September 2021 Financial Freedom Update

Our personal finance report for september is crazy! More so because a lot of adjustments in both our incomes and mindset have taken place. I feel like it’s best to put everything on the table as both a journal for ourselves and all of our readers.

First I’d like to start off by saying, if your personal finance history is in a less than desirable spot, do not worry. It is not some place you are staying, it is just what you’re going through temporarily. That being said, last month was definitely the lowest income month we’ve had in a very long time.

I was let go from a previous job from what I can gather was due to the owner being unable to operate a business in the right way. They simply weren’t capable of managing a business so I had to figure out how my wife, newborn baby, and myself would be able to make it through another month. I, fortunately, found a new job within a week. While it is commission only, the long-term residuals will become the main focus while ramping up clients. In part with a new job, my wife went back to work part-time.

Quick overview of our personal finance results for september

We have not made money outside of our jobs, airbnb, and my book sales. I was fortunate to have 40 book sales which equaled about $300 which is expected to come 60 days from the point of sale. This isn’t an income I would count on as it varies widely. I also have affiliate income from my sports website which brought in $20. Again, not anything to go wild over. The main source of income was surprisingly our housing.

We were fortunate enough to get an Airbnb guest to stay in our unit for a portion of the month which ended up being the bulk of our income for September. That income ultimately goes towards the mortgage so at least we live to fight another month!

Plans for the future

While it helps pay for 50% of the mortgage/utilities for the month, we are looking for ways to add revenue to it by adding a kitchen to legitimately offer it up online to long-term guests through leases and the like. We have also considered doing section 8 as it is consistently in line with market rents and they are always on time with rent payments.

We would then rent out the home we currently own to then cashflow $1000+ Ideally. The home should rent for $1750 + utilities and the 1 bedroom 1 bath unit should go for $1050 + utilities which our mortgage is $1460 + utilities. So with the math, we would expect to bring in around $1300 in positive cash flow or more. While that is not guaranteed, the average market rent in our neighborhood is $1800+ for a similar size 3 bed 2 bath home like ours. Adding in our unit would guarantee cash flow and happy tenants given we can add a kitchen. But it is already furnished per it being an Airbnb listing at the moment. Having it already furnished could mean an additional $50-$100 in rent per month. But for the price, they would be getting a steal! Time will tell as it is in the works for now.

Lessons learned

As the month has come and gone, our personal finance goals have definitely shifted. While it would have been great to coast all the way to financial freedom with an extremely high-paying job and no liabilities, that would ruin the fun of a good story. So I figured I would make it interesting by working at a commission-only job as my new employer and my wife could work part-time on our journey to financial freedom, yay!

But what’s life without a little spice thrown in from time to time? Ultimately, we decided that a change was necessary to fast-track our personal finances and financial freedom route. So after looking at all of our expenses, by far the biggest place we spend money is in our housing costs. We don’t spend much money already but that definitely eats away at our savings rate. So after factoring in the Airbnb payments and our current mortgage and utilities, we spend about $1,000/ month.

What is our personal finance focus moving forward?

Since Texas has higher electric bills than most cities making utilities higher as a whole. Our utility bill for gas, electric, water, trash, and yard maintenance is $400 on average. The mortgage itself ends up being $600 give or take after factoring in the difference from the Airbnb income. Now just imagine on a low income being able to wipe away $1,000/month from your expenses.

On $4,000 a month in income and $3,500 in expenses, that would take you from a 12.5% savings ($4,000 Income and $3,500 expenses) to a 50% savings rate ($5,000 income $2,500 expenses) Now the cashflow wouldn’t be touched, but wouldn’t it be cool to wipe away your biggest expense in your life?

Let’s also say you were MAKING money per month on the investment and not just wiping it away completely. That would allow you more options. The best option being to save for the next property of course. But house hacking by either getting multifamily and renting to the tenants in the other units, doing an Airbnb, having roommates for each room, or just renting out the house when you’re not there, there are many options to help you lower or eliminate your housing cost entirely. This all circles back to our personal finance journey and mindset.

