So, I was sitting around the other day thinking about what my next post should be about and something hit me. I’ve been writing about financial independence (FI) for the past few months and haven’t even told you my personal financial independence plan! I’ve let you down as your financial sensei. All good leaders lead by example so it’s time for me to reveal my financial independence plan.
I haven’t put half as much time into this blog as I would like. I’ve let my life get busier and busier over the past few months and that’s taken away my writing time. Right now, I’m going to church on Sundays, Working on Mondays and going visiting with the church every other Monday. Work and Karate on Tuesdays, Work and Church on Wednesdays, Work and Karate on Thursdays and work on Friday.
That doesn’t sound too bad but when you add writing, running an eBay store, Taking 4 college classes, keeping an antique booth stocked, spending time with family and doing all the fun things you get to do as an adult, that pretty much takes up all my time. Anyways, I intend to start posting more in the near future. Especially once I finish college.
Alright, now that I’m done complaining about my busy, first-world problems that millions of people wish they could enjoy, let’s get to the plan.
To start with, FI means that you have enough passive income coming in to cover your expenses. Most people do this by investing in index funds or through real estate. You can check out this calculator to see when you'll become FI.
Once you reach FI, you no longer have to work for money if you don’t want to. Most people know about FI, they just use the word retire instead and think it’s something you do after you hit age 65. I was one of these people until about a year ago when I came across Mr. Money Mustache and saw how he quit the corporate life at age 30. He didn’t quit working all together but only did work when he wanted to and did it on his terms.
Ever since I found out you could achieve FI when you’re still young, I’ve been working towards it. I’d like to become FI so I can spend the second half of my life devoted to the things I find most important. I’m 25 right now and I don’t have a set age of when I expect to become FI but should be able to hit it easily in my 40s. I don’t have a set age because I have no idea what my income is going to become. I’m just trying to save as much as I can and reach FI as soon as possible.
Before I heard Mr. Money Mustache’s story, I was doing the Dave Ramsey plan. I still follow his baby steps but instead of a wimpy 15% towards retirement, I’m throwing as much as I possibly can each month. I’m also using credit cards (Dave Ramsey would cringe) to get really good travel rewards. I pay the cards off in full every month just so you know.
The first rule in my financial independence plan is not carrying any consumer debt. My wife and I have never had any debt other than our mortgage. It’s harder to pay cash for everything you buy. You save so much money though because if you don’t have the cash, you can’t buy anything.
It’s good to have the mindset of paying cash for everything because it grounds you in reality. When you open up your mind to using debt to pay for things, the line of what you can afford and what you can’t gets blurred. You start thinking about the monthly payment amount and how small it seems. Before you know it, half of your paycheck is going to things that you didn’t really need or could have bought used. Each month that goes by that thing your making payments on goes down in value.
The most important thing to not go in debt for are vehicles. Cars depreciate ridiculously quickly when they’re new. If you buy a brand new car for $30,000, it’s going to be worth about $15,000 in 5 years. Our cars are 2001 and 2002 models and they had depreciated about as much as they possibly could when we bought them. They still have plenty of life left though and we’ll probably get several more years out of them.
Prepare for Rainy Days
The next step in the plan is to keep an emergency fund. The first thing we did when we got married was set aside several thousand dollars for emergencies. Having money set aside takes away any worry of paying for big expenses that might pop up. I’ve currently got our emergency fund in a betterment investment account. You may just want to put your emergency fund in a bank account but I’m willing to take a little risk in hopes of getting a better return on my money while it’s just sitting there.
Thankfully, we haven’t had to use our emergency fund yet. You never know what life’s going to throw at you though. It’s never a bad Idea to save.
Another thing we do is keep expenses down. Usually we only spend about $2,500-$3,000 a month. Living frugally is one of the most important things you can do to become wealthy. The less you spend, the more you save. But you’re smart so I know you knew that. We shop at Aldi for groceries and turn off the lights in the house if we’re walking out of the room. If you exam your life you may not find big things you could change to save money. Chances are, there are several small things you could do to save though. It may seem silly, but a few dollars saved every week really adds up over your life.
So, we don’t have debt, we have an emergency fund and live frugally. This frees up a nice amount of money every month that we have to do something with.
The most important part of our FI plan is investing. We don’t have any real estate investments right now so we’re focusing on index funds. Index funds are pretty much the most passive form of investing you can get. Literally all you have to do is transfer money from your bank account to the fund and the fund does all the work for you.
When I first learned about FI, I didn’t really know much about investing. I’ve read hundreds of blog posts on the subject now though and feel like I’ve got a good grasp on how it works. J Collins has a good series onstock investing if you’d like to read more about it.
At this time, I have all of our savings in one index fund. It’s called the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX). This fund is one of the cheapest out there and probably the most popular fund in the FI community. The VTSAX in a fund that is split over the entire US stock market. This means your portfolio is diversified over the entire economy.
And that’s pretty much as complex as my FI plan gets. Stay out of debt, live as frugally as we can while still enjoying life and put all our excess money into Vanguard. Right now I’m focusing on increasing my income so we can save even more.
A Side Plan for the FI Plan
I’ve got one other trick up my sleeve that I’m working on. Ever since I started reading about financial independence, I’ve come across a lot of interesting ideas. One of them was the idea of selling things on eBay as a full time gig. I stumbled upon this website called Scavenger Life and started listening to Jay and Ryanne’s podcast. They talk about how they escaped the corporate world and went full time selling on eBay over 8 years ago.
eBay is still work, but you get to choose when you do it. You don’t have any deadlines to meet and can take a week off whenever you want. To me, selling things on ebay is basically a way to become financially independent without investing a ton of money into the stock market. I don’t have a large enough store yet to cover our expenses but I’m going to keep working at it and see how big of an income stream I can turn it into.
Sure, eBay has cons just like everything else in life but I really enjoy hunting for things at a super discounted price and flipping it for a lot more. eBay just has a simplicity about it that I really like. Plus, I can listen to podcasts while I’m working on eBay and podcasts have become quite an addiction for me.
I haven’t decided if I’m trying to replace my job with eBay or if I’m just going to use the extra money to accelerate our way to FI. I will definitely keep you posted along the way though.
So there’s my financial independence plan. It isn’t very flashy, but I like taking complex things and breaking them down to simplicity. Have you considered pursuing FI? I think it’s a concept that everyone should at least know about and consider. There’s no need to spend 40 years at a job you hate and your financial sensei will be here to help you along the way.