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.

I hope you get some value from this and if you haven’t already, join the Flexcents community as it continues to grow!

Our Progress to Financial Independence (FI)

As of the end of June, we’re now past the 25% away from our FI number ($ we need to retire).

Let’s see if the stock market will allow us to stay here to enjoy the air for a little bit before it dips back down, which it eventually will.

Progress (%)

26.03 %

To Financial Independence

It has been a rough few months with some pretty big changes happening in my personal life which led me to liquidate $30,000 worth of investments. There was a slight down-swing while selling, but I was essentially forced to realize some gains.

I am also glad most of the stocks were held longer than a year. Meaning it will be taxed at a long-term capital gain rate which is usually around 10% lower than your ordinary income tax rate.

To learn more about my recent biggest money move, refer to an article I’ve written about The Best $47,000 I ever spent.

Otherwise, feel free to check out the upward trajectory of our progress below.


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.

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 4rule 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

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

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.
  • 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. You may want to estimate the cost of housing, car, or dependent care or anything else you are not yet paying for, but know you will have to in retirement.
  • 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.