The August 2009 edition of Money Magazine featured their annual list of 100 best places to live. The copy arrived in my mailbox around the same time my wife and I were discussing the possibility of relocating in the future. In the short-term, we are satisfied with where we live, but often dream of moving to a place that offers more natural beauty, outdoor activities, and a more moderate climate. Actually, I mean a cooler climate – we’d gladly trade a few snow days for 100-degree temperatures in the summer! So take a look at these spots to focus your real estate MLS search.

Beautiful country outside of Ketchum, Idaho

Money’s list provides a pretty good starting place of cities to consider. Since any relocation wouldn’t happen until we reached financial independence, employment is not a top consideration. We are more interested in qualities like a low crime rate, plenty of green space, and relatively low property values and taxes. Here’s a look at Money’s top ten places to live:

1. Louisville, Colorado Money’s description of Louisville includes “dry, clear weather, little crime, good health care, and low taxes.” Add in the Rocky Mountains, 30 miles of local trails and eight world-class ski resorts within a two-hour drive, and there is little not to like about Louisville, Colorado. I traveled to Denver a number of times on business and fell in love with the Rockies, the climate and the outdoor activities.

2. Chanhassen, Minnesota When I think of Minnesota I think of cold winters. However, with cold winters comes a variety of things to do that a family from the south has never experienced. Ice fishing, ice skating, sledding, and hockey all sound pretty fun. And since I love cold weather I’d fit in just fine. Not sure the wife and kids feel the same way, though.

3. Papillion, Nebraska According to Money, the typical single-family home in Papillion starts for about $100k less than the first two cities. Interestingly, the property taxes were significantly higher.

4. Middleton, Wisconsin Another cold weather locale, but one with lots to see and do. Even though the town is only seven miles from Madison, most residents enjoy hanging out in their own community.

5. Milton, Massachusetts Single-family homes go for $460, 000 here, which just about eliminates the town from our list of potential spots to relocate. Add in a close proximity to Boston and it just doesn’t feel like a good fit for us.

6. Warren, New Jersey Ditto on the above comments. To close to New York City for my tastes, and ridiculously high home values (half-million and up).

7. Keller, Texas The knock on Keller was “rapid growth” and “strip malls.” We aren’t interested in a fast-paces lifestyle, so Kelly might not be a good fit, either. Besides, I’m not sure I’d be escaping the heat moving to Texas.

8. Peachtree City, Georgia Of all the cities in the top ten, Peachtree City sounds most like where we currently live. At only 35 miles from Atlanta, I’d worry about the urban sprawl eventually swallowing our tranquil place.

9. Lake St. Louis, Missouri Lake St. Louis has an interesting history. Developed forty years ago as a “resort community,” it has now developed into an attractive spot for permanent residents. Two major problems with Lake St. Louis – ridiculously high annual dues for their Community Association, and proximity to a General Motors plant which plant to layoff nearly 2,000 workers.

10. Mukilteo, Washington First, a confession. I’ve always wanted to live in the Pacific Northwest. I love the idea of being close to both Puget Sound and the Olympic and Cascade mountain ranges. Toss in a great school system and low property taxes, and Mukilteo seems like a top candidate.

Another area of the country we have strongly considered is Idaho. Idaho has a very low crime rate, low property taxes and insurance rates, and they offer more wilderness area than any other state in the lower 48 states. Unfortunately, they do have a relatively high state income tax rate and low average wages, but since we wouldn’t need much income after financial independence neither of these facts are a big detractor.

Speaking of state taxes, Kiplinger.com put together a nice interactive map along with a state-by-state guide to taxes on retirees. You can learn which states impose their own estate taxes, which 7 states have no income tax, and what are the most pension-friendly states?

Again, we won’t be in a position to relocate any time soon, but it is fun to scope out different places. Wherever we do decide to retire, we plan to have a place with acreage to give us a little room to roam. I’d like to have a big garden, and a few rows of fruit trees. When looking for a place to buy, we would gladly put more money towards land than the home itself, and wouldn’t mind adding on to the house or remodeling with cash over time.

Interested in finding a home in one of these locations? Search the MLS for homes!

