Journey To Financial Independence


I started this series to reflect on our goals and share some things I learned each month. For now, I’ll primarily be tracking our progress to financial independence.

OUR PROGRESS TO FINANCIAL INDEPENDENCE (FI)

Toggle through below. If the text is highlighted, that means there is an associated monthly article.

My Major Money Moments:

May 2011: Graduated with my bachelors of science in kinesiology with $9,500 of debt. Saved $10,000 working throughout high school and college. I decided not to pay off my subsidized loans and use the money I saved to survive in grad school.

May 2014: Graduated with my Doctorate in Physical Therapy with $107,500 in student loans when totaling principal and interest.

July 2014: Enrolled in the Public Service Student Loan Forgiveness (PSLF) program.

September 2014: Obtained my first PT gig, which was the best and worst thing that has happened to me.

December 2014: Entered Student Loan Repayment Under the PSLF program

July 2015: I finally proposed to my wife after being together for 10 years!

November 2015: Needed to leave my first job and decided to forget about student loan forgiveness.

December 2015: Transitioned from outpatient PT to working in a skilled nursing facility. Began paying off my student loans as aggressively as possible.

October 2016: Paid off my $115,000 student loan balance with help of very generous personal loans from family and no longer owe the federal government money. I also got married!

February 2017: Began learning about investing leading me to contribute to my 401(k) and IRA. Experimented with Robo-advisors and began using the free trading platform, Robinhood.

June 2017: Started a new job as a home care PT. I paid my wife back $10,000, effectively reducing my personal debt from $40,000 to $30,000.

July 2017: Finally achieved a positive net worth in cash and investments! I highly recommend personal capital as a money management tool to track your net worth and much more! 

November 2017: My mom had difficulty accepting any money to pay her back, so I opened an IRA with her approval to fund the account until it reaches $30,000.

January 2018: Learned about the concept of financial independence and developed a plan to FI/RE by 40.

August 2018: I began doing something with my spare change and created something called “The free money game for investors“.

April 2018: The birth of Flexcents!

May 2019: Made an awesome $47,000 Investment In real estate and my family

April 2020: Due to the Coronavirus pandemic, we were motivated to adjust our budget which will make use $30,000 richer.

June 2020: I decided to start my own PT private practice! I guess I’m somewhat of an entrepreneur now?

Learn More About Financial Independence

Toggle through to learn what Financial Independence (FI) means and the VITAL role it plays in allowing you to live your best life.

Financial independence (FI) is described as when your assets generate enough passive income to pay for your necessary and discretionary expenses without having to be employed or dependent on others.

These assets are usually in the form of stocks, bonds, real estate or other businesses

FI allows you enough financial security where you can retire and have your expenses covered by the income generated by your assets.

If you’re like most people, you are planning to retire or semi-retire at some point in your life, but even if you plan to work for as long as you can, I am sure you would prefer to do so out of enjoyment rather than necessity. Nearly everyone is working towards financial independence whether they know it or not.

Ultimately, FI allows you to have more options and freedom. It allows you to be free from worry about how you would pay for your bills if you lost your job, got injured, or needed to care for your family.

It would also allow you to travel, spend more time with loved ones, explore hobbies, give back to your community, or sit on the beach without worrying about needing to go back to work.

SOUNDS GREAT RIGHT?

Now, what if I told you you could have this level of freedom before you are too old and wrinkly to enjoy it?

Most people wait until they can claim social security because they haven’t saved enough money, but there is a community of individuals who are way ahead of the curve. They have achieved financial independence decades ahead of their peers.

If you want to learn how to do the same, keep on reading!

If you haven’t heard of the 4% rule, you will today. It is a popular method to determine how large your portfolio needs to before you retire. Nearly everyone in the FI community starts at the 4% rule to determine their FI number.

The 4% rule is a rule of thumb used to determine how much a retiree should withdraw from a retirement account each year. This rule seeks to provide a steady income stream to the retiree while also maintaining an account balance that keeps income flowing through retirement.

– Investopedia

For Instance, if you have $1,000,000 properly invested, you should be able to withdraw $40,000 ( inflation-adjusted) per year without drawing down from your principal.

That means your lifestyle does not exceed $40,000 during the first year of retirement.

After the first year, you adjust for inflation each subsequent year.

If we assume a 3% inflation rate, you can withdraw $41,200 ($40,000 * 1.03) in the 2nd year and $42,436 ($41,200 *1.03) for the 3rd year.

To calculate your FI number we need to use the inverse of 4%, which is 25.

It took me a while to get it, so here is the math:

4% = 4/100 , Inverse = 100/4 = 25

Now let’s say you’re a nerd and kept a budget for the last year. You know exactly how much you spent in each category and you add up the total to be $60,000.

Use the inverse of 4% (25) to calculate how much you need by the time you retire.

$60,000 x 25 = $1,500,000

So you need $1.5 million to retire based on the above example.

All of the above comes from research called the Trinity study.

Our plan:

For us, the 4% rule was a great place to start, but everyone is a little different and we wanted to be more conservative.

Therefore, we are now using a 3% safe withdrawal rate (SWR) which means we have to save 33x our projected annual expenses. Some may argue this is too conservative, but we’re comfortable working a little longer for some extra security.

Using this method is not perfect, but it is a great place to start.

If your number looks TOO HIGH and you believe there is no possible way you can accumulate that amount of money even if you invested aggressively:

  • Check if you included recurring expenses that you do not plan to keep during retirement. These are typically any debts you owe or children that you will no longer need to support. If you find them, remove them from your FI number as you do not need to draw down from your portfolio to fund these expenses.
  • Maybe you’re just getting around to saving your first $1,000, $10,000, or even $100,000. It gets easier and more possible the more you save. Don’t let your belief’s limit your potential.
  • Maybe your current lifestyle is way too inflated and you do not intend to downgrade during retirement. If so, you need to be realistic about what is possible. It’s likely you either have to cut back now or cut back later.

If your number looks TOO LOW and you feel it is not enough for retirement:

  • This may be the case depending on where you are in life. This equation becomes more accurate the closer you are to retirement because you have a better idea of your current and projected expenses.
  • Maybe you’re used to seeing results from those retirement calculators that estimate how much you’ll need based on a percentage of your income. Those are usually pretty inflated because they usually aim for you to need 70% of your income to live. For instance, if you make $100,000, they will project your retirement to need 70k per year. For me, that is much more than I need to live on per year, but to each their own.

If you want to start your own path towards financial independence, sign up for my resource list so you don’t have to spend months doing your own deep dive and potentially get overwhelmed or turned off some life-changing information.