To keep motivation up, remind yourself about the reasons for saving and investing so diligently. Once you have clear purposes for your money, saving aggressively becomes much easier.
It's too easy to eat one more cookie and find ourselves unrecognizable 10 years later. When we live in a free and abundant country, life can get too easy. As a result, we tend to stop saving and investing for our future.
Since graduating from college in 1999, I've been motivated to max out my 401(k) and save as much as possible because I knew there was no safety net. I needed to save to have a comfortable retirement.
My parents drove an eight year old Toyota Camry to their government jobs. We lived in a cozy townhouse. We definitely weren't rich And my parents worked until their 60s. After sending my big sister to college, I wasn't sure they had much to spare if I faltered.
After saving enough money to live off ~$80,000 a year in passive income in 2012, I continued to try and save as much of my after-tax income as possible. I wasn't sure I had made the right move walking away from a six-figure salary at the age of 34.
Given I've survived more than eleven years of unemployment, there's a growing chance I'll continue to stay unemployed for the foreseeable future.
Reasons For Saving And Investing For The Future
Here are all the reasons why I'm saving and investing for the future. I'm sure many of you have similar reasons as well.
1) A family to support.
Life was relatively easy financially when it was just my wife and I. We could adjust our spending down if necessary or find freelance work if we needed extra money or excitement.
Now that we have a toddler and a baby daughter, we have fixed costs that must be spent. We also have a lot less time to do anything outside of childcare and Financial Samurai.
By 2015, my wife had also engineered her layoff. She received a severance and was also done with work for good. As a result, both of us no longer have steady paychecks. Further, we have to pay over $2,200/month in healthcare insurance.
My solemn duty as a father is to take care of my family to the best of my ability. This means keeping them safe, sheltered, fed, and loved.
2) Paying for college (and potentially private grade school)
I have no doubt by the time my son goes to college in 2035, the all-in cost will rise to $125,000+ a year. Goodness forbid he decides to take five years to graduate! To pay $500,000 – $600,000 for him to attend college in 18 years requires $28,000 – $33,000 a year in savings.
My hope is that he either gets admitted to a fantastic state school or is smart enough to get merit based scholarships. But I won't count on it given there is a decline in merit-based reward. As a result, I'm aggressively saving in two 529 accounts.
Perhaps there will be a movement by 2035 where college will either be free for everybody. With Joe Biden and the Democrats looking to forgive a lot of student loan debt, perhaps free college will be an inevitability.
Once our daughter was born at the end of 2019, our estimates for college expenses doubled. Thankfully, we've been aggressively contributing to a 529 plan that has grown. We may even use a 529 plan as a wealth transfer tool.
3) Affordable housing for my children.
Another great reason to save and invest is to provide affordable housing for my kids. Housing costs will only go up over time because land is fixed and demand is ever-increasing.
For example, the median house price in San Francisco will rise to $3,250,000 from ~$1,600,000 today if prices grow by just 3% a year for 24 years.
Meanwhile, if you don't have a $650,000 downpayment to buy the median $3,250,000 home in the future, it will cost you over $8,000 a month to rent the place under the same metrics. Housing affordability is a big problem that can be solved with diligent ivnesting today.
Once housing costs are squared away, it's much easier to pursue your interests. What a shame it would be to turn down a wonderful opportunity that doesn't pay the greatest due to an absurdly high cost of living.
4) Car maintenance expenses and a new safe car.
Ongoing car maintenance expenses are expensive. Six months after my car warranty ran out, my radiator fan stopped working. That cost $750 to fix. Then I've got to pay $500-$1,000 at least every two years for regular maintenance on my Range Rover Sport.
The amount of parts and electronics that go into cars these days compared to 30 years ago is night and day. In the past, we could easily fix our own vehicles. Now, we've got to hook our cars up to an electronic diagnostic and then go from there.
Finally, replacing four 22″ mud + snow tires and breaks look like it will cost me $3,000. I just had to replace my front right tire for $480 because of side wall damage.
The more you drive, the more car maintenance expenses you will have. As the primary driver, I want to buy a new safe car every 10 years. Given the average new car price is about $50,000, I need to save a lot!
5) Property taxes
Although I got rid of $23,000 a year in property taxes by selling one of my properties in 2017, I've still got to pay $18,000 a year in property taxes for my primary residence, $9,600 a year for a SF rental condo, and $4,800 a year for my Lake Tahoe property. That's $30,400 a year just in property taxes.
Oh yeah, I also bought a forever home during the pandemic in 2020. That's another $31,000 a year in property taxes! Unfortunately, property taxes are a never ending expense. At least I got a good deal.
Yes, the rent I receive from my rental properties will more than cover the property taxes. However, property tax is still a never ending wealth tax that will only grow over time. Saving and investing to pay property taxes isn't very motivating. But it's a must!