On this day marking the celebration of our nation’s independence, I thought it fitting that thoughts of our own financial independence were near the front of my mind. I just wrapped up my second book in as many weeks, Work Less, Live More: The Way to Semi-Retirement. It was a great read, and I particularly enjoyed it because the author shared many actionable steps, portfolio recommendations and real-world techniques to move towards financial independence. Other works often come up short on providing anything beyond theory and “pie-in-the-sky” projections.

The most important lesson I learned (or had reinforced) from the book is the idea that I just need to get started. Many of us are paralyzed by the investment choices so we sit around and do nothing. Suddenly, we’re fifty-five years old with barely anything in savings, and twenty years left on our mortgage. That puts you about as far away from financial independence as you could get!

Here I sit at almost 32 years-old, and not a lot of savings to show. But, we’ve had some big wins in the last several months. We’ve knocked out a lot of debt, paid off our car, and rebuilt our emergency fund after a family emergency took its toll. In the next year we’ll be debt free, except the mortgage, and can then really begin to focus on our dream of a semi-retirement before traditional retirement age.

Maybe I’ll continue writing in semi-retirement; maybe I’ll find some other side hustle I enjoy. Regardless, in 15-20 years I’d like to find myself doing more meaningful with my days than working in an office. I’d like to teach, mentor, and coach young people. I’d like to do more volunteer work. I’d like to do many of the things I’ve had to forgo to this point just to keep the family checkbook in the black. When we reach financial independence we will have the freedom to use our life energy for something more worthwhile to use than earning a paycheck.

In the coming weeks and months I’ll begin to share more about my strategy for achieving financial independence. Some big decisions will have to be made regarding our future plans. Will we invest in taxable accounts, or tax-advantaged retirement accounts (or both)? Will we go with mutual funds, high-dividend stocks, bonds, cash, or some combination?  How will real estate play into our plans? What will we do for health insurance? How does our kids attending college affect our plans?

Lots to sort out, but fortunately we have plenty of time. Our number one priority is becoming debt free. In the mean time we continue to save in retirement accounts, but soon we may add other investments to the mix. Of course, I’ll be seeking your input along the way as well. From the comments, I know many of you are now enjoying a semi-retired lifestyle and I deeply appreciate your input, as do other readers.

While this post was about “financial independence,” it’s worth mentioning on Independence Day that many men and women around the globe are putting their lives on the line for our independence. Many others have come before them and paid the ultimate sacrifice. Take a moment today to remember those who serve their country, and their families. Without their sacrifices the idea of financial independence would be merely a dream.

Yesterday, I had an opportunity to do something I very rarely do – spend time with my son during the day.  While his sister was in school, and the rest of the world was out working, we snuck away to a small lake and brightened the day for a few ducks.  Before leaving for home we rounded up slices of bread that were past their prime, but not yet molded.  We spent an hour or so tossing small chunks of bread to a group of ducks, including a mama duck and her babies.

It was a great timeout from the daily grind, and a nice reminder for me about what is really important in this world.  My son didn’t care that we drove to the lake in a twenty year-old truck, or that the lake was surrounded by homes four times the value of our home, or that we passed up a dozen restaurants on the way home to enjoy peanut butter and jelly sandwiches.   All he remembers is that his dad took a couple hours out of a busy schedule to enjoy some one-on-one time to feed those ducks.

Fab Five

The Secrets of Financial Freedom: An Interview with the Millionaire Next Door.  I find stories like this so compelling because they serve as examples that people really can reject our consumer debt-driven society and experience financial freedom on their own terms.  (@ Get Rich Slowly)

How to Prepare for a Power Outage – Without a Generator.  Severe weather is starting to crop up here in the south (there is a brilliant lightning storm occurring as I type this), and it won’t be long before hurricane season.  That means we’ll probably have to spend some time in the dark in the not-s0-distant future.  Take note of these tips for making life without power a little more bearable. (@ Five Cent Nickel)

How Much Do You Need to Save for Early Retirement? I’ve been pondering this very question here lately.  And on a related topic, I’ve been wondering if I should do more investing outside of retirement accounts so that I can access the money before the IRS says I’ve hit “retirement age.”  (@ Million Dollar Journey)

