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April 16, 2019

What Financial Independence Means for a Young Father – with Jim White


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For our Family FI segment this month, we’re talking about achieving financial independence with kids. A lot of people out there think that you have to choose one or the other. “You can’t have financial independence if you want to have kids” or “you can’t have kids if you want to have financial independence”.

My guest today completely disagrees with that sentiment because he’s walking, talking proof that you CAN have both.

Jim White from Route to Retire is my guest today. He’s a father, husband and recently he left his 9-5 job after becoming a millionaire and reaching financial independence at the age of 43.

Andy Hill: What does financial independence mean to you?

Jim White: Two words, freedom and time. Some people enjoy their jobs and FI gives them the ability to continue working without the concerns of being reliant on a company or being fired.

But for me, after 20 years in IT, I just was ready to get out. And FI now gives me more freedom. It gives me the freedom to chase my dreams and work on things I always wanted to do. It gives me the freedom to spend more time with my family and gives me more time to exercise. It was hard finding the time when I was working. And now I can get up in the morning with my daughter, spend a little time with her before school, go exercise without any big rush, come back, work on my blog, and then spend more time with my daughter again after school. It's been a bit of an adjustment, but I'm loving it.

When did you first get excited about FI?

That was when my daughter was born, in 2010. That was kind of a wake-up call. I hated that I had to go back to work and I couldn't be with her. And that was kind of a turning point in my mind.

And then I stumbled across Joe Udo's blog, Retire by 40, and his life mirrored mine. And that was actually the first time that I realized FI was actually possible for just a regular Joe. No pun intended there.

But then, yeah, that became the goal for me and I continued to find all the ways I could to optimize our money. Saving more, spending less, and then finding ways to bring in a little more income.

What did you not enjoy about working in the IT (Tech) Industry?

The burnout world of IT. Seems everybody going for FI is from IT.

I actually started as a systems engineer back 1999. I was brought on board in part to help try to prevent the dreaded Y2K bug. And it became a complete dud. But hey, got me a job.

So I eventually became the manager of the engineers in 2005, and that was it for the next 14 years. Middle management, one of the worst positions you can have in most companies.

When you're working in middle management, you basically get crapped on from above and below. It's a tough position because you don't have all the authority that you want to make the right decisions and that can tick off the people who work for you as well. So it's a tough position.

What were the main ways that you built up enough money to achieve financial independence?

We've always been pretty frugal, but we did tighten things a little more, and we eventually got our savings rate up to 60%, which I was very proud of.

But the biggest thing that helped us was just continuing to learn. And I think writing a blog actually helped immerse myself into that community to learn a little bit more. But it could be little things like understanding how pre-tax contributions worked. I mean, when that happened, I realized the importance of focusing more on the 401(k) and in our HSA.

Fees were another huge one. I didn't realize how bad that fees could crush your nest egg until I linked everything up with Personal Capital and ran their retirement fee analyzer, and it told me I'd be losing $65,000 in fees just over the next 10 years. So I made some changes and was able to get that down to $12,000. But I mean, that's over $50,000 saved just by understanding and making some minor changes.

Related Interview: The Triple Tax Advantage of the HSA

With the 401k and HSA being retirement focused vehicles, what did you do to build up enough money to live on now?

One of our big plans is to do Roth IRA conversions. And in order to do that, basically, it's one of a couple of different methods to take your money out of your 401(k) and access it before you reach your retirement age. And there are different ways to do it.

Basically, by doing a Roth conversion, you pay taxes on the money at the time you convert it, but it has to sit and bake for 5 years. So the first thing is, you don't want to move it all over at once because if you do that, that's going to be a real big tax bill. So most people form a ladder and they move an amount of their expenses over every year.

For us, I brought in a financial advisor and talked with him a little bit. He actually wants to be a little more aggressive and so we're going to bring over a little bit more than that and try to get this done in about 5 to 10 years. But once it's over there, then we have to wait for 5 years until we can touch the money. Otherwise, we'd be penalized. So we had to save enough cash, in order to make it for 5 years.

Are you pulling it from traditional to Roth? Or is it in Roth right now?

So we just moved everything from our 401(k)s into traditional IRAs. And by doing that, there are no penalties and there are no taxes. That's a free move to make.

Then we'll be moving from the traditional IRAs to the Roth IRAs. And that's when we'll hit the tax bill.

Since you're not making an income now, your taxes will be very little when you're making this conversion, correct?

That's exactly right. That's the reason that I quit my job at the end of this past December was so I could start a fresh year.

We haven't done any conversions. But this coming year, we won't have a lot of income reflecting. So we shouldn't have anything else to pay taxes on other than these conversions.

How did you find the right Financial Advisor to help you with this process?

Yeah. I don't claim to be an expert by any means. I do share what I learn. I'm good at it. But I know I don't know everything.

