Fixed saving account interests, what % is good? Also Financial independence..

[MiniMum]

I have been a complete spazz with money all my life. Luckily DH isn't :) Anyway, I'm reading Your money or your life, I have been in a minimalist and simple living kick for a long time but I've gotten more serious about it recently. Are there people here aiming for financial independence?

I'm just starting out in ANY financial planning but our situation is very good. 

We have no debt whatsoever

We rent (a 600sf one-bedroom which I love!) from IL's so no mortgage

No big purchases needed atm

About 70K-75K (in USD) in savings which are currently at a 1% interest account where we can withdraw whenever, but have no need to for a couple of years at least.

In two years we may look into buying our own place, I want a small place preferably no more than 800 sf and it would cost us anything between 200 000-350 000 depending on location and condition etc. 

We value our free time VERY much, I SAH for DD (2 yo) and DH works 4-day weeks. We have money left over each month (since I stopped spending so much LOL!) and we could contribute between 15K-25K every year to our savings as long as DH works like he currently does. His job is very secure but I know he'd like to retire early (working perhaps for himself some hours a week).

So I'm looking at options where to put the money. So far the best interest rates I've found is 3.4% for two year commitment and 2.6% for one year commitment. Is that good? These are just no-risk accounts, not stocks.

Anyway, if we start with 70K and add 15 000 AND the compounding interest every year, would it be possible to achieve FI? How soon? I think partial FI would be possible at the very least (where DH would work for himself. I'm an artist so can't count on any money there.)

I know it depends on how much money one needs/wants to have.. I think we currently spend at most 2.5K a month out of which 1150 is rent and 600 is groceries, then bills, gas (drive only about 100 miles per week), meds, insurances, my studio rent and misc. stuff. I we were paying a mortgage it would probably be 3K -but then we would own our home in 20-25 years.

I feel really clueless haha. I know for sure I don't want to invest in stock or anything risky, I'm sure I'd make a huge mistake.

[MiniMum]

Well, I found a place with 3% interest rate for one year fixed account. DH thinks we shouldn't tie up the money for more than a year since we might need it (for a down payment to buy a home). 

I'm also thinking of splitting it up, putting most for the one year account and some on a longer term account... Like 10-15K.

[Poddi]

You didn't say your age and how soon do you want to retire.  How early is early?  It's quite different if you have like 10 years vs. 30 years.  Also do you want more kids?  Do you plan to save for their college?  There are many retirement savings calculators online that you can fiddle with to see how long it will take to achieve your goals.  Though most likely you can't even think about retirement until you have paid off your home.  Once that's done your expenses go down a lot.

We're certainly aiming for financial independence and early retirement.  We're working to pay off our house right now and will figure out what to do after that's done.

OK I tried a little bit of numbers on some calculators.  If you want an income of about 30k a year you need a bit over a million invested.  If you can keep up with your current savings rate that should be possible in less than 20 year.  The problem is buying a house.  I suspect you wouldn't be able to save 15k a year after buying a house?  If you think you can then it's definitely possible and congrat on saving so much at a young age. :)

Edited by Poddi - 4/10/11 at 3:30pm

[MiniMum]

Thanks for your reply! That's good to know we are not the only ones thinking of this.. At first I thought it didn't sound possible.

 Some info:

I'm 35 and DH is 32. So in 30 years would be normal retirement age (63-65 currently)

Most likely we will only have one child. (It COULD happen that we have a second one, but definitely not more than two, unless we had twins.)

College is free where I live and actually government assisted for everyone. Still, my parents helped me out financially (paying rent) so I didn't have to work, which I also want to do.

DD has an account where grandparents and we can put some money and I'm thinking also of putting these into a long term savings account (could tuck them away for like 10 years since they are meant to be saved for her) when there is a bit more (currently worth about 1500 $)

Our rent is 1150 and we would take a mortgage of up to 1600-1700 $. Paying this much we should still be able to invest about 15K a year.

DH works a bit from home (sort of a hobby that makes great money) and he could continue doing that and easily make 10K a year even after retired. He could end up making much more than that, but 10K is a super low estimate, he has actually made that much in the past three months. But still we are not ready to count on that, as he has only been doing it for a few months!

My mom has passed away and dad plans to sell their house in a couple of years. I don't know if he plans to give to us (three kids) mom's share or part of it, I don't' really know how that works for sure but he has said something of that sort. That would definitely help with our buying a home. Mom's half of the house divided between us three would be about45-50K each but I guess there'd be taxes. Any other inheritances are hopefully at least 25 years away!

I plan to SAH and any money I make is a bonus, not to be counted on in any way :) 

I guess DH would like to work, but less. Being able to work only for himself at some point would be optimal. I guess in a couple of years we have a good sense about how much money he can make with his "hobby" -even with putting in just hobby hours.

It sucks that employers won't let you work less hours or days... When you have small kids and would like to spend more time with the family.. that's when most people actually seem to work the most hours :/