No Credit Cards – Here’s Why.  A very convincing argument against using credit cards.  I know this argument will never go away, but the more antics credit cards pull the less I want to use their product. (@ Gather Little By Little)

Ways To Save On Mother’s Day.  I urge anyone with a fracture in the relationship with their mom to take this Mother’s Day as an opportunity to reach out and make the first move towards healing that relationship.  After nearly losing my mom this past year, I am even more appreciative of the special relationship we enjoy to this day.  Happy Mother’s Day to all the moms out there! @ Free From Broke)

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Site of the Week

No site of the week this week because honestly, I just haven’t had much time to look around.  Perhaps you could share one of your favorites in the comments below.

The Ten Commandments are widely recognized in the Judeo-Christian faith as a list of moral imperatives that believers follow. As someone who also follows the concept of frugal living, I thought I would attempt to generate ten similar imperatives, loosely based on the original commandments.

Disclaimer: I am a Christian. In no way is this post an attempt to mock, or make light of, the original Ten Commandments. It is meant to be a light post, and I hope you will read it with that perspective in mind.

The Ten Commandments for Frugal Living

1. You shall not put money before happiness. So many of us make the mistake of putting money ahead of happiness. Whether it is declaring a major in college because of the promises of a high salary upon graduation, or accepting (or putting up with) a dead end job we hate simply because we make a lot of money.

We all have to suck it up occasionally and work through something we don’t want to do, but for the most part, look at the opportunities in life as chances to increase your happiness factor.

2. You shall not idolize things. By things I mean inanimate objects. These things have no inherent value. They are only worth the value you assign to them. Do not worship these things and be consumed by them. When I was 16 I had a picture of a Ford Mustang on my wall because it was “the car” I desperately wanted. Though I never got that particular car, “car idolatry” followed me for a while until I did finally make a new car buying mistake around twenty years-old.

3. You shall not take the name of Dave Ramsey in vain. Alright, so that’s a bit of a joke. But seriously, if you do not agree with something you hear from a “financial guru” there is no need to endlessly bash them. Simply take the good with the bad. No one says you have to adopt every piece of advice these financial personalities share.

There are many things I like about Dave Ramsey’s personal finance advice, and a couple areas where we differ. The bottom line is, develop your own plan after doing a little critical thinking over the idea of others.

4. Remember to rest, occasionally taking breaks from ultra-frugality. My grandfather wrote a letter to me when I turned 20 years-old, and it is something that I still treasure today. He said, “Stop and smell the roses. Life is to be enjoyed.” What great advice! I’ve used it over the years as a reminder that while living frugal, saving money and reducing debt have been my top financial priorities these last few years, I also have to make time to enjoy life. Take vacations; enjoy a football game with your family; take your wife out to dinner. But do it all with cash!

5. Don’t blame your parents for your financial problems. I hear a lot of people today blaming parents for financial problems, or their lack of financial education. Personally, I find that a lazy excuse. There are too many libraries, radio and television shows, blogs, and similar resources on the subject of personal finance to not be able to educate yourself.

If you ran up credit card debt because your parents never taught you about debt, guess what, you just learned a painful lesson. Consider it tuition to The School of Frugal Living, because after you work for two years at night five days a week part-time to pay off credit card debt, you will have a new respect for debt, and for the struggles your own parents went through.

6. You shall not kill your dream of financial independence. Tell someone at work you dream of retiring at 45 and watch their reaction. They will give you ten reasons why your idea is crazy. What about health insurance? How can you afford it? What if you live to be 80? What it social security isn’t there in your sixties? On and on and on.

So, many of us hear those objections, believe them, and subconsciously find ways to scuttle our plan for retiring early. Ignore those people. They have already given up on their dream, but you don’t have to. Never let anyone kill your dreams.

7. You shall not commit financial adultery by hiding money issues from your spouse. For a long time, my wife knew little about the credit card debt I had accumulated while trying to finish my online degree. I thought I was doing a good thing by not burdening her with the worries of mounting debt. I was wrong. I resented her for spending money when I was trying to pay off debt, and she didn’t understand my reluctance to spend because she thought we were living with more than we had. It was a recipe for financial, and relational, disaster.