While a month ago, we were heavily focused on retirement plans and maxing those out, I apologize but that is the traditional plan recommended by the masses. Now think about everyone who has a limited income of less than $50,000 a year, and see how many are financially free through retirement investing in the stock market. We figured at our current savings rate of roughly 30% on a 50k annual salary and current retirement account holdings, it would take us MINIMUM 20 years if not more to reach financial freedom.

What we prefer to use as our financial freedom vehicle

Let’s take two people “Stock market Sam” and “Real estate Randall” give them both $100,000 and 10 years to make more than the other. Let’s see how they would both do.

Stock market sam invests his full $100,000 into the VTSAX index fund with an average of 8.5% return, excluding inflation, the total amount would be $233,287 if you simply contributed to the fund 1 time and left it alone. Now take someone with that same amount and have them invest in real estate by house hacking. They get into a property for 3.5% down per an FHA loan (or buy 5 properties at a 20% down payment), live in it for a year, rinse and repeat until all of the $100k is used.

Hypothetically, Real estate Randall could purchase a 500k quadplex with $17.5K down, live in one unit and rents out the other 3. The tenants rent would be expected to bring in $950/month per unit plus utilities. The all in mortgage of real estate Randall lives on would be roughly $2150/month. So given that the tenant pays utilities, the property would cash flow $700/month ($2850-$2150.) In this scenario, he would have no housing cost and would be making $700 per month indefinitely.

Not to mention when he moves out this property would be cash flowing $1,650 now. I can already hear the critic comments. For the sake of argument, these properties do exist but this is more for explanation purposes. Now, let’s say real estate Randall does this 10x in 10 years. He would have a total of 40 units if he ONLY did quadplexes, which would mean each unit (for the sake of math) would bring in $950 in total rents per month. $950*40 is $38,000 per MONTH (or $37,050 if he still lives in one of the units) but for cash flow, real estate Randall would bring in about $16,500 of clean consistent money on all 10 properties. Sure there’s more of a time commitment and answering phone calls, but wouldn’t that be worth it for $164,488 in passive income salary that comes in each year without fail.

That’s not to mention all of the equity increases in the property, principal paydown, or the ability to refinance, get all your money out without selling, and essentially get an infinite return since you put no money into the deal and are getting thousands a month from each property. That’s ALSO not to mention you would be in a significantly lower tax bracket as your mortgage and depreciation on the property are counted as losses on your tax return essentially meaning you’re at a loss or close to it on each property. I’m not a tax professional but we are definitely leaning towards real estate not only because it would save us much more in the long run, it has so many ways to reach financial freedom early.

September personal finance update

The issue with index funds

With index funds, you can’t take out the full amount all at once or else you get hit with a huge capital gains tax. Ideally, with a 4% withdrawal rate on $233K, you’re looking at $9,300 allowed for spending a year. You also have to consider at some point you will limit growth due to withdrawal to live off of the funds. At the same time, you have to let it grow enough so it can give you some benefits of compounding.

It’s almost a double-edged sword in that regard. In real estate, you get consistent cash flow, can write off a large sum of your taxes due to payments on the property and a lot of other sources, the principal goes down each month so cash flow steadily increases, and you don’t have to sell anything to reap the rewards. Lastly, I am not cool with waiting 10+ years to start withdrawing from my investments.

The goal of investing is to become financially free much earlier by reducing expenses and increasing income. Index funds isn’t technically increasing income in my eyes because it isn’t putting anything in your pocket until 10+ years down the road. Not to mention I still have housing costs unless I already paid off the house. But in real estate housing costs go way down or gone completely if done right and you can start seeing benefits within 1-3 years and retire as early as 5-10 years if aggressive enough.

