strategies

There are hundreds of amazing personal finance blogs*.  These blogs have introduced me to so many terrific new life hacks that will speed up my process to financial independence.

So I’ve decided to spread the love!  Here are some of the greatest takeaways that I’ve gotten from some of the best blogs out there!

Investing

I invest mainly in Vanguard’s VTSAX low-cost index fund.  As I explained here, index funds are a large group of stocks that try to match the overall market.  I love index funds because they are a passive investment (meaning I don’t have to do anything after the initial purchase), they are low-cost (super low expense ratios), and they perform better (meaning a better return) than most other options.

What am I, a genius?  No, all the credit for my conversion goes to Mr. Jim Collins.  I read ALL of Jim Collins’ stock series, and he didn’t have to tell me twice!  His “Simple Path to Wealth” is to use a mixture of Vanguard’s stock index funds and bond index funds and THAT’S IT.  Easy and the best returns?  I’m in.

You can find Jim’s wonderful stock series here.

Or, if you think it will be more fun to read the book (which is probably true), you can buy it here.

Legally pay less in taxes

1. Roth conversion ladder

Brandon (the Mad Fientist) has a great strategy for early retirees to pull out money from their IRAs before the 59 1/2 penalty-free withdrawal age.  Oh, also, he found a way to legally make sure you pay little or no tax on any of the money.  So how do you do it?!

  1. During your working years, you contribute to a traditional IRA.
  2. After you are retired and earning little-to-no income, you start transferring money from your traditional IRA into a Roth IRA.
  3. After 5 years, you can withdraw your contributions from the Roth tax and penalty-free.^

With a traditional IRA, you don’t pay taxes on the money going in, but you will have to pay taxes when you withdraw the money.  On the flip side, money in a Roth IRA is taxed before going in, and then you can withdraw the money tax-free. BUT, as long as the money that you moved from the traditional to the Roth is not more than your tax deductions and credits (think standard deduction, child care credit, etc.), then you will pay ZERO tax.

So, to simplify the taxes:

  1. You are not paying taxes on the money when you put it in a traditional IRA.
  2. Then, you are switching it over to a Roth without paying taxes.
  3. And then, when you need it, you can pull it out of the Roth IRA tax-free.

So at no point did you pay taxes on that money.  Pretty freakin’ brilliant, right?!

You can read one of Brandon’s many posts on the subject here to get a more in-depth explanation.

^How do you live without your money for 5 years?  You can use a savings account or your taxable brokerage account to fund the first 5 years of your retirement.  Done and done.

2. Max out all of your tax-advantaged accounts to lower your taxable income

I have heard this idea from many different bloggers and podcasters, but the one that really hit home for me was a post by Justin from Root of Good.  Justin posted about how he paid $150 in taxes on his household income of $150,000.  And, no, he didn’t do anything shady or illegal.  He just maxed out his tax-advantaged accounts and took advantage of deductions and credits.

What do I mean when I say tax-advantaged?  These are your retirement accounts that don’t get taxed regularly.  So, your 401(k) or 403(b), 457, IRA, and HSA.

By contributing the max to all of his available accounts, Justin was able to take their $150,000 taxable income down to $71,750.   So 1) that put him in a lower tax bracket and 2) he was only paying taxes on $71,750 instead of $150,000.  BUT with all of his deductions and credits, he was able to lower his taxable burden even more!  So, in the end, he only ended up paying the IRS $150.  Absolute madness.

You need to read this post so you can see all of Justin’s numbers firsthand.  It will blow your mind.

For more tax reduction posts, check out Go Curry Cracker and delve in deeper to Mad Fientist, Millionaire Educator, and Root of Good.  These four men have done some spectacular things to reduce their taxes, and, as a result, they are wealthier.

Saving money

1. Extreme saving through extreme frugality

This goes by many different names, but I definitely think extreme saving is the coolest.  It kind of makes me feel like a superhero or an adventurer.

There are so many people out there saving insane amounts of their income.  But I was introduced to the idea by the Frugalwoods.

The Frugalwoods saved 70-80% of their income in order to become financially independent.  They did this by cutting out money wasters from their life and adopting some extremely frugal practices.  I don’t necessarily want to be quite as extreme in my frugality as they are, but by cutting out different things (ahem, alcohol and coffee), I hope to get to the 70-80% savings rate.