Thankfully, I wised up and came clean about all of our finances, and together we developed a plan to attack our debts together to realize our dream of debt freedom. I’m proud to say we are nearly there, and I never could have done it without her help.

8. You shall not steal money that doesn’t belong to you. No matter how desperate you get, resist the temptation to steal money. I’m a big fan of the film Cinderella Man. One moving scene depicts the aftermath of a son’s decision to steal meat from a local butcher shop to help feed his starving family. His father discovers what his son has done and makes him return the meat. He tells his son that no matter how desperate things get, he is not to steal something that does not belong to him. It was a powerful lesson about an agonizing decision – the decision to steal to feed your family.

When I worked for a bank, I saw several employees get in trouble for stealing money. Later, we found out they were having financial problems of their own, and stole the money to help pay their debts. If you find yourself in a serious financial bind, resist the temptation to steal in an effort to get out. It will undoubtedly cause many more problems.

9. You shall not attempt to swindle your neighbor. Much news has been made of the recent Ponzi scheme busts around the country. These things have been around for a while, but with the help of technology they seem to be more prevalent than ever. But you don’t have to be running a Ponzi scheme to violate this commandment. Letting your neighbor in on a “can’t miss real estate investment opportunity” you know to be garbage violates this same commandment. Falsely pumping up a stock to neighbors to solicit their investments so your own shares increase in value is also violation.

10. You shall not covet your neighbor’s BMW. Be happy for others. Don’t be overly judgmental of the purchasing decision of others. And whatever you do, don’t be jealous of their possessions.

We once lived across the street from a guy who bought a new car every other year. He also had a huge RV, and all the toys a guy could want – jet skis, an ATV, a huge, plasma television, etc. For all I know, he could have been $100,000 in debt! Who could be envious of that?

I do my best to avoid complicated mathematical formulas (like the one featured above).  In my experience, mathematicians do a great job of taking a relatively simple process and making it overly complex by applying a series of inexplicable formulas.  I guess that’s why I was happy to run across an interesting concept the other day called “the multiply-by-25 rule.”

The idea is that you can estimate how much is needed in savings to generate enough income to pay for an item.  The only factors you need to know are how much something costs you now, and at what interest rate your money will grow.  Of course, determining both in this period of a inflation and fluctuating interest rates is tough, but you can get a general idea of how the math works by looking at a real-life example.

Photo courtesy of Behdad Esfanbod

A Working Example

We are fans of Netflix because it offers a relatively frugal entertainment option for family movie nights.  It’s cheaper than going to the theater, and cheaper than an expanded cable package.  At roughly $9 a month, our Netflix membership sets us back $108 per year.  To continue paying for Netflix out of passive income earning 4% per year, I would need a $2,700 ($108×25) savings balance.  Since most of my savings are now earning closer to 3% I would need to multiply my costs by a factor of 33.33% (100/interest rate).  This increases the amount needed to pay for Netflix after reaching financial independence by $900 to $3,600.  Maybe I should just cancel Netflix!

A Bigger Example

I have heard stories of people paying off their homes, cars and all other debts and living quite comfortable on a couple thousand dollars a month, or less.  Assuming our goal is the high end of that estimate, how much of a savings balance would be required to spin off $24,000 a year in income?

If earning:
3% interest, you would need $800,000
4% interest, you would need $600,000
5% interest, you would need $480,000

And you thought you needed to be a millionaire to retire early! This exercise does fail to account for inflation, both in terms of cheapening dollars and the costs of goods and services over time.  I doubt Netflix, or a similar company, will continue to offer one-at-a-time unlimited rentals in the year 2030 for $9.  However, running these numbers does emphasize the importance of minimizing the number of expenses you commit to early on.

Our Netflix membership alone puts us $3,600 further away from financial independence.  Our cable bill, although relatively small at $12/month, puts us $4,800 away from retiring early.  When you start to convert monthly expenditures to the amount of money required to cover their upkeep it really helps you prioritize what is important in your budget.

Homework:  Apply this formula to some recurring expense in your current budget and report the results in the comments below.  Does this required savings amount change the way you feel about continuing to pay for the item?