Most people including my wife and I spend on average $4,000 a month. It really doesn’t take much to get to $4,000/month in passive income through real estate when house hacking. Simply because after the first property, you’re in the home for such little money, by the time you move out, it should at minimum be providing $300+ per month cash flow for you. By the third property, it should be putting over $4,000 in your pocket from the housing cost savings of a mortgage (which acts as a pay raise) along with the cash flow from $500-$5000+ in cash flow factoring each property. I’ve seen it time and time again these real estate investors get into a property with minimal amounts of money, save another $12,000 or more a year, and expedite their path to financial freedom through real estate.

Real estate is extremely powerful

Let’s think about it logically, would you rather have a 1:1 return on stocks where I put in $100K and get a return on that, or with real estate be able to get into a $500K property with 3.5% down, and be all in for $17.5K. Sure there are other variables but this is the basic premise. An 8.5% return on 100K is $8,500, on a $500K property it is $42,500. LEVERAGE is king in real estate and that is why growth is so much faster in REI.

It will absolutely take longer to be financially free in index investing as there is no *safe* leverage. By simply utilizing the power of leverage, there can be a 1:5 or even higher multiplier since you can borrow money to get properties that are much higher priced than what you have in the bank. The vast majority of millionaires come from real estate investing and it is no surprise why. Not only is there an expedited path, but there are also copious tax benefits that come with it which far outweigh many other versions of investing. Sure from a lazy and traditional personal finance perspective, stocks will also make you rich, but nothing will make you keep your wealth forever like real estate where you can then diversify into other asset classes.

While this might seem like a total deviation of the point of this personal finance article, this whole concept is something I had to remind myself of the past few weeks. I was bullish on maxing out retirement accounts. While there is some truth to that, that is the path popularized by the mass majority because it is the easiest, laziest form of long-term wealth building. I view our personal finance scenario as the ones willing to dare, take risks, and go against the status quo, are the ones who end up being victorious in the end.

Recap of our financial freedom strategy

So our current plan is to make a killing at our jobs, save as much as we can for a downpayment on a new house hack plus some reserves for unforeseen vacancies, and grow our investment portfolio. We currently have an Airbnb property house hack for our primary residence that doesn’t have a kitchen. We would definitely consider using a 203K loan, add a kitchen to the unit, and advertise our unit to either section 8, or other programs with a reputation for consistent payments at or above market rents.

In part with that, I will also start selling merchandise with my sports brand and consulting services in order to supplement our income at least a little bit. We have begun to scale our incomes again after I recently started a new job at a digital marketing company and my wife is getting back into work after giving birth to our child.

How did we do in september?

  • Ultimately, we made $1491.24 in income
  • $814.46 of that income came from our Airbnb unit after taxes.
  • We had $4065.65 in expenses.
  • Of that, roughly $2500 was from the mortgage, utilities, and new A/C unit of our Airbnb of our property.
  • We have had savings put away over the months which have helped us in times of financial stress. While we were fortunate not to have to pull much out of any of our savings accounts, we don’t plan on being in this position a month from now. But the only way that we can truly get out of this road bump is if we do the work.
  • Moving forward, our goal is to make that an official long-term unit with the kitchen as mentioned earlier. That should bump the rental income from $950-$1050/m to $1,150 or $1,250 depending on how market rents look at that time in our area.

As previously mentioned, I just started working at a digital marketing company on September 14th and will be building my book of business and my wife is also getting in touch with her clients again so we have some ground to cover. I am happy that I am able to share our personal finance journal as it is important not only for us, but for others to see just how possible the journey of financial freedom can be with a wise approach, persistent progress, and unwavering faith towards the desired outcome.

We are far from our ultimate personal finance goal but we are confident that if we increase our incomes to the $7,000/month range while keeping our expenses at or below $4,000/month, within 6 months we would have more than enough to get a house hack, significantly lower our housing cost, which then expedites our journey to financial freedom even further. Thank you for reading all the way through my brain vomit post on our personal finance update for September. We are excited to be able to share our path with you. If you enjoyed this article, let us know what your favorite part is in the comments below. Until next time!

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