Closing the wealth gap: Part 1: How I became FI and tools to help you!

(Part 1 in a series that will cover starting a brokerage account, handling taxes and how to withdraw your dividends to live. Read the full article with images on my website.)

How it started

In January 2017, I had about $5,000 in cash savings, $75,000 in retirement savings and a huge 5-bedroom house. It was a very depressing time in my life. I was in the middle of a divorce and sharing my two children with my ex-husband was hard on everybody. Since our children mainly were with me, I was on the hook for a huge $2,400 mortgage. Ouch! I was depressed about dismantling my family but was hopeful that we all were going to be okay. God would not leave me. Out of all I had been through growing up as a little black girl, my mom abandoning me and having no hopes or dreams, I had still achieved a Ph.D. and had a “good job.” But I was very uncomfortable with such little cash. If I would have lost my “good job,” my children and I would be out on the street.

This is my journey to FIRE. I never shared any of this, so pay close attention. Financial independence retire early is the concept of changing your goals in life to be financial free. You save and invest until your nest egg reaches 25 times your necessary annual expenses. You then withdraw 4% annually to live off and enjoy your life. More about this later.

How it’s going

As a 41 year old black woman, I am in a position to FIRE right now! I am financially independent and have reached the ability to retire early. Working is now an option for me. For the first time in my life, I choose to work. My financial independence is not visible to anyone because I don’t drive a Ferrari, I don't own an airplane, and I don't live in a mansion in the suburbs. Instead, I drive a 2007 SUV, I fly economy class, and I own a townhouse in a modest neighborhood. I am sharing what I did to make my FIRE dream come true.

Read to the end for three steps to get started with your wealth building. Here’s my story…

Development of grit

My mom had me when she was just 17 years old. I grew up with very little and bounced around from family member to family member. That taught me to always make sure I could take care of myself. So even though my parents didn’t go to college (mom dropped out and dad went into Marines), when I learned about a Black college tour in high school, I was intrigued. I did everything I could to raise money from different family members to go on the tour and it changed my entire life.

After years of living what I thought was the American dream (family, degrees, job, house, car, etc), after my divorce in spring 2017, I found the strength to pursue FIRE. I reconfigured my budget and doubled down on saving an emergency fund. I had no excuses. I took complete control of my finances because it was just me making the financial decisions. I had always lived by a budget but now I didn’t have to compromise on it. I also knew I wanted to retire early. I don’t want to work forever.

Getting serious about money

I got to work. I cut a lot of spending, reduced some expenses and immediately did two things without thinking about it. 1) maxed out my workplace 403(b) retirement account and 2) started saving 30% of my take home pay.

1) Maxing out my workplace 403(b) account was smart because it drastically reduced my taxes. A 403(b) is just like a 401(k) and the money is taken out and transferred to a stock investment account BEFORE TAXES are taken out. It’s as if you made less money but in actuality it’s in an investment account growing about 6% a year, depending on investment allocations. A 403(b) and 401(k) differ simply based on the type of organization you work for. In 2017, the yearly max that an individual could contribute was $18,000 for the year or $1,500 a month. Since I knew I wanted to financially independent, I knew I had to start taking advantage of that growth.

Entrepreneurs! You have not been forgotten! You have a sweet deal if you are a LLC or Limited Partnership. You can contribute to a Self-Employed 401k or a Solo 401k and contribute up to $56,000 per year. This money is protected from taxes!

2) I started saving to build up an emergency fund. To me, $25,000 sounded like a good amount to have in cash in case I lost my job. I could live for 6 months on that.

3) Roth IRA. More on this in the next blog post (Part II).

Finding passion and making life simple

By January 2018, I was still maxing out my 403(b) contributions and had fully funded my emergency fund. I was divorced and was going through the healing process.

I started following my passions and started The Achiever Academy, a 501(c)3 nonprofit organization. I poured into girls and young women with all I had, and it gave me a lot of joy. The Achiever Academy is still active today. Please consider making a donation to the Period Project.

Time to make big cuts… SOLD!

By February I realized my expenses were still too much. $350 electric bills, $225 a month lawn care bills, and that ENORMOUS $2,410 a month mortgage. Makes me sick just thinking about it. Now that I was a little more mentally healthy, I was ready to sell the money pit! I hired an agent, and she did a phenomenal job staging the home and getting it ready to sell. It was listed on a Thursday night and under contract mid-day Friday. Contact Carolyn Waller for all your home buying and selling needs.

I made a decent profit off of the house to the tune of about $35,000, but I had no idea what to do with it. That afternoon, I called my financial planner at the time – the man who handled my rollover retirement accounts when I left a job. He suggested I send it to him (of course) and he would invest it in three Wesley funds offered by Vanguard. Just by accident, I asked him how he gets paid. I had never asked him that before! He replied that he gets 1% of what I have invested each year. Then each of the funds he invests my money in has fees to the tune of about .50%. He gave me the fund names and I asked if those funds would help me retire in the next 10 years. He said yes if you start sending in more money each month to start a brokerage account. I told him I would start the wire transfer on Monday.

