Financial Independence means you have enough wealth to live on without working. This means during some point in the future you will reach a number that allows financial independence to take place. Because this is an event, there is a day in time that you hit your financial number. Let’s call this Financial Independence Day.
The financial number is most likely based on how your current stock portfolio is doing so a certain day, week, or month is when it will really sink in. That’s what Financial Independence Day is all about. It’s a goal in the future that is used to track, motivate, and celebrate your journey.
It’s motivating to have a goal and work your way to reach the goal. Want to deadlift more weight? Run a faster 5K or marathon? Increase your net worth? That’s right you are creating a goal to work towards. Now you may not be a world class olympic athlete, able to run 4 minute miles, or a high salary CEO position, but it’s not required when pursuing financial independence.
Being able to see others from the community chasing financial independence, sharing dates and numbers can be really motivating. Make sure to check out my Financial Independence Day page for some extra motivation.
When you see someone ahead of you on that list, you may begin to think about what are they doing differently? In some cases it gets you wondering, checking your calculations, looking at someone’s budget, investment strategy, or Early Retirement Blueprint passive income of choice.
It’s important to know that having a financial independence day is for motivation, accountability, and to reach YOUR goal. Do not compare yourself to others. It’s a recipe that will not yield promising results.
My financial independence journey started thinking there had to be more. More options, better options. Even at a relatively young age I had always envisioned retiring at 50, mostly to play golf. Mostly because that’s what I thought people do when they retire. Plus walking around on beautiful terrain including lush green grass, hills, mountains, and the potential for an ocean view does sound appealing.
Fast forward to coming out of college with close to $100,000 in student loans, a parent loan, and credit card debt and it’s hard to look ahead to early retirement. Despite being in the process of paying off over $100,000 in personal debt I was looking ahead to the next step. It’s a blessing and a curse that I’m always looking forward.
A couple years making fresh out of college mistakes and grabbing that low paying job that everyone hopes for while making sure to buy a Mercedes Benz to look fresh and boom I’m now your “sad story” headline from every media outlet in America.
That’s my background story, but I’m not here to talk about paying off debt, I’m past that. That would be like talking about Jay Z when he was selling drugs on the corner. Puff Daddy when he was a backup dancer. Dr. Dre when he was a DJ. It’s part of their story, but clearly we are all rap moguls worth millions and millions of dollars. Well 3 out of 4 of us are.
When I looked at early retirement the vast majority of what I looked at was books written about retiring early in another country. I didn’t think this sounded so bad, but I also really like the USA for so many reasons. I mean America, right.
Retiring early in another country did give me another option. Nobody really wants to work till their 65. Everyone wants to call it quits and golf more. Because as I stated earlier retirement equals golfing more.
During my path to learn more about early retirement I remember reading something from JD Roth at Get Rich Slowly and later found Mr. Money Mustache and Early Retirement Extreme. In fact I found a whole bunch of people who were all striving for financial independence specifically with the goal to retire early or FIRE as most people refer to it.
Early on in my library early retirement fact finding mission and internet detective search on financial independence retire early (FIRE) I was in so much debt. So much of what I read in my early stages of FIRE didn’t really relate to my situation. I was in negative step 1. This made my pursuit of debt freedom that much more antagonizing.
I realized that this is my FIRE journey not theirs and while I may be a unicorn in that very few in the FIRE movement are straddled with debt and then rise from the ashes to a life of “enough”. Great story right, I’m a f***ing unicorn ready to rise from the ashes and declare financial independence.
So being debt free is one thing but I would need actual passive income to make all of this happen.
The good news is my wife brought an investment property into our marriage. She had this property for a full year before we were married and moved to Chicago. Finally, I had an advantage. A step in the right direction towards creating passive income.
The property itself was breaking even at best, but with time and potentially paying off the mortgage this would increase over time.
Just married and a year of living in Chicago helped us navigate the neighborhoods and the city. This also led us to our next real estate investment. In this case we bought a multi unit and lived in one of the units and rented out the others aka house hack.
Over a year into marriage and we now owned 2 investment properties. I was also getting closer to paying off all of my personal debt.
During that time I read more. Started a blog and became pretty invested in this whole FIRE movement even though I felt like an outsider looking in.
I did the math and realized that if we paid off both of our mortgages, not only would our expenses be extremely low, but the income produced from both properties would be enough to reach financial independence. Very simple math, but it works.
Now I admit this was a pretty crude, ballpark estimate to hinge our entire financial future on. However it was a great way to create a goal with numbers, dates, colorful road maps, and a purpose.