Some of their most entertaining ideas are: picking up free furniture from the side of the road, going on a clothes-buying ban, eating the same things for breakfast, lunch, and dinner during the week, and cutting their own hair.

2. Medical tourism

Medical tourism involves traveling to other countries to get cheaper medical care.  I love the idea because I think that medical expenses in the States are insane.  I’m grateful that medical professionals are getting paid a lot because they work hard, but there has to be a better way!

The first people to really get me on board with medical tourism were Mike and Lauren.  They had a baby in Costa Rica (!).  They actually didn’t do it for the money, but I was intrigued by the idea.

I’m sure many would balk at the thought of having procedures done in Latin America or Southeast Asia, but…I’ll do it if it saves me money!  Some of these countries have new, clean hospitals just like we do, so why not?

You can watch videos about Mike and Lauren’s Costa Rican adventure here.

3. Meal planning

The first time I really paid attention to the idea of meal planning was when I was scrolling through Lauren Greutman’s site.

Meal planning is exactly what it sounds like…planning your meals beforehand, usually a week or month in advance.  Before, I thought it sounded like a lot of unnecessary work.  But I didn’t realize some of the benefits of it, like less temptation to eat out or the reduction in food waste.  I may not care about planning meals, but I definitely care about both of those things!

I have started meal planning in Colombia, and I love it!  It’s so nice to not have to try to get creative an hour before I need to make lunch.  I just look at my list, know what I am scheduled to make that day, and know that I have all the ingredients because I shopped for them after planning my meals last week.  Done and done!

You can check out Lauren’s site here.

4. Ditch the car

I am praying that I will be able to find a job and house close enough that I can walk to work.  Mr. Money Mustache made me realize how much I was really spending on cars.  Initial cost, gas, insurance, and maintenance really add up.

It is often said in the FIRE community that housing, transportation, and food are the three highest costs for families, usually far surpassing all other expenses combined.  So, if you can lower your costs in these areas, you can easily increase your extreme savings percentage.  I’m saving money on food with meal planning (see above), and below, you’ll find some of my hopeful strategies for saving on housing, so that just leaves transportation.

Honestly, I’m not totally comfortable with the idea of having no cars between me and my husband.  I think cars are needed for some things (plus, I love road trips in my own car), and even MMM has a backup car (or two?).  But, I do like the idea of trying to become a one car family.

Being without a car in Cartagena has made me realize how easy it would be to walk everywhere.  Here’s hoping!

Check out Mr. Money Mustache’s rant about cars and commuting here.

5. Cheap phone service

Did you know that you don’t have to spend $100+ on your smartphone’s phone service every month?!

With companies like Google’s ProjectFi, Republic Wireless, and Ting, you can pay less than $20 a month.

How do they do it?  They use a combination of WiFi and other carriers’ networks to make your phone call.  This saves them money, and they pass the savings on to you.

NerdWallet did an awesome comparison for these companies and many more.  You can find that here.

6. Online shopping savers

There are countless ways to save money shopping online.  Here are some of my favorites:

Ebates – Ebates gives you cash back at certain stores.  You can read more about Ebates here.

RetailMeNot – I haven’t had a ton of luck with RetailMeNot, but I know others who have.  It provides you with coupon codes to enter at checkout.

Honey – Honey is a cross between Ebates and RetailMeNot.  It automatically tries every coupon code in its database, AND it gives you points to later redeem for cash back.  I have used Honey and Ebates together with great success.  Read more here.

Wikibuy – I’m fairly new to Wikibuy, but it seems like it is similar to Honey and RetailMeNot.  BUT you can also use it to compare product prices across Ebay, Amazon, and more.  Pretty neat!

Groupon – My husband and I have gone kayaking, been on countless whale watches and gone to fancy restaurants for a fraction of the cost, thanks to Groupon.  Groupon has discounted vouchers for activities, restaurants, products, and more.  The voucher is essentially like a gift card, but with an expiration date.

Jeremy from Go Curry Cracker wrote one of my favorite posts on this subject, where he explained that he never pays retail price.  You can find that here.

Side hustles

Side hustles are extra jobs that you do outside of your 9-5.  These can be anything from mystery shopping to restoring flea market furniture to running an online business.

