milestones

The road to financial independence (FI) can be a long and lonely one.

Because FI strays so far from the norms of the rampant consumerism that fuels our capitalist society, it can be hard to stay motivated on the years-long journey to save 6 or 7 figures.

Enter: The Milestones of FI

On a recent episode of the ChooseFI podcast, Jonathan and Brad interviewed Joel from fi180.com.  They discussed an amazing article by Joel, “The Milestones of FI“.

Joel created a list of milestones to help track progress to FI, which gives us all those smaller goals that we’ve needed so badly!

I love his ideas, so I’m going to start using his milestones (with a couple of suggested additions by Brad, Jonathan, and Gwen from Fiery Millennials) to track my own journey to FI.  Check out the sidebar to see our progress!

So without further ado, here are the milestones and the numbers that we need to achieve them:

Debt Free

As discussed on the podcast, “debt free” means you have paid off all high-interest debt (credit cards, a car loan or student loan with a high interest rate).  Mortgages are generally considered to be acceptable debt, so I won’t count any future mortgages we may have as “debt”, in the context of these milestones.

We passed this milestone long before we started this journey in 2016.  By 2013, we had eliminated all debt.  Having never had student loans, car loans, or a mortgage, our only debt was credit card debt, and we I had maybe $500 at the height of it. *Let me just reiterate that if we had had an emergency fund, this debt would have never existed.*

So starting this FI journey in 2016, we were well past the Debt Free milestone.

Walk-Away Money

Joel has another name for this milestone, which he got from this post by Jim Collins.  But, in trying to keep it family-friendly around here, I’m going to call it the Walk-Away Money instead.  This is the amount of money that we would need to comfortably walk away from a job that was unsatisfying or ridiculous.

Many people across the world stay in jobs they hate, because they would be absolutely lost without that money.  But, for us, we know that if we have a certain amount in the bank, we would be comfortable leaving a terrible situation behind.  We would have plenty of money to live on while we find another job.

I decided that that number for us would be one full year of expenses, or $24,000.  Hey, look at that!  We have already passed another milestone!

And actually, we are sort of taking advantage of this right now.  While Frugal Merman loves his job, and hopefully will continue to do so, I have been unemployed for the last year and a half.  That wasn’t a big deal in Colombia, because it had always been our plan that I wouldn’t be working there.

But now I’ve been unemployed in Las Vegas for 3 months.  Sure, I could go get a job at Walmart if I was desperate.  Heck, I could probably easily get an even better job, but one that has equally terrible hours.

But because we are able to save 50%+ of my husband’s income alone already, and we have a stash of almost $40,000, I can be picky.  I can use that Walk-Away Money prematurely and wait to find a job that I will actually enjoy.

We’ve had Walk-Away money since before our move to Colombia, which allowed us to make the move in the first place.  Even better, because my husband worked in Colombia and we kept our expenses reasonable, we didn’t even have to touch any of that money.  I think we probably hit that $24,000 in fall of 2015.

First $100,000

This is our next milestone and I know it will be a great one to cross, maybe even the best one.

At this point in our journey, $100,000 seems like a lot of money!  And honestly, I can’t imagine being nervous about money after having a nest-egg of that size.  I hope that $100,000 will be enough to get us through any setbacks we may have.

Obviously, I’m hoping we won’t have to use the money for anything other than growing our wealth, but I will breathe easier when we hit this milestone.  As of August 2017, we’re about 40% there.

Quarter FI

This number means we’ve made it 1/4 of the way to true financial independence.  For us, this number is $150,000.  Looking forward to it!

Half FI

$300,000 here we come!

Lean FI

Lean FI is when we could be financially independent if we cut out all discretionary expenses, like eating out, Netflix, entertainment, clothing, etc.

Living as we do now, we could cut out the extras and live on $14,400 a year, which would make our Lean FI number $360,000 ($14,400 X 25).  No doubt this number will change when we have kids and get investment property(ies), so I’ll have to update it in the future.

This number *may* turn into our FI number, if we have an investment property, or if we decide that our portfolio will grow far past the $600,000 in our lifetime.

We don’t want to leave a bunch of money behind when we die.  We want to spend the majority of our money in our lifetime, so our kids and grandkids don’t just get handed a huge sum when we die.  If it works out that way, fine.  But I would rather that we were able to quit our jobs earlier and spend time with our future kids and family while they are little.  I don’t want to continue working through their childhood just so I can leave them a sum of money when I die, which they *hopefully* will not need anyway.

Crossover Point

The Crossover Point comes when your investments are earning more than you are earning at your day job.

This is another number that we will have to update, because I’m currently unemployed.  But, for now, my husband’s average monthly after-tax income is about $4,478.  That means our investments would have to make more than $4,478 a month, or $53,734 a year.  Because we don’t know how the market will perform, or how our investment properties will do, I’m not going to guesstimate the necessary portfolio balance.  We’ll just have to keep an eye out for that extra $4,478 a month!

Flex FI

Remember in my post What Can $600,000 Do For You? where I introduced the 4% rule?  Here’s a brief overview for newbies: There was a study was done in the late 90s to test “safe withdrawal rates”.  A safe withdrawal rate is the percentage of your portfolio that you could withdraw every year, and have enough money for 30+ years.  The Trinity study results showed that there is a 96% of your money outlasting you if you withdraw 4% each year.  After researching this, I’m a believer, and this is the max we plan on pulling out each year.

So if “true” financial independence depends on a 4% withdrawal rate, or 25 X annual expenses, Flex FI depends on a 5% withdrawal rate, or just 20 X annual expenses.  Per the Trinity study results, this scenario has an 82% chance of working out.

Not to get ahead of myself, but I think we will already be “retired” by this point, as long as we have passive income coming in from our investment properties.  But we’ll see if we’re willing to risk it!

We will cross this milestone when our portfolio hits $480,000.

Financial Independence

This is our ultimate goal, to get to $600,000.  Once we’ve made it here, we will most definitely be quitting our full-time jobs and probably move to the tropics to build a sweet house on the beach.

Even if we quit our jobs before we pass this milestone, I know it will be an emotional one for us.  This has been our ultimate life goal since June 2016, one that has changed our life forever.  I’m getting teary-eyed just thinking about it.

Fat FI

This number is 30 X our annual expenses, which would make the chances of our portfolio lasting until death almost 100%.

While I’m normally a very conservative person, I am perfectly happy to take a little risk to quit our jobs earlier.  Fat FI will probably not be achieved by additional savings from our day jobs.  This number will come naturally with increases to our portfolio in the form of dividends, market increases, and rental income.  These are passive ways to earn income, so we will have plenty of time to drink Dr. Peppers while we read on the beach.

We will be Fat FI when our portfolio reaches $720,000.

If we hit this number, will our lives change?  Will we start buying fancy cars, eating out every meal, and increasing our house size every year?  No!  We don’t need those things to feel fulfilled anymore.

Maybe if we hit Fat FI we will splurge a little more, on things that genuinely make us happy.  But I hope to be like the Mad Fientist, who found that in his first year of freedom, there was nothing else he could buy that would make him happier than he already is.  Is there a better way to live your life?

I’m excited to *finally* have a way to keep us motivated.  We’ll continue to track our progress here on the blog for everyone to see.  Hopefully we can show you how two regular people can achieve wonderful freedom just by questioning the societal norms and living intentionally.

*If you want to learn more about financial independence, check out my introduction and this post about our FI goal.*

Which milestone are you working toward?

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