Nicole Dieker is a freelance writer, editor, and teacher. Her work is regularly published at Lifehacker, Bankrate, and numerous other sites. She encourages all of us to plan for your financial independence future while living in the present.
This post helps you figure out how to work towards a financial goal that's several years away while understanding that you don't know how your life might change in those years.
According to Jack Morrissey’s Beyond Rule 4 financial forecaster, I should have enough money to retire and live off my investments in April 2029 — eight years and seven months from now. (I’ll be 47 years old.)
This assumes the following constraints:
- Annual expenses of $29,890.80
- A net worth of $747,270
- Monthly investment contributions of $3,186.45 until net worth goal is reached
- 7% returns
- 4% withdrawal rate
I can anticipate your comments: “you might not able to continue investing $3K every month for the next eight years,” “you won’t want to live on $2,500 a month forever,” “we might be headed for a bear market,” and so on.
And sure, some of those comments may be accurate. I probably won’t be able to invest $3K every month for the next eight years, for example; I’m currently in an extremely high-earning phase of my freelance writing career, but I’ve been in the freelance game for seven years and I know that earning phases tend to cycle.
I’m less concerned about the frugality aspect; I’ve been living on this much money (or less) since I graduated from college back in 2004 and fortuitously stumbled upon a copy of Your Money or Your Life at the public library.
It won’t be my own lifestyle creep that gets in the way of financial independence. It could be the continued increase in big-ticket life costs like housing and healthcare, but there’s not much I can do about that beside pay attention to political platforms and vote accordingly.
Financial Independence Lifestyle
To answer a few more questions:
- What about children? Don’t plan on having ‘em.
- What about parents? I made the deliberate choice to live near my parents, after establishing a freelance career that allowed me to work from anywhere.
- What if you get hit by a bus? I was hit by a car about five years ago, while walking across the street at a designated crosswalk. I imagine a bus would be more painful.
I’m only answering these so I don’t have to clarify all of this stuff in the comments, by the way. The details, in this case, aren’t that important — and yes, yes, yes, I can sense that several of you are already starting to construct the obvious argument, that of course the details are important, personal finance is all about paying attention to the details.
If we didn’t pay attention to the details we’d buy a hundred lattes every day and invest in unbalanced portfolios with extraordinarily high expense ratios and hire financial advisers who weren’t fiduciaries and probably end up buying a timeshare or something.
I agree with all of you.
Financial Independence Future Details
When you’re actively managing your money, the details are important.
But when you’re staring at a large number that you might not reach for another eight years and seven months, the way you get there becomes very simple.
You save.
You earn.
You invest — in the market, in real estate, in your own earning potential.
You save and earn and invest again.
The details of how you save this month are super-clear. That’s where budgeting comes in.
The details of how you save ten years from now are phenomenally unclear, though there will probably still be a budget involved.
There is no way for me to accurately predict whether I’ll be able to retire in April 2029. At this point, I’m using one of the many great retirement planning calculators for fun.
In the “oh hey, you saved a little more this month and the calculators knocked another year off your FI goal” sense, although some months it’s more like “hey, you went to Walt Disney World this month and the calculators now think it’ll take you two more years to retire.”
The projections are completely theoretical.
The fact that you need to save and invest a big chunk of money before you can retire — whether or not you want to retire early, btw — is not.
So all I need to do, for the next eight years and seven months (or so) is ask myself what I need to do to get myself closer to that big chunk of money.
Focus On The Future And Live In The Present
We’ve all done this kind of stuff before, whether we’re saving up a down payment, paying down a mortgage, or paying off a bunch of debt. I often think of my FI number as “paying the debt on my future” or “saving up a down payment for the rest of my life;” that makes it seem less like a weird thing that only a handful of bloggers do and more like a natural part of adulthood.
I’ve done this kind of thing before, after all. Most of us, I’d guess, have faced down a number that’s so large we can’t imagine how we’ll get there. Except, of course, by taking it one month at a time.
Some months you put a bunch of extra money towards your goal.
Some months you go to Walt Disney World instead.
Some months you get hit by a car while walking across a clearly marked intersection and the car drives away before you can even ask about insurance information. (I’m fine now, thanks for asking.)
So you save more, or a little less, or spend some of what you’ve saved, and deal with life accordingly. When your career changes, you reconfigure your budget. When the yield curve inverts, you put less money towards your mortgage.
When something happens that eats up a big chunk of your savings, well… you’re still better off than you would have been without all of those savings, plus you’ve probably developed the kind of earning-and-saving skills that’ll help you rebuild your net worth faster than you might have otherwise.
And then you suddenly find yourself debt-free, like I did in October 2016.
Or you realize that you own your home free and clear.
Or, like I’m hoping will happen on or around April 2029 (give or take a few years in either direction), you find yourself with enough of an investment portfolio to consider retiring early.
And then you get to ask yourself whether that’s what you want to do next.
Related:
How To Build Passive Income In Order To Retire Early