I love the idea of making extra cash to boost your savings.  Any cash I get from future side-hustles, I plan on putting straight into index funds, so I can quickly knock down my $600,000 goal.

Nick Loper of Side Hustle Nation has an awesome podcast, as well as a blog.  He has compiled a list of over 200 side hustles ideas.  You can find that here.

Travel

1. Travel hacking

Travel hacking is using credit card sign-up bonuses and points to earn free hotel stays and flights.  Many people like Justin from Root of Good, the Mad Fientist, and Go Curry Cracker use travel hacking with crazy results.  The Mad Fientist just traveled the world for <$1,000.  Jeremy and Winnie from Go Curry Cracker have been perpetually traveling for about 5 years.  And Justin is planning on taking his family of 5 on an extended European vacation for $10,000.

Brad Barrett and Alexi Zemsky from Richmond Savers, The White Coat Investor, and TravelMiles101 first exposed me to travel hacking.  Brad and Alexi set up an awesome free introductory course that I highly recommend.  You can check it out here.

Also, check out Brad’s new podcast, ChooseFI.

2. Extended travel

Traveling is EXPENSIVE.  But living in a different country…can be cheaper.  Many people in the FIRE space will stay for weeks or months at a time in one place.  This stretches the flight costs over a month, rather than 5 days.  They also utilize AirBnBs or short-term apartment rentals, rather than hotels, to keep their costs low.  Would you rather spend $100 a night on a 5-night hotel stay or $500 a month for an apartment?  I’m rooting for the apartment.

Plus, if you establish a “home base” you can cook instead of eating out every meal.  And you’ll get to experience the culture more, living in a less touristy area and shopping at the local stores for food and other necessities that you normally would have just packed if you were only staying for 5 days.

Jeremy and Winnie from Go Curry Cracker have perfected perpetual travel and making homes for themselves wherever they go.  I love this post about swimming with whale sharks in Mexico, a dream of mine.

Real estate

1. House hacking

I actually first figured this out when I was reviewing someone’s loan at my job in the mortgage industry.  I realized that a couple was buying a 4-unit property, living in one of the units, and renting the others out.  As I looked at the underwriters figures, I realized that, not only were these people going to live in this property for free, they were actually going to get paid a few hundred dollars to do so.  What?!  My mind was blown.

So how do they do it?  House hacking.

Let’s say this couple’s mortgage ended up being $1,500 a month.  The three rented units would be charged $600 each, meaning that they were cash flowing $1,800.  So the rents more than cover their mortgage, which means they get to live for free in their unit.  And, they are getting an extra $300 on top of that.  Isn’t that brilliant?

The best part is that, because they were occupying one unit, they were able to get an owner-occupied loan instead of an investment loan.  That means that their rate was lower, they were able to come in with a lower payment (because they could use the FHA product), and it was just overall easier to get the loan.

But what if you don’t want to live in a unit right next to your tenants?  The good news is, for most loans, you only need to occupy the unit for 6 months or 1 year to qualify for the owner-occupied loan.  So, after your year is up, you are free to find a different place and get another tenant in there.  And, in the example above, if all 4 tenants paid $600, as long as you pay less than $2,400 in rent or a mortgage for your new place, you could continue to live for free!  Woohoo!

I quickly forgot about this mind-blowing epiphany, but was introduced to it again while reading personal finance blogs.  One of my favorite posts about the subject is by Coach Carson.  Check it out here.

2. Live-in flips

Somewhat similar to the idea of house hacking, is the idea of a live-in flip.  Where house hacking pays your mortgage and eventually gives you rental income, live-in flips (hopefully) give you a fat lump sum at the end of your flip…with no capital gains tax.

Traditional house flips work like this:  someone buys a beat-up property for $120,000, puts $40,000 and 1 month in to renovate it, and sells it the next month for $200,000.  But this opens them up to pay capital gains tax on that $40,000 that they just banked.

The solution?  The live-in flip.  If you buy a beat-up property for $120,000, put $40,000 in it for renovations over the 2+ years that you live there, and then sell it for $200,000, you could pay $0 in capital gains tax.  Why?  Because you occupied the house for 2 years or more.  The IRS doesn’t see it as an investment property…they see it as your owner-occupied property, which you happened to make beaucoup bucks on.  Pretty ingenious, right?

