The Numbers

Last updated in June 2022. Originally written in May 2022.

---

I’m aiming to be financially independent by 35. I’m writing this in 2022 so the goal is to make it within 7 years by December 2029.

Being financially independent means that my savings could support me for the rest of my life without my having to earn a single extra dollar.

Financial independence and early retirement are often conjoined in the popular FIRE (Financial Independence, Retire Early) movement, but they’re two separate things.

I’m not sure whether I’ll retire early or what retirement, let alone early retirement, even means nowadays.

If I reach financial independence but continue to work on this blog, am I retired?

What if I volunteer at a food bank? Am I retired then?

Is it about making money? If I make some income from an activity, then I’m not retired, but if I do it for free, then I am?

People online get their tighty-whities in a bunch fighting over what early retirement means and who is and isn’t retired depending on the work they choose to do or not do once they’re financially independent.

For this reason, I’ll try to avoid talking about “early retirement” and will instead focus on the financial independence aspect.

The plan

Here’s a 1,000-foot view of my plan:

1. Save as much of my income as possible. (I currently save ~75% of my post-tax income.)
2. Max out my tax-advantaged accounts every year. This includes my 401k, my HSA, and my Roth IRA.
3. Invest as much as I can into the stock market through a low-cost total market fund like VTSAX or FSKAX.

That’s it. Simple. (Though simple doesn’t mean easy.)

Sidenote

If you’re just starting down the road to financial independence and are looking for guidance, check out my free Personal Finance Basics series. It’ll teach you all you need to know.

The details of the plan are murkier and will be figured out closer to my financial independence date. This includes:

• Paying off the 15-year mortgage on our house
  • My wife and I bought a house near Austin, Texas in December 2021.
• Selling the house and moving to an area with low property taxes and low cost of living
  • We’re not sure where this will be as it’ll depend on a million different factors, such as where our parents are living, whether we have kids, whether we want to live abroad for a bit, etc.
• Building a cash buffer so that we don’t have to sell stocks during an economic downturn
• Fine-tuning our asset allocation
  • My current thinking is that we’ll be heavily invested (90%+) in stocks but that dividend-paying stocks will be an important chunk of this bucket
• Considering a part-time job or alternate source of income

How will I know when I’ve saved enough?

I covered this in detail in How will I know when I’ve saved enough to retire?

My wife and I are currently aiming to have a portfolio worth $1.4 million before declaring ourselves financially independent. Our home equity is excluded from this value.

Why $1.4 million?

Because it’s 35 times our target annual expenses of $40,000 and puts our annual withdrawal rate at 2.85%.

This means we could withdraw 2.85% of our portfolio’s value every year and never run out of money.

Sidenote

$40,000 × 35 = $1,400,000

$40,000 / $1,400,000 = .0285 × 100 = 2.85%

Or, more simply, 1 ÷ 35 = 2.85%

More commonly used multipliers for financial independence are 25 (4% rule) or 30 times one’s annual expenses, but I’m a bit more pessimistic when it comes to finances.

Then again, none of this is set in stone—we plan and the Universe laughs. 🙂 We have our destination set, but we’ll have to take things as they come and adjust accordingly.

My portfolio

These numbers are accurate as of March 2022.

There are a couple different ways I can split my portfolio.

Here it is by bucket:

Here it is by investment:

FAQs

What’s your total net worth?

Around $650,000.

This excludes the house my wife and I bought in Central Texas in 2021 (both the equity and the remaining debt in the mortgage) and my wife’s net worth.

Why do you have such a large percentage in individual stocks?

Because I got bored and undisciplined and thought to myself, “Let’s have a go at beating the market.” Bad idea. I’d be about $18,000 richer if I had remained disciplined and invested in total stock market funds.

The worst part is that I already knew this. And even more embarrassing is that I didn’t realize how bad it had gotten until I checked some time in 2021. 31% of my portfolio in individual stocks?! Tsk, tsk.

You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basketcase and I couldn’t help myself. So maybe I learned not to do it again, but I already knew that.

I guess there’s some lessons some of us have to learn firsthand.

The plan is to stop buying individual stocks and sell these once my income is low to avoid paying too much capital gains tax.