My property tax bill is over $100,000 a year now. Just typing that amount now sounds sick. But at least that also means I have a large property portfolio that spits out rental income and can take care of my family.
Related: How To Reduce Your Property Taxes
6) Home maintenance expenses.
Besides property tax, there is constant home maintenance expense to deal with. The big ones include replacing a roof every 15 years for $15,000 – $20,000, painting the exterior every 10-15 years for $10,000 – $15,000, and regular upkeep of the grounds that might run $1,000 – $2,000 a year.
I've become very handy at fixing leaks, replacing caulk, and interior painting as a landlord since 2005. However, the big home maintenance expenses are unavoidable.
When you own multiple properties, something always comes up. Things get damaged by tenants and you're always itching to do some home improvements.
These constant maintenance expenses is one of the main reasons why I invested in real estate crowdfunding across the heartland of America. With real estate crowdfunding, REITs, and real estate ETFs, there are no home maintenance expenses.
My favorite real estate crowdfunding platform is Fundrise, followed by CrowdStreet. Both are free to sign up and explore. As I get older, I've begun to prefer investing in diversified funds like the ones offered by Fundrise. I'm happy to let an investment committee decide on the best deals.
I've personally invested $953,000 in private real estate since 2016.
7) The possibility of having another child.
In 2018 I wrote the following: “There's less than a 25% chance we'll have a biological second child due to our advanced ages, but there's still a chance. We are also considering adopting or fostering a child as well. If we were to have a second child, our costs will increase between $1,000 – $5,000 a month depending on the age and time the second child comes.”
The funny thing is, our 25% chance came true! We had a daughter in December 2019! Now, our expenses have definitely increased by at least $1,000 a month. Once she goes to preschool, our expenses will go up by at least $2,500 a month due to tuition.
You just never know! We love kids so much we'd love to have another. However, our chance of having a third is probably only 5% now that we're in our 40s. Therefore, saving and investing for more children is probably not a priority for us anymore.
To raise two children in expensive San Francisco and life a middle-class lifestyle costs about $300,000 a year. Here's the budget to prove it. You can click the chart to learn more.
8) A Hawaiian dream home.
This is our biggest future expense that doesn't have to come true. We've thought about living on a flat piece of land near the beach for a while now. Unfortunately, a four bedroom, three bathroom home on a 10,000 sqft lot within a 10 minute walk to the beach will cost around $3,500,000 – $4,500,000.
Ideally, we'd like to purchase the property by 2025, when our daughter is eligible to begin kindergarten. Sending my kids to Punahou or I'olani in Honolulu would be amazing.
One can always dream right? When you dream you tend to find ways to make things happen. There's a good chance we'll just settle for a smaller house for 30% less if it's just the three of us. Check out this sweet house with panoramic ocean views.
9) Insurance we can remain stay at home parents.
For the first year, both my wife and I were unsure whether leaving work in our 30s was a good idea. After all, I believe the ideal age to retire is between 41 – 45. That's us right now. We are saving and investing to ensure we live our ideal lives.
However, if things get tight, one or both of us may have to get a job to provide. At the minimum, we want to be stay at home parents until both our kids get to attend in-person school full-time. That means when our daughter turns five in 2025.
Kids grow up so fast. We might as well spend as much time taking care of them while they are young. Doctors also say the first five years are the most important years for development. We shall see.
10) To be able to comfortably provide for our parents for the rest of their lives.
If there is one thing we must get right, it's to be able to provide everything our parents want or need for the rest of their lives. There is no way we will ever let them live in a strange place if they don't want to. Instead, we will customize their respective houses and pay for care to come to them if that is what they prefer.
We estimate that it will cost around $15,000 – $20,000 a month per set of parents to be able to provide for such care, excluding any customization work that is required to the house e.g. building a wheel chair entrance ramp, installing an electronic chair that gets them up the stairs, installing communication devices in every room, cleaning, landscaping, and live-in care, etc. No wonder why long-term care insurance is so expensive.
We also anticipate having to pay for food delivery, transportation, and their vacations as well. If there is one area where we should spend the most money, it's on our parents.
11) To invest more money for even more passive income.
Perhaps the best reason to save and invest is freedom. There's really nothing better than having passive investment income fund our lifestyles. It takes the stress off of hustling and making active income.
During downturns, having the cash to invest in risk assets is good. Over the long run, stocks and real estate tend to do well. With inflation so high, investing in stocks and real estate is a must for ourselves and our children.
Saving And Investing For The Unknown Future
After a while, saving and investing will become part of your DNA. You will do so unconsciously because you're unconsciously preparing for an unknown future.
The more you save, the more secure you will feel. If you end up with too much, there are plenty of people out there who could use your financial help.
Keep saving and investing diligently for an unknown future. It's always better to have a little too much than too little.
Track Your Finances Diligently
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Invest In Real Estate More Strategically
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. The real estate platform has over 300,000 investors and manages over $3 billion.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $953,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
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