Financial freedom is frequently associated with making enough money to independently afford the lifestyle of our dreams. But this family approached financial freedom from a totally different perspective: How a quick series of disasters and bad luck forced a family to reconsider their lifestyle and make the tough decisions that ended up in a “Less Is More” financial freedom success story. Read on to be inspired by an unconventional path to financial freedom!
The Worst Day
The day started out well enough: This couple (We’ll call them Bill and Jeanette) in their forties had two well-paying jobs, he was an engineer and she was an accountant. They lived in a large four bedroom home, even though their last child had finally graduated from college and was out of the home. Their finances seemed solid but they had some debt: a mortgage, two car loans and some credit card debt. They were saving some money towards retirement but it was not a priority. There emergency fund was small. It was a pretty normal American financial scene in their household.
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Then one hot August day it all got startlingly shaken: First, on the way to work, Bill got into a car accident (no fault of his own) that ended up totaling his car. If that wasn’t bad enough, when he finally arrived at work, he was informed that his good paying job was being eliminated and he had a twelve week severance period (25 years on the job) to find new work. In the meantime, Jeanette also encountered some unexpected trouble. She fell while on the job and broke her right (writing) wrist. The wrist injury would require surgery and at least two weeks out of work. In an instant, their somewhat stable work and home life was upended, putting strain on their marriage and finances.
The situation seemed pretty dire: Down to one income, one car and one healthy worker between the two, this family had to make some big decisions. They summarized their situation as so:
- The large house and debt was too much for the one income
- Medical bills compounded the financial strain
- Their savings was woefully inadequate, maybe a month’s worth of expenses at best
- They already knew they were not set up well for retirement
- Bill had no job and little enthusiasm to find a new one like his old one
- Significant strain on their health and marriage
The Big Decision
Fairly quickly, this husband and wife team made some big decisions: First, before Bill even found a new job, they would downsize their home and lifestyle. This downsizing would have three main goals:
- Lower expenses which would free up money to eliminate debt
- Start seriously saving for retirement and building an appropriate emergency fund
- Attain and maintain financial freedom
They asked some hard questions of themselves, like:
- Do we need this much house? Clearly not
- Do we need two cars?
- Do we need these high lifestyle expenses: big cable TV bill, lots of eating out, lots of discretionary purchases, unused gym, Hulu, wine club memberships, etc
- Can we thrive on only one professional income?
The breakthrough came once they realized that these things (house, jobs, cars, etc) did not define them individually or as a couple. They realized, too, that this situation was a real opportunity to re-think who they are and what they are working towards.
With much excitement and anticipation of a better future, the plan came together quickly. Immediately they made financial freedom their purpose and being able to retire in less than 10 years their goal. This is what they decided to do:
- Sell the four bedroom, four bath house and downsize to a two bedroom, 2.5 bath house about 30 minutes further away from the city they lived in to get a better value.
- Aggressively eliminate total credit card debt with existing savings and some of Bill’s severance money.
- Take the insurance money from the totaled car and pay off the totaled car auto loan. Try to live with one car.
- Live by a budget. This budget was targeted to be 40% of the previous spending level
- Reduce their lifestyle. No more cable, gym membership, endless eating out and mindless spending.
- Fully fund their retirement funds each year
They met with their realtor (after the successful wrist surgery) and after a while put up their home for sale. It took three months to sell, but at a nice profit. With the house sale proceeds they paid off their credit card, paid off the first car loan and funded their emergency fund (also using a portion of the severance package). They also set up automatic (full) funding of their retirement accounts and made a new family budget. As a result of these financial moves, they realized they had a new opportunity: With the new budget, only one car and no debt, they learned that Bill did not have to go back into a full time professional position. Bill could, if he wanted to, be the artist/craftsman/amateur farmer he had always wanted to be! After much thought and prayer, they decided to make the big move and Bill began setting up his new career(s).
It took another month after the house sale (four months after putting their house on the market) to move into a comfortable (1,800 s.f.) home. The previous home was 4,500 square feet. Not only were they able to take their home downsizing profits to pay off debt and supercharge their retirement fund, their new monthly operating costs of their smaller house dropped more than $1,800 between the mortgage, taxes, HOA and utilities! Between those savings and the savings from reducing cars and their lifestyle they were able to take out more than $3,40o of expenses per month! See the budget below.
Bill and Jeanette’s New Monthly Budget
Income: $7,200 ($6,400 Jeanette, $800 Bill…and growing)
minus ($1,900) for taxes and tithing
Net Spendable Income: $5,300
Total Housing: $1,450 (Small mortgage, utilities, taxes, insurance, no HOA)
Auto: $ 285 (Gas, insurance, minor repairs – newer car)
Debt: $ 0 (Hurray!)
Savings/Retire: $2,300 (401K, SEP, investments, etc)
Food: $ 425 (Includes eating out)
Entertainment: $ 300
Medical: $ 250 (Prescriptions and HSA funding (savings))
Misc: $ 290 (Toiletries, gifts, etc)
The result is a balanced budget, with more than $2,400/month going into savings (45% of budget). There is no debt, a fully funded emergency fund (six months of expenses) and ample financial peace. In addition, Bill’s new artist/craftsmen venture not only feeds his soul but continues to grow slowly, with upside to add more to their monthly income.
From Tragedy To Transformation
Bill and Jeanette turned a tragic day into a transformation to financial freedom. By looking at the abrupt disruption thrust upon them as an opportunity to break out of their rut and take action, they were able to achieve financial freedom. Here’s a short list that describe’s their financial freedom:
- Balanced budget on their combined incomes
- 45% savings rate
- No consumer debt. Only small mortgage on house, to be eliminated in 8 years
- Full emergency fund
- Aggressive retirement savings to support retirement in 10 years
- Bill was able to change his career to pursue his dream
- Smaller house, simpler lifestyle, more peace, more contentment
Truly, Bill and Jeanette turned tragedy into a contentment-filled, simple lifestyle that allows for current and future dreams to be realized and opens the door for more freedom and options. Now that’s financial freedom!