financial independence

Financial Independence Progress Report

I’ll kick this off with a familiar refrain: I don’t know what I want to do with my life! I appreciate that this isn’t a unique or sympathetic situation. Maybe you even feel the same way? All I know is I have no driving passion, no childhood dream to fulfill, no greater mission in life. I’m just here, floating, waiting to be zapped.

Where I’m At

I’m currently a corporate peon accountant living life one wild excel spreadsheet at a time. And while I don’t know what I want to do with the rest of my life, I do know it’s not this. I don’t even like that I consider what I’m doing with my life to be accounting. No knock on accounting or anything, but there’s gotta be more to me than this? Right?

While I wait for my pod to get zapped I’m trying to stay loose and liquid; I can’t let personal finances stand in my way when the mothership comes. So my wife and I are working toward financial independence. All that means is, we are aiming for a life where work is optional. I’m not talking about “retirement” when we’re 67, I’m talking about bouncing rightchnow. Or in a few years anyway. Well, maybe by 40…

Ok so I don’t actually have a plan.

But I know it’s something I want. So in the mean time we’re maximizing our earnings, steadily (very slowly and non-commitally) working down our living expenses, and putting our savings to work in the stock market. That actually sounds overly impressive. Really what we’re doing is avoiding lifestyle inflation and trying to only spend money on things that are important to us. We don’t do a very good job of it, but we’re managing to live ever so slightly differently than “most people”.

Just because I don’t have a plan, doesn’t mean I don’t track our progress.

Here is that mega chart feature image again for your reference (cause I’m gonna break it down):

If you bothered to read the title you’d know this chart tracks our progress toward financial independence.  The red bars are a rolling 12 month average of our monthly expenses. We spend money unevenly throughout the year, so I thought the best indicator of our spending trends would be to use a year-to-date average.

The smaller green hill on the bottom is the safe withdrawal amount of our portfolio balances. I ascribe to the much lauded 4% Rule. This theory basically says you can spend 4% of your portfolio balance every year and never run out of money. If you have so much money you’ll never run out, then you don’t need to work, ipso facto, you’re financially independent. The data points are our portfolio balance times 4%, divided by 12 (to get to monthly safe-withdrawal).

The blue line is our percent progress toward financial independence. This is how much of our monthly spending is theoretically supported by our portfolio. I say “theoretically” because we don’t actually spend money from our portfolio, we stuff money in to it. The percentage is arrived at by dividing our safe-withdrawal amount by our monthly expenses. As soon as that green hill overtakes those red bars we can quit work forever.

The Thin Red Line (spending)

The trend in our spending is down slightly with a little bump caused by our wild spending a year ago. We went a wee bit nut cakes apparently. The downward move is driven mostly by paying off our mortgage in May 2017! As it turns out not having a mortgage is a really helpful way to spend less. We’ve also done some smaller optimizing in areas like insurance and groceries. But this is offset by our huge increase in travel spending. You can read this post to see our detailed spending report for 2016. 

I’d like to see those red bars fall even more. We’re still spending more than $5k a month which means there is plenty of room for downsizing.

The Little Green Hill (savings)

Our portfolio balance has been on a steady rise up. This is easy to explain, we save 50% of our take-home pay. When you are constantly throwing money in the pot, the pot fill up. In January 2015 (the first month of this chart) we had a portfolio balance of $89,000. Less than three years later we’re rocking $433,000; that’s a tight $344k increase. Most of this is money we’ve saved, but a very healthy cut is owed to market growth. Thanks for working so hard money! You can check out this post on where all our money went in 2016 (including savings).

The Bombastic Blue Line

This represents our actual progress toward financial independence. When this little fella hits 100% we out. Now, here is where the chart is misleading… The blue line should actually lay exactly on top of the little green hill. The reason is, as soon as the green hill equals the red bars, we’re at 100% financial independence. For October 2017, the little green hill is actually 28% of the red bar, so the blue line should be right on top of it. The reason it isn’t is because this chart uses two axis. Notice the left side shouting out $ and the right side signaling %. I don’t really care that it’s misleading, I think it looks cool. Just like I think using different font colors is cool.

The gap between the blue line and the green hill does call out one important mechanism of progress toward financial independence. There are two ways to increase our percentage: 1) Save MORE 2) Spend LESS. The sharper climb in recent months is owed to the combined forces of our portfolio growing faster and our spending declining. Way to go us.

Well that’s all for now

I hope you enjoyed a little peak into the kind of personal financial analysis I’m trying to do. I encourage you to track your own financial progress. An incredibly helpful tool to use is Personal Capital. Personal Capital tracks all your investment balances (including 401k’s). It takes a little time to set up, but after that it’s all automated. And best of all, it’s completely free! If you sign up through this link you can help support this blog and no cost to you.

Have a great Thanksgiving! And as always, drive small used cars and live in a small house.


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