Our Path to Financial Freedom-How we saved $60k to travel the world

Making smart investment decisions

Right out of college in July of 2010 I began earning more money than I ever had before with an annual salary of $47,000.  While many newly graduated college kids moved downtown or to midtown where it was more fun, lively, and hip we choice to live 15 to 20 minutes out of the hustle and bustle in good ole’ Rancho Cordova.  We lived in a 740 square feet one bedroom apartment (~69 sq meters) for a measly $640 dollars a month (including utilities).

Our earning power increasing each year, we continued to rent rooms with housemates below what it cost to rent the apartment. By 2012 we had saved up $20,000 for our first home.  We looked for a house with a monthly payment that did not over extend us financially, but still had most of the items on our wish list.  The recession and housing crisis created a window for the one per-centers who were buying houses for cash left and right.  After putting in 20 offers and over 5 months of searching in July 2012 we were finally home owners.

We purchased our first home in the La Rivera area for $150,000.  With $10,000, the help of family and friends and hours of blood, sweat, and tears, we updated most of the things we wanted.  To reduce our mortgage payment further we had a roommate for the first 6 months.

In May 2015, we decided to refinance to remove our property mortgage insurance (PMI) and reduce our monthly payment.  The appraisal on our house came to $250,000, and we decided to take out $28,000 for investing purposes.  This brought our monthly house payment down about $50/month, funny how that works. PMI is about 1% of the loan amount, which in our case was about $1,500 a year. We discussed in depth our options: real estate, business investment, stock market, etc.… until I convinced Johnny that we should use the money to take a mini retirement to travel the world.

Paying off or minimalizing debt

Car debt

When our college cars failed us and we had to buy new cars we made sure not to overextend ourselves, although of course I thought of getting a new red convertible Camaro.  Reality set in and we ended up getting the modest yet reliable Honda Civic and Honda CRV, which were both not fully loaded.  Signing up for our loans at low interest rates we stuck to our 6 and 5 year loans each month until they were finally paid off in September 2015.  Vowing to drive these cars into the grave, we now opened $675 per month in saving power! That’s about $8,000 in the piggy bank for the year.

Student Loans

Going to college during the recession created rising variable interest rate private student loans and mine was 12%!  Using the funds from the refinance I calculated that if I paid off this debt (at the time $6,000), I would be able to save more in one year’s time.  This unlocked $375 per month in saving power.

Credit Card Debt

As a rule, I pay off all my credit cards every month.  At the time, having separate credit cards I learned my husband was not doing the same.  Upon my discovery that he was making the minimum payment on $2,000 in credit card debt, we immediately paid it off.

On average annual interest rates on credit cards are 12.31%!  Using this example that means each month you pay the minimum payment (say its 3% of the total balance or $60) you are paying $40 towards your principal and $20 towards your interest payment ($2,000 X 12.31% X 12 months).  This creates a very slow paydown of your credit card and if you continue to use and keep a high balance on the card the dollars you are losing on interest could grow substantially.

Want to increase your saving power? Get credit cards with perks and pay them off every month!

If you don’t pay off your card, the credit card companies are using you and your not using them. Credit cards with reward points can be extremely beneficial and make travel cheaper or at times free.   If you have a credit card, make sure it provides money or rewards back and use it for ALL the purchases you can to maximize the benefit.  By using the credit card companies, over the last 5 years we have flown 8 times for FREE across the United States and out of the country. This also doesn’t include the 3-4 FREE hotel stays a year at high end hotels.

Credit Card Debt

As a rule, I pay off all my credit cards every month.  At the time, having separate credit cards I learned my husband was not doing the same.  Upon my discovery that he was making the minimum payment on $2,000 in credit card debt, we immediately paid it off.

On average annual interest rates on credit cards are 12.31%!  Using this example that means each month you pay the minimum payment (say its 3% of the total balance or $60) you are paying $40 towards your principal and $20 towards your interest payment ($2,000 X 12.31% X 12 months).  This creates a very slow paydown of your credit card and if you continue to use and keep a high balance on the card the dollars you are losing on interest could grow substantially.

Want to increase your saving power? Get credit cards with perks and pay them off every month!

If you don’t pay off your card, the credit card companies are using you and your not using them. Credit cards with reward points can be extremely beneficial and make travel cheaper or at times free.   If you have a credit card, make sure it provides money or rewards back and use it for ALL the purchases you can to maximize the benefit.  By using the credit card companies, over the last 5 years we have flown 8 times for FREE across the United States and out of the country. This also doesn’t include the 3-4 FREE hotel stays a year at high end hotels.

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Home Mortgage debt

We did not want to sell our home as we considered it a long-term investment.  To alleviate our monthly mortgage payment ($1,075), we reduced our belongings by having a garage sale (we made like ~$420) and donated or dumped a lot of the other items.  For the items, we couldn’t part with, we found a storage unit for $80 per month.  With the house cleared out, we could rent our house for $1,700.  After deducting the monthly storage and sewage and garbage expenses (~$100) we are making monthly income of $490.

Living Frugally

Living a frugal life calls for a lifestyle change and a conscious awareness of how you’re spending and saving.  We live in a consumer world in which we are constantly faced with limitless options of things we can spend our money on.  As your available buying power increases, typically so does the amount your spending.  Living below your means can create a large portion of saving power.

We did just that.  We wrote down everything we were spending money on each month or during the year to gain power over it.  For example, we kept our IPhone 4s and 5s instead of buying the newest model each year, and we never bought Ipads, apple TV, or any of the other latest and greatest gadgets that came out.  We turned off our cable and just watched Netflix, Hulu, or Redbox.  We go shopping for clothes twice a year, and while I do buy quality clothes and shoes, I shop around to get a reasonable price.  I also stopped getting my nails done (mannies and petties are like $50 every two weeks!).  Basically, we cut out all the “extras” that we really didn’t need in the first place.

The big kicker for us was going out to eat, working long hours and the social butterflies we are this was the tough one for us.  We compromised and meal prepped a lot during the week to avoid the “I’m too tired routine” and indulged on eating out once or twice a week.

Misc. items: Dogs, cars, and insurance

Another item to consider when traveling the long term are pets.  Now I absolutely LOVE my pups and they were probably one of the hardest to leave, but I found them a great home with a bunch of friends.  My parents are amazing and agreed to keep them for the year we are gone.

Cars are another large item.  Options are to sell the car or cars and purchase a new one when you get back or find a place to store them.  Johnny’s parents were gracious enough to let us store our vehicles at their place for the year.  We canceled our car insurance and registered the cars as “non-operational”, which freed up some additional cash.

The moral of the story here is that by living below our means and not overextending ourselves, we put ourselves in a position to create the financial freedom we needed to pursue our dream of traveling the world.  It was not easy, but when something you’re really want it becomes a priority.

What’s really important to you and how are you going to get there?

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