This obviously only works if you don’t mind living in what is essentially a construction zone, or moving every few years.  But it is a good way to make a lot of money all at once, without having to pay taxes.  I love it!

Mr. and Mrs. 1500 are the live-in flip king and queen.  You can find out about their strategy here.

3. Your owner-occupied home is not an investment

I always wanted to buy a house the moment I could, because I didn’t want to “throw money away” to rent.  I thought a home was an investment, one which would save me tons of money over my lifetime…that is, until that idea got turned on its head.

One of the most popular ideas of FIRE is to rent your home instead of buying it.  Seems strange for a lot of people who want to save money right?  Actually, it’s not.  As many posts will explain, OFTEN it is cheaper to rent than to buy.

I know this is going directly against the two points that I made above…I’m hoping to buy, to either house hack or do a live-in flip.  But, Frugal Mermaid, you just said renting is better, that buying owner-occupied is NOT an investment!

House-hacking and live-in flips are two of the only cases where buying an owner-occupied residence IS an investment.

With house-hacking you are making rental income, and, once you move out, that rental income should pay for anything the units need, as well as bringing in a little bit of cash.

With live-in flips you are making repairs to increase the value of the home by a large amount and not limiting those earnings by having to pay taxes on them.

But that single family home that increases in value at a measly 3% each year?  Not a good investment.

That is not to say that it is NEVER better to buy.  Sometimes, and in some areas, it may actually be cheaper to buy than to rent.  Or, maybe you really want to own your own home and it’s worth it to you to sacrifice a few thousand extra dollars.  That’s totally fine, many of the people who argue that it’s better to rent than buy actually own an owner-occupied property.  They just came to terms with the fact that it was a slightly worse investment option, and it will probably cause them a few more headaches.

I personally am not super interested in owning just to own at this point in my life.  So I will either rent, house hack or do a live-in flip.

My favorite post on the subject is by Paula Pant from Afford Anything.  You can check out that post here.

Early retirement

On a random note, I would like to give kudos to Justin from Root of Good for being one of the only early retirees I read about or listen to on a regular basis who is super content just being retired.  This was precisely the reason I started reading Justin’s blog, because I could tell that he was a relaxed, happy guy.  And that’s what I want from retirement…relaxation and contentedness.

Most of the other already-retired-early-retirees have a billion things going on.  Sure, they aren’t locked into their 9-5 job anymore.  But, they are throwing a lot of their unlimited free time at things like side hustles, hiking (oh, the horror), reading 36 boring personal finance books a week (an exaggeration), or any other number of self-inflicted responsibilities and activities.

There is absolutely nothing wrong with that.  Also, I’m pretty sure Justin also does many of these things.  And I’m pretty sure I will need to do some things to keep my sanity.

But my impression of Justin is that he is just enjoying life.  In fact, on an episode of the Radical Personal Finance podcast, he said something to the effect of: “Some days, I just want to binge Netflix, so I do that. Other days, I want to spend 9 hours trying to figure out Photoshop.  So I do that.”

I love that.  I have not heard any other early retiree admit to the fact that some days they just want to sit on their butt and watch some mindless TV, or read a crappy vampire novel.  But Justin freely admits to it, and I love him for that.

Well on that note…I hope you enjoyed these ideas.  I hope you were inspired by at least one of them, just as I was inspired by all of them.  And props to all of these wonderful people, and many others who write about similar things.  If not for them, my life would not have changed for the better, as it has.  If not for them, I would not be pursuing the life I really want, a life of frugality, of not giving in to consumerism or lifestyle inflation, of pushing harder than I’ve ever pushed to reach a goal, and a life of increased contentedness and happiness with what I currently have, and what I will have in the future.

Are there any other money hacks that have changed your life?

Let me know in the comments below!

*Want to check out even more awesome personal finance blogs?  Check out Rockstar Finance’s directory.

4 thoughts on “My Favorite FIRE Hacks”

  1. What an awesome post! So many great FIRE ideas all rolled into one. And thanks for including me in the house hacking section.

    Cool that your are Columbia. My family and I are over in Cuenca, Ecuador. If you and your husband make it over this way let us know!

    1. Thank you! I am so impressed with your house hacking and general real estate knowledge that I had to give you some recognition!

      Aw man, we were just in Cuenca in January! Cuenca is like the jewel of South America…it’s so clean and pretty! Enjoy your time there!

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