In 2018 we started writing about striving for financial independence, one with no debt. We call the process FIND (financial independence, no debt) freedom. Some people might consider this a subset of FIRE (financial independence, retire early), but the goal is different. People in debt are not financially independent, the two things are mutually exclusive. When you have debt you are in a fragile position. Debt makes you a slave to someone else. We have no desire to try to go into debt to try to finance our way to a so called early retirement. Our only debt is the mortgage on our house, and we spent 2018 paying it off as quickly as we could.

Mortgage

We are aggressively paying off our mortgage. Why? The feeling of freedom that it will provide. Once we don’t have a mortgage we will require much less income, housing is often the largest single expense. Owning our house makes us more robust to job loss or other financial disruption. Once the mortgage is gone, we will have no debt and more options. Also, a house is called real estate for a reason. Unlike paper assets like cash and stocks, the house is a tangible asset. It meets one of our critical needs, the need for shelter.

At the start of 2018 we had 46% of our mortgage remaining. At the end of 2018 after 38 additional principal payments the total is now 13%. Our goal at the beginning the year was to get below 25% by the end of the 2018. We made extra payments as frequently as possible. Continual progress makes a long term thing like paying off the mortgage more tangible. In November we received a pretty substantial monetary gift just in time for Christmas shopping. It could have been temping to blow it on something for Christmas, but it was an easy choice to make a large payment on the mortgage instead. Before the large payment, it looked like we would be able to pay off the mortgage towards the end of 2019. Now, we expect to have it paid off in June.

1/1/2018: 46% → 12/31/2018: 13%

Savings rate

Why is knowing your savings rate so important? While you are earning a income savings rate is the best indicator of your financial health.

We keep track of savings rate by the month and year to date. Our goal was to save at least 60% of our income in 2018. In July we took a vacation to California and Oregon. This was one of our biggest expenses of the year. We reduced the cost by travel hacking our flights with Southwest Credit Cards and earning a companion pass. The total cost for the vacation was still over $2,000. In August school started meaning we had the requisite expenses like clothes and school supplies. Also, we had to take our beloved family dog to the vet twice. In the fall we spent more than we expected, but it was on tuition and things for school for Mrs. LOTT. This is definitely an investment, it will have a short payoff time upon completion of the degree.

If we look at all the expenses minus tuition for school our savings rate was 61.8%.

Our long term savings rate since 2014 the savings rate is split 50%/50% but is now skewed towards saving.

Net worth

Net worth is calculated using Mint.com. Since we are both working, we are in the accumulation phase of our lives right now. We are keeping track of the trend of net worth to know how the choices we make impact our financial goals. The chart below includes home equity. While owning our home is a big part of our current strategy, the money in the house isn’t liquid. Owning your own home reduces your living expenses, but it doesn’t generate passive income. Part of our strategy needs to generate passive returns. As we pay off the house, we will need to find other places to invest.

In 2018 we focused on paying off the principal in our house. We did this to try to diversify since the stock market seemed so over-inflated at the end of 2017. This turned out to be a good strategy since 2018 was the worst year for stocks in a while. This also illustrates the impact of high savings rate. If we were dependent on market returns our net worth would have peaked in January and bobbed up and down for the year ending lower than where it began. Instead we are now a few months away from owning our home outright.

Bimodal strategy

A bimodal strategy or barbell strategy popularized by Nassim Taleb in The Black Swan is a strategy with low risk, low reward on one side and high risk, high reward on the other side. One bimodal strategy is to have a steady job and a side hustle. Starting a blog is a side hustle and part of our bimodal strategy. As long as you have your job (low risk depending on your occupation) then you will be able to survive. Your side hustle(s) may or may not ever pay off, but you are less likely to have to live on the street or move in with the in-laws because you went all in on the equivalent of a lottery ticket. This strategy drives our actions with our finances. We are not just chasing gains without concern for the potential for loses. We are not trying to just maximize return on investment.

Other investments

Watch this space for other investments. Why other investments? Once we pay off our house we will have a large monthly increase in cash flow. We will be looking for investments that will either provide some sort of periodic income or reduce long-term expenses.

Higher education

Mrs. LOTT officially started a fully online M.S. program for Nursing Education in 2018. Higher education right now is the definition of buyer beware. Young people are taking on a tremendous amount of debt to get a degree that might not ever pay off. But for Mrs. LOTT there is a large difference in salary between a B.S. and an M.S. degree at the same employer for the same job. Upon completion of the degree the pay off time due to the increased salary will probably be about 1.5 to 2 years (if you factor in the higher education tax credit it and the go at your own pace nature of the degree it could be even shorter). The M.S. will not only make a difference in the current job but it opens up more employment opportunities for the future. Obviously, besides just the extra money there will have to be other sacrifices. Night and weekend activities have been replaced with school work. Other projects and activities have been put on hold.

Tools

Tools are a special category of other investments. A tool is something that can produce income or reduce expenses. We plan on investing in tools that last for a long time. In 2018 we invested in one new tool.

Delta 26-2250 12″ Dual Bevel Sliding Cruzer Miter Saw

This is a large miter saw, but unlike some of the others, it can be used close up to a wall so it doesn’t take up as much shop space. We plan on building a miter saw station around it.