The simple math has changed a lot since then, not surprisingly. From 2012 to 2019, things change. I paid off all of my personal debt. We paid off our Florida rental home. Then we picked up all of worldly belongs and moved to the sunshine state. Big moves, big changes, big happenings.
It’s 2019 and the only housing in my portfolio (because your home is not an investment, right Mr. Collins?) are small amounts from index funds. Our home we live in every day is paid in full. Just have to pay the pesky taxes and insurance, but expenses are generally lower.
Income is also lower as we no longer have 3 additional rent payments coming in each month. Our entire plan for financial independence changed. However the numbers and the details are becoming more clear. Sometimes change is good.
This year has become about exploration. Some of that revolves around income, expenses, and financial independence. It’s an exciting time to be figuring things out.
In reality this is the first year I have tracked expenses with any meaning. What do I mean by that? During the time I was paying off debt all of my money was going to someone else, I didn’t care too much about our annual expenses, just that I needed to keep them low to pay off more debt.
Very similar with our mortgage and housing costs as any extra funds were put towards paying down the mortgage. Essentially all of our money went towards paying down debt and investing in our tax deferred accounts. I knew our savings rate and felt good about it, which was always in the 40-50 percent range.
Today I look at our expenses with a clear lens. Because these expenses are the “real expenses” that we occur on an everyday basis. No debt being paid off, mortgage payments, it’s really just the basics.
We are halfway through 2019 and the expenses are a little higher than I would have projected. Some of this is due to one time expenses. We bought appliances from the scratch and dent store, a new couch, mattress, bed, a used kayak, and fixing up the house. Our investment real estate rental is much closer to OUR home. Now more than ever.
These expenses are ones that probably will occur every 10 years as an estimate, so it’s hard to add them into our 2019 budget and expect this to be the same moving forward. I’m pretty sure I’m just going to throw old sheets over our new couch and make it last till 2050, I have big goals.
So maybe we are spending a little more this year, but as I’ve seen in my money coach business these things that “pop up”often pop up pretty regularly for my clients. Are they really one time expenses?
All of that to say I expect our expenses to be around $48,000. This is certainly not the rock bottom budget.
I took a look at our core expenses and already found room to cut in our groceries, car/umbrella/life insurance, and cell phone. If we needed to cut just from those 3 areas I could see a $300-$500 reduction each month.
Our secondary expenses could almost be wiped out entirely. Restaurants, travel, hobbies, entertainment, personal care are luxuries in most cases. That however is not the goal with our expenses and our financial independence.
The plan is not to cut out our Crossfit memberships in fact it’s to embrace something we both really enjoy. Spend the extra money. Try to get abs. Be healthy, Make the Crossfit 2022 games when I turn 40. Smile a little more at the soul crushing workout I just completed.
This is a plan, one that could change. It’s not entirely inconceivable to get a Planet Fitness membership and pay $10 month or build out my gym in my garage. We could be in Florida for 6 months out of the year and in some cabin up north for the other 6 months. One never knows, but always prepares.
If we cut out some of these “luxuries” we would be financially independent, probably a lean FIRE approach. I like my “luxuries”. I’dd rather pay my $149 membership, show up 20 times a month, and love every minute of it. It’s going to cost me $45,000 in my financial independence number, but it’s worth it to me.
At our current expected annual expenses of $48,000, the number needed would be 25 times this per the Trinity Study. Our portfolio would need to be $1,250,000 to reach financial independence, assuming a 4% withdrawal rate.
Based on conservative projections this should occur by the end of 2022, which is 3+ years away and one of the reasons we are looking to a seamless transition from financial freedom to financial independence.
There are a number of factors that could actually speed the process up and of course slow down the process. Here are the major factors that could help us get to our FI Day number faster.
If any of these items are better than projected, I may ask the wife to start planning the Airstream adventure a little early;) Until then I’ll let Steve over at Think Save Retire handle that part.
Financial Independence Day, December 31, 2022
What’s interesting about having a financial independence day is the goal behind it. Those pursuing FI know that much of what is done is through a large savings rate. Take these savings and put them into your investment of choice and wait.
Like tracking your expenses it’s important to take a look at your FI day and see if all of your time and money is being spent exactly where you have planned.
Imagine if I never looked at my FI day or the calculations behind it until 2022?
So many things would be out of order and most likely not on track. My personal approach is to check up on our investments and spending on a quarterly basis. This way I’m not micro managing my investments, allocation, and trying to be smarter than the market.
The goal of FI day is not to cut, cut, cut, and live as frugally as possible until you reach this mile marker on your excel sheet. It’s meant to optimize areas that are important to you. Spend wisely on the things you value. Find out what’s most important to you. All with the goal in mind to live your best life not only today, but as you transition to financial independence.