Retiring by 2018: Our Journey to Financial Independence (with breaks in between)

Ever since a grueling stint in my early 20s as a junior banking analyst in which I watched my colleagues trade in their lifeblood for wealth and career progression, I’ve been determined to escape the same fate. My initial plan was to look for a job with a much more manageable work/life balance, avoid financial commitments that would keep me obligated to work (e.g. taking on a big mortgage or getting a MBA), and take periodic sabbaticals like my year-off in my mid-20’s to volunteer in Asia and again with my wife-to-be in our round-the-world trip from 2011-2012.

I’ve managed to stick to this plan for the last decade, and I was feeling pretty good about my gradually growing net worth thanks to a reasonable budget (at least compared to the standards of high-wage earners in the Silicon Valley). I figured that things would go like this for more-or-less the next two decades, until I could fully retire at the still-respectable age of 50: Put in my hours at a well-compensating 9-5, take a long sabbatical every 5 years, and live within a reasonable budget.

But then two years ago, my mind was blown when I read Extreme Early Retirement: A Philosophical and Practical Guide to Financial Independence.  While my plan is already quite radical to many in my circle who could never imagine departing from their careers to take a year off or retiring short of 65, it was not nearly radical enough once I got exposed to the ideas in the EER community.

The problem with my plan was that it still required me to keep holding a job in my current field in order to keep bringing in high wages. Now, my job isn’t bad by any standard – work/life balance is great, colleagues are lovely, there’s plenty of intellectual challenge, and it pays well – but it’s still a job. It means that’s 50 hours per week that I can’t spend with the people I love or undertake a hobby or explore a new career path that could be more fulfilling (but less compensating). It also means physically tying my family to a location, which is difficult for a wanderlust like me.

Hence, I’ve embarked on a path to full Financial Independence by the end of 2018, or age 37 for me and age 39 for my wife. Our net worth has gotten a huge boost in recent few years, thanks to a meaningful stock grant from my employer that then doubled in value. And since 2013 and my enlightenment in EER, we’ve also worked on reducing expenses by ~15% every year and increasing our savings rate. But our expenses are still way, way too high to sustain post-retirement, and our focus going forward will be to cut these even more radically.

ModelMinority’s Path to Financial Freedom

Financial independence plan

The red line are my actual expenses excluding tax, which will be dramatically lower after retirement given loss of income. While I’ll still have some kind of tax bill post-FI, it should be minimal if I play my cards right so I’m just taking taxes out of this equation for simplicity. The green line is my projected passive income, based on 3% withdrawal rate from net worth. This is more conservative than the typically accepted 4% safe withdrawal rate, but that’s what I feel comfortable with given how early we’re trying to retire. The blue line (which is graphed on a different axis) is our net worth.

The point of freedom is when the red and green line intersect, and my goal is to have them intersect at the black line which marks my goal expense budget and my goal passive income. This means I need to continue socking money away to build up my net worth, while decreasing my expenses further.

 

ModelMinority’s Annual Expenses

I’m embarrassed by these numbers, but I’m putting this out there to show our ongoing rehab from the high-spending life. 

Annual expenses

ModelMinority’s Budget Breakdown

Again, rather embarrassing. Highlighted line items are especially atrocious (how are we spending that much money to feed a family of two women?).

Budget

What we have to do between now and our 2018 FI goal: 

  • Reduce our annual spend to $60K. This means a 30%+ reduction in costs, compared to our spend for 2015. There are some big expenses that will naturally fall off, but we still have a long way to go when comparing our budget to that of other FIers. Also by 2018, we hope to be a family of four so we need to take into account added cost of the kiddos. Our plan for meeting the new aggressive budget:

Dining: This is honestly the most difficult bucket. We truly enjoy good food and even moreso when it’s enjoyed with good friends. Given that the end goal of this entire exercise isn’t to accumulate money, but rather to enjoy life more fully – we refuse to let money prohibit us from dining out with friends or on special occasions. However, what we can cut is all the mindless dining out we do because we failed to bring lunch to work or because we were too lazy to cook (which accounted for at least $1K in 2015). We’re also receiving a fancy espresso machine from a relative who is moving, so no more excuse to casually spend at Starbucks either! Our bottom line philosophy on this one: We will still dine out, but we’re committed to dining out mindfully.

Home/General: We’ve been fostering a dog for a friend this past year, and when the dog goes in January that will naturally reduce $1800 in costs. Also no dog means a cleaner house, so we’ll reduce housecleaning from 2x/mo. to 1x/mo., another $500 savings.

Clothing/Personal Care: We’re cutting our subscription to a massage club where we both have been getting monthly massages, which saves us $1157. I’m also on the hook to cut my personal care expenses in half ($250 savings), and we’ll cut our clothing budget from $350/mo. to $100/mo. Still very beefy compared to the truly frugal budgets I’ve seen from other bloggers, but a dramatic reduction from where we’ve been.

Gifts Given: In 2015 we went nuts with a lavish gift for my mom’s 60th birthday (a helicopter volcano tour in Hawaii) and numerous other gestures of financial generosity to our friends and family. This is another tricky one – we feel incredibly fortunate to be in the financial position that we’re in, and we don’t want to become Scrooge McDuck just to accumulate more wealth for ourselves. We’ll see how this one goes but we are committed to making more homemade gifts and gifting experiences rather than things, which will make the gifts we give more meaningful and less expensive.

  • Get our net worth to >$2M. Based on a 3% withdrawal, that’s how much we need to sustain $60K/year spend. Even with my wife planning to leave the workforce next year to care for our first kiddo (we’re expecting in March ’16), I feel like it’s possible to achieve this by our 2018 deadline assuming the market does not crash.
  • Live life to the fullest in the meantime! I could consider these next 3 years as a deferral of pleasure for the sake of future rewards. But life is too short, and the future is never certain (e.g. the market could crash, our health could be compromised). We need to enjoy the moment, because we’ll never have them again. To this end, I’m turning my maternity leave next spring into a 6-month mini-sabbatical which will include a RV roadtrip across North America and a trip to Mexico. In reality, we could get to FI much sooner by having my wife stay in the workforce and cutting my leave short – but we want to enjoy parenthood, and these first years will fly by only too quickly.

 

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