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 I’m already over it.
The good news is I realize we don’t have to be stuck! An amazing thing about the era we live in is the great opportunity to create surplus. For us it was as simple as getting a marketable degree, a job, and being selective in our spending. I don’t mean to sound in control, we absolutely fell into our lives and are trying to prepare for the fallout. The thought of being cubicle bound for the next 30 years deeply depresses us, and I don’t mean in a funny sitcom kind of way, I mean in a very visceral life-ruining sort of way.
So we’re just not going to do it. Instead of relying on a steady paycheck to fund our lifestyle we’re aiming for financial independence. All that means is we’re aiming for a life where work is optional. I’m not talking about “retiring” at 70, I’m talking about quitting tomorrow, or at least by 40; ok maybe just a career change or a gap year or…
Ok so I don’t actually have a plan.
But I know staying the course isn’t gonna cut it. 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):
How The Chart Works
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 generally down, with some big item blips here and there. 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 2017.
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. Three years later we’re rocking $460,000; that’s a tight $371k 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 34% 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.
The earliest data I have is from the end of 2014 when I finally started tracking our Net Worth. The $89,000 portfolio balance was entirely in our 401k’s and I had no idea who Mr Money Mustache or Root of Good even were. In our complete ignorance we managed to get 5.2% of the way to financial independence, but still passively accepted our social fate of staying in our jobs for the rest of our lives.
By the end of 2015 we made a nice jump to 8.9% independent. 2015 is when I quietly began reading personal finance blogs and books and wondering if maybe we could live just slightly differently and get drastically different life results.
2016 is when we really began to be encouraged by our choices. It didn’t feel like we were “sacrificing”, and yet we made huge bounds toward independence, ending the year 17% of the way there.
Now 2017 is done and this is starting to seem like a real possibility. We’re a third of the way! Without question the roaring market has had way more to do with this than our frugality. But also you only make money in hot markets if you’re invested, and you can’t invest without having saved something.
The compounding effect of money is on full display in this chart. While our spending decreased only slightly, our overall progress lurched ahead. We advanced 3.7% in 2015, 8.1% in 2016, and now 16.7% in 2017! As our portfolio continues to grow, stock market returns will have an ever more prominent impact on our progress.
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 at no cost to you.
As always, drive small used cars and live in a small house.