter game we're all in known as a job.
For us this magical number which gets us to financial independence is a million dollars.