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Chapter 24. The Freedom Plan > 5. Don’t be aftraid to bust conventional thinkin...

5. Don’t be aftraid to bust conventional thinking.

Buster 1

It is very sensible to maximize your participation in all company-sponsored savings and investment plans. In many cases the company will match a certain percentage and you will also be able to save pretax dollars. The buster is that you must put this money away and not consider it usable toward the early part of your freedom plan. This is what I called “59½-year-old money.” You can access this money earlier if you need it, but penalties and taxes will apply. If you want to retire early or change careers, you need the capital to generate enough income to keep you happy from the time you make your change until you are 59½ years old. Your savings plan needs to include monies in addition to your 401(k).

Buster 2

Housing costs should not exceed 25 percent of your gross income. Why not make it 25 percent of your net income? You have to consider cash flow as it relates to your net, so why wouldn’t you keep your (probably) largest monthly payment in line so that you can escape being house poor. One method that might help you get started is to estimate your annual tax writeoff from the mortgage and plan your tax deductions to get a refund. Go for the stretch in your first year and bank the refund to supplement your mortgage payments for the ongoing years, so that your cash flow for mortgage payments does not exceed 25 percent of your net income.


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