And so I want to hire guys that are smarter than me to help me figure this out. And I've actually had a couple of financial advisors, but I settled on the last one. I love this guy. Because he's doing exactly what we want to do. He's an accountant, but he's traveled to other countries to live for a few years. He understands the ins and the outs and that's what I need.

Why do people say that financial independence is not possible with kids?

That one actually bugs me a lot. My daughter's only eight, but I don't see the problems with reaching FI with kids. I think it's just an excuse to go, “Well, we have kids. We can't do that.”

Our daughter does gymnastics. She's not at the crazy expensive gym. It's an awesome gym that's a little further to go but saves us ton of money.

She goes to a very good public school. And guess what? She eats food. Can you believe that? But we shop at Aldi. So let her eat as much as she wants.

It's those kinds of things. You want the best for your kids. You don't need to spend thousands of dollars on Christmas and birthdays for them to have these elaborate things.

They'll be happier more with you reaching financial independence and having the time to spend with them than they would be giving them material things that they don't really need.

Related Article: Managing Gift Expectations with Kids During the Holidays

I understand your family is moving to Panama. Why is this part of your financial independence plan?

Initially, the plan was, “Hey, I need to reach financial independence sooner. I need to be done with this job as soon as I can. I need time to spend with my daughter.” So we looked at geoarbitrage and at the time, I didn't know what that meant.

For those who don't know what that means, that's moving to another location, it could be another city or state or country in order to take advantage of the lower cost of living. And I didn't know what that was at the time. I was pretty proud of myself for putting that initial plan together.

That was the initial plan. But then we realized if we hated it there and wanted to come back, I'd have to get back to work. And we didn't like that. So we just kept saving as if we were going to continue living in the US but we did still decide that we wanted to do that anyway.

When are you moving to Panama? Is this permanent?

First, we're making a trek around the US here. We're going to be heading to South Carolina at the end of July, and then we're going to Texas, where we'll be establishing our domicile in a no-state tax state, and we'll be living with my brother.

And so we'll be down there for a while and establish residency. In mid-August, we head down to Panama.

The plan is that it's going to be permanent. But this is going to be a big cultural change and we know this going in. So we kind of made some, we'll call them rules, but one of the rules is we're going to spend at least a year down there. Let's get a feel for it. See if we actually like it.

And if we don't, if there's culture shock and we're ready to move back, we're going to wait a little bit. We want to wait that year because let's let the dust settle and see how it goes. And at that time, we'll figure it out.

So we're not going to establish residency for that first year because that'll run about $7,500 for the three of us, so we don't want that feeling either of, “Well, we did drop this money.” So we're going to wait for a year and see what happens.

Related Interview: How to Become a Millionaire in your 30's with Geoarbitrage

How will school work for your daughter?

It's interesting because down there we did a lot of research into it and the public schools you usually don't send your kid to because A, they're all Spanish, and B, they're really not that good in Panama.

But international schools are excellent. And it's about $2,000 a year. But here's the catch, I talked about establishing residency and until we establish residency, we're basically tourists in the country, and that means we have to follow their rules which is that you can't be in the country more than six months before you have to leave for 30 days.

And then another wrinkle is our US driver licenses are only good for 90 days at a time down there. So basically, every few months, we have to leave for 30 days. And the reason I'm mentioning this is because schools tend to not like it when you take your kid out of school for a month at a time, multiple times a year.

So welcome to homeschooling! So we'll be doing that the first year.

What will your days as a financially independent young Dad living in Panama look like?

I'm going to be at the beach sipping piña coladas all day, right? Yeah. I think I'd get bored with that within a week.

Right now, I'm still adjusting. It's only been about a month and a half since I left my job. So I'm still trying to find the routine, but I'm loving it.

I finally have that chance to exercise on a regular basis. I'm training for a backpacking trip, that I'm going out with a friend of mine this spring. And I'm trying to get ahead on the blog. But for the most part, our time's just spent working together as a family, just being together. And instead of thinking about what else needs to be done, that's the biggest difference.

That's what I was after, so it's definitely awesome. Again, with my daughter be an eight, I think I only have a handful of years left before she becomes a teenager and hates us for a few years!

So right now I'm just savoring every minute of our time together.

What is one piece of advice that you'd leave with an inspired young parent reading this today?

Don't listen to the masses. Freedom's possible. FI is possible. Continue to learn and make changes. Do it for your kids and for yourself.

It doesn't mean you need to quit your job if you enjoy it. FI just gives you the power to control your life and follow your dreams.

Do you think financial independence is possible with kids?

Please let us know in the comments below.


Marriage, Kids and Money, Andy Hill

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.

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Marriage Kids and Money Podcast

About Marriage Kids & Money

The Marriage Kids and Money Podcast is dedicated to helping young families build wealth and happiness.

With over 400 episodes and counting, we share interviews with wealthy families, award-winning authors, and personal finance experts to help you find your version of family financial independence.

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