• Rachel Covert got serious about investing in 2014 after she decided she wanted more free time.
  • She increased her salary, kept her living expenses the same, and lived frugally.
  • This allowed her to allocate a chunk of her income to investing in her 401(k), brokerage, and Roth. 

Rachel Covert graduated from the University of Wisconsin-Madison in 2007 at the age of 22 with a bachelor's in fashion design. During her last year, she moved to New York City to complete her degree at the Fashion Institute of Technology. 

That same year, she kicked off her career in the big city at a fashion company, working as an assistant designer where she recalled making $35,000 a year. Her goal was to get to the top of the ladder and land a role as a senior executive at a fashion brand. 

But by April of 2010, she was laid off as many companies went out of business due to the 2008 financial crisis. To her surprise, losing her job was a relief after spending the last few years working almost 12-hour days. 

"There was a lot of crying in the bathroom trying to figure out if I had done the right thing with my life," Covert said of the long working hours and stressful job. 

However, on the other end of relief, there was financial stress. It was her first taste of living really lean since she didn't have a savings pot to turn to. For the next year, she relied on credit cards to cover some of her basic needs while freelancing for a few fashion brands until she got back into the workforce. During that time, she spent her days at the library and attended free yoga sessions in the park. This helped her realize that having time to herself made her happier. 

She eventually got back into the fast life of the fashion industry and was on track to reach her goal of becoming a senior executive. But by 2014, her priorities began to shift after she was diagnosed with rheumatoid arthritis. It became too difficult to juggle her physical and mental health while dealing with a demanding boss, working 12-hour days, and some weekends. She recognized that even senior executives at the company also worked similar hours. 

"It was sort of a slow dawning realization that this could not be my future, that I didn't want to become one of these people that I thought I had wanted to become," Covert said. "I thought I was working towards this thing that was going to be a better life, but I was realizing it was just a different version of the life that I had. It was a version of a life where I would certainly have way more money, but I wouldn't own my time."

She began to research what others were doing to reach financial freedom. She read blogs and listened to various podcasts. That's when she came across the FIRE movement, which stands for financial independence and retiring early.

One resource in particular, Mr. Money Mustache, a website created by a blogger who claims to have achieved financial freedom after investing a big chunk of his salary in index funds, had an impact on her. 

"I was realizing that financial independence was really a spectrum and that it was not an all or nothing situation where either you were a multimillionaire or you were a cog in the machine," Covert said. "There were lots of different ways to achieve financial freedom or financial flexibility."

She immediately got serious about saving and investing. Up until then, she hadn't been aggressively saving for retirement. She was prioritizing paying down her student loans and the credit card debt she had incurred while unemployed. She was half haphazardly investing about 3% to 4% of her annual income into her 401(k). Some years she allocated a couple of thousand dollars into a Roth IRA. 

"I think I thought I was planning for retirement. I just wasn't planning for early retirement," Covert said of her investing habits at the time. In 2014, that all changed and she became an aggressive investor. 

Seven years later, by May of 2021 at the age of 36, Covert had saved what she felt was three years' worth of living expenses, verified by records viewed by Insider. This gave her the confidence to leave her job after meeting her spouse.

However, she isn't completely relying on her nest egg of assets. She has since adjusted her lifestyle and moved out of New York City to cut her monthly expenses down to about $1,500 to $2,000 a month, she said. Covert also does some online coaching to help others reach their financial goals. This also helps cover her expenses. 

She now spends her time between the UK, living with her partner, and Portugal where they are planning to set up a long-term residency. This is called geographic arbitrage, which simply means saving money by relocating to a cheaper area. 

Her mission is now to help others understand that retiring early is an option, even if you're not a millionaire. 

7 years of changed financial habits

One of the first things she did once she realized she wanted to retire early was intentionally take a job that increased her salary. This move took her from making $80,000 a year to earning in the low six figures, she said. This allowed her to max out her 401(k) every year. She also opened a brokerage account and began investing in it. 

Another important thing she did was avoid lifestyle creep, which is when living expenses increase as salary does. Her biggest expense was rent. Even though she had a substantial raise, she decided to stay in her 300 square foot apartment in Brooklyn, paying $1,200 a month. 

Working long hours also helped her not spend money. She avoided taking Ubers and took the subway as much as possible. She wasn't in the habit of eating out. Instead, she reserved restaurants for social events such as meeting with friends. 

While she always hated the notion of extreme frugality, she realized it was important to free up her cash to invest. 

"I was honest with my friends. They all knew what was going on in terms of my frugality. So I would be like, 'Hey, that restaurant is too expensive. I don't really feel comfortable going there. Would you be open to doing this instead?'" Covert said. "Just being really honest and really direct with the people in my life about what I was doing helped me a lot."

She would plan her meals and take lunch to work to avoid spending on takeout. Her grocery budget was similar from month to month. She recalled spending about $250 a month on groceries. 

She saved a "fun money" pot for things she enjoyed such as travel and making pottery. 

All this freed up a lot of her salary so that she could invest. Every year, Covert prioritized maxing out her 401(k) by reaching the contribution limit by September. While she didn't have an employer match, she did it because it was beneficial from a tax standpoint. 

"A lot of what I was doing was basically a system where I had the money set up to automatically transfer out on the day after I got paid," Covert said. "So I was never sitting with a lot of money in my checking account because that was when I was tempted to spend it."

She also allocated about $1,500 a month to her brokerage account. If she was eligible for a Roth IRA by the end of the year, she would contribute additional money she had saved to it. Altogether, she was contributing about $3,700 a month towards investing, not including the Roth. 

She began paying close attention to the fees on the funds she was investing in. Covert recalled that the funds offered in her 401(k) charged fees as high as about 2.5%. She realized that if her market gains were 8%, the fee was taking a big chunk out. So she spoke to her company and requested access to lower-fee funds, such as Vanguard. Her company agreed.

Covert recommends using a mutual fund calculator to determine how much the fees you're paying towards a fund will cost you over time. Then, share that total number with your company's benefits administrator to demonstrate how much it will cost you across the lifetime of your retirement accounts. For example, a fee of 1% may seem small. However, if you're investing $10,000 over a period of 30 years, the overall fees could amount to $140,000.

She also advises paying attention to additional fees such as commissions charged by the financial services firm that manages the fund. Some mutual funds will also have a sales charge called a "load", which will either be a flat fee or a commission. These can all add up over time. 

Covert also emphasized that she began investing at the age of 22 years old. Even though it was only a couple hundred dollars a month, that amount compounded over time. 

"I started in the height of a recession. So I started when the market was terrible. By the time 2021 rolled around and the market was really strong when I retired, that money had really grown and was really working for me," Covert said. "Of course now it's a bit less because the market is down. But by the time I retired, a lot of that was just gains."

Her retirement accounts consist of a target date fund, which rebalances the allocation of stocks to bonds as you approach retirement. This means the fund will become more weighted towards bonds than stocks. She also has 5% of her investments allocated in bonds to balance out volatility. 

In her brokerage account, she is mainly invested in the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) to get exposure to the broad market. This account is important because she can access it without incurring the withdrawal fees associated with retirement accounts. If her cash balance is low, she can sell shares from this account. 

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