FIRE?

But by Monday, I had learned about a movement called, Financial Independence Retire Early. I read several blogs including Mr. Money Mustache and Millennial Revolution, from start to finish and a complete book on early retirement, The Simple Path to Wealth. My mind was blown!

The most important thing that I learned was that when you save 25 times your living expenses, you can live off that nest egg successfully for at least the next 30 years, and if you only withdraw about 4% you can very likely live off of it forever and never run out. And more often than not, you will die with more money in the nest egg than you started with. Mind blown!

FIRED My Financial Planner

I called my financial planner on Monday afternoon and told him I was no longer going to wire him my money. Furthermore, I would be transferring all of my money out of his firm and into accounts at Vanguard and I would be managing my financial investments from now on. Now how do you think he took to that? His exact words were “you’ll be back”. I felt so disrespected. “I do have a Ph.D.!” I told him. We ended the call, and I was on a mission to become financially independent by 45 years old. Oh, and I moved into a small two-bedroom apartment and I could not have been happier!

Doing Just Fine On My Own

By May 2018 I had saved $35,000 in cash for “emergencies” and my brokerage investment savings was up to 50% of my take home pay. That was on top of the max contributions to Roth IRA and my 403(b) plus company match. I still didn’t feel very financially secure, but I knew I was working toward a bigger goal – not having to work for money if I didn’t want to. I also didn’t feel deprived one bit. If I never have to pay for lawn care again it will be too soon! And I love doing all my shopping on Amazon. So much so I have my own store there! Check it out.

How it’s going

Fast forward to December 2020. I have been able to save 60% of my income over the past couple of years and have lived a very fulfilling life. I don’t feel at all deprived. I’ve made it fun finding ways to save money. I don’t have to work these days and that security means everything to me. There is no substitute for the security financial freedom provides.

Lastly, I found love again and remarried. We found a modest townhouse with a PITI (principal, interest, taxes, insurance) mortgage payment less than my apartment rent and we couldn’t be happier. I don’t need or want a big house, not when I’m on FIRE!

Wealth Building Homework:

1. Investigate your workplace investment options. Do you have a 401(k), 457(b), 403(b), and/or employer match? Go find out today!

2. Increase your current contributions to double what you are currently contributing. Just do it. Remember it lowers the taxes coming out of your check. Lower taxes is always a good thing. Just because you contribute another $100 doesn’t mean you check will be $100 less. It won’t be. In the next blog you’ll learn about how much you should increase your savings rate to retire at an age comfortable for you.

3. Tackle your debt , saving and spending. Get this FIRE workbook to start better planning your debt pay down, organize your spending and savings. Don’t hesitate. This personal finance budget template is simple and easy to use for budgeting and wealth building. It includes a 30 MINUTE F.I.R.E. VIDEO overview that details some of the most important factors in the Financial Independence Retire Early movement. For example, how to calculate your FIRE number, create a spending plan (budget), calculate your savings rate to determine when you can be financially independent, track your net worth and estimate how your nest egg will grow year over year and much more! If you are on a path to financial independence and hope to retire early (FIRE) start with this spreadsheet. The F.I.R.E. budget has everything you need to pay off debt and build wealth with over 8 sheets and full explainer video.

STILL ON THE FENCE? Dr. Kisha has a Ph.D. in Information Systems and teaches predictive analytics at the graduate school level. You are in good hands. Watch a snippet of the full video that is included in your workbook to see some of the value this workbook offers:

4. Borrow from your library or click the titles to get these books and learn more about FIRE: Your Money or Your Life, The Simple Path to Wealth and Quit Like a Millionaire.

5. Check out Personal Capital net worth tracker. It's an app that allows you to See all your money accounts in one place, in real-time. Get your Retirement Readiness Score? in minutes, Use Fee Analyzer? to find hidden fees in your retirement accounts. Sign up and we both get $20.

Read the full article with images and start reading part 2 on my website. Learn exactly how to invest and what to invest in, including your ROTH IRA, to start your Financial Independence journey. Questions about your situation? Don’t hesitate to contact me. Send me a message! >> Sign up for my newsletter so you don't miss it!

Thank you for reading!

Lakisha L. Simmons, PhD

Get the workbook, The Unlikely AchieveHer

Creator, Period Project Nashville

Founder, The Achiever Academy

CEO, BRAVE Consulting LLC, A Women’s Empowerment Company

& Associate Professor of Business Systems & Analytics

@drkishasimmons

I am thankful you are here to learn and hope you find value here. I am not a financial advisor. I am sharing how I became financially independent in hopes that the information is useful to you in your journey. Also consult your tax accountant and do your own follow up research :) If you purchase on my Amazon Store links or other affiliate links, you are supporting me and this free information with no additional cost to you. Thank you!