Ahh… I love Independence Day! This is my favorite holiday of the year, by far. Mrs. RB40 and our son love Christmas, but the 4 of ushe July is much better. The weather is perfect in Portland this time of year and I can spend the whole weekend at home. It’s the perfect vacation. I guess I just don’t have the same attachment to Christmas as most people. Christmas feels so commercialized right now. It’s all about spending money, plus it’s cold and wet. I can’t barbecue in that kind of weather! Independence Day is also the time to celebrate my personal Financial Independence Day. I gave my 2 weeks notice after the weekend of July 4, 2012. That was one of the best moments of my life.
2023 is turning out to be a great year. The economy continues to go strong. Consumers continue to spend. We all realized that life is short after the past few years. Sure, traveling and eating out is more expensive than ever. But consumers want to go out and have fun. As a result, the stock market is going up. It could hit a new high if consumers keep spending. Our net worth also recovered very well. It gives me confidence that FIRE is working as planned. Financial independence is really the best. I can work on what I want, when I want. What are you waiting for? declare your Financial Independence Day and live life your way.
Declare your Financial Independence Day
What does it mean to declare your Financial Independence Day? It simply means that you will try to achieve financial independence.
Financial Independence (FI) is a concept that many aspire to, but only a few achieve. FI is difficult because it can only be achieved with deliberation and perseverance. It’s a simple idea, but implementation can take years. Here are the 3 essential steps to financial independence (more detailed article via this link).
- Track your finances – Most people have no idea what they spend their paychecks on. Money flows through your hands like water. The first step towards financial independence is to reduce unnecessary expenses. This can be done by carefully tracking your spending and getting rid of the expenses that don’t add happiness to your life. the goal is Spend less than you earn. Do this consistently and your finances will continue to improve. After you have control over your expenses, you need to increase your income. That is a crucial step too. The journey to FIRE will be much easier if you have a good income.
- Save and invest as much as you can – The next step is to save and invest as much as you can. You have to take step 1 to the next level. you have to spend a lot less of what you do This will determine how fast you can get to FI. If you save 10% of your income, it will take you 50 years to get FI, that is, your whole life. You can get to FI in a much more reasonable time frame if you save 50% of your gross income. This does not mean that you have to live below the poverty line. Just start with 10% and constantly increase it. Eventually, you’ll get to 50%. It will get easier as your passive income grows.
- follow him – Financial independence is a long game. You need to keep saving and investing constantly. The market can go up and down, but you should keep increasing your investment. Eventually, your passive income will exceed your spending. That is financial independence. There are other ways to define financial independence, but this is the safest. You will never run out of money if your passive income covers your cost of living. It is better to build with a small margin, of course. Your expenses will inevitably increase over time.
Our journey of financial independence
Now, I will share where we are on our FI journey. Our main goal is to generate enough passive income to exceed our expenses by 2022. We did it! Our passive income exceeded our expenses in recent years. It’s great. Mrs. RB40 can retire whenever she wants, but for now she continues to work. She is not ready to retire yet.
Coincidentally, on July 4he is the middle of the calendar year. It is a good time to take stock and see if we are on the right track. I do this by checking our FI* index which I update every month on the monthly passive income report.
IF system = passive income / expense
Once our FI ratio consistently exceeds 110%, we would be financially set for the rest of our lives. This is how we generate our passive income. I update our passive income page every quarter. Take a look if you’re curious.
Passive Income Report
Our passive income has done very well in recent years.
- 2017 It was the first year that our passive income exceeded our expenses. It was great.
- 2018 it was a year of high spending for us. We spent more than usual on travel and also got a new HVAC. Fortunately, our passive income was also very good. We were very close to 99%.
- 2019 it was a great year for us. Our passive income was down a bit, but our expenses were down significantly. This was mainly due to the decrease in our housing expenses. We moved into our duplex and were able to share a lot of housing costs with our tenant.
- 2020 it worked pretty well for us. Our passive income was lower than in previous years, but our annual expense was also much lower. The IF ratio was 120%.
- 2021 it was a great year financially. We spent very little because we were locked up at home. The IF ratio was 140%.
- 2022 It was another great year for us. One of our real estate crowdfunding projects was completed and we got a great payout. We spent a lot of money on travel, but it worked. We had fun and our yearly spending wasn’t too bad. The FI ratio was 146%, a new high.
- 2023 it’s a bit hard so far. We are spending more on all sorts of things. Our FI relationship is fine halfway. It should get better soon because we don’t have big plans for the rest of 2023.
Let’s go over each line item in detail.
- Real Estate Crowdfunding – Our investment is going well. I want to invest more, but we may not be able to do it this year. My dad is going to build a house soon and I need to accumulate cash. In general, I am satisfied with RE crowdfunding. It is much more passive than owning. You can read more details on my real estate crowdfunding page.
- rentals – We consolidated to two rental units in 2019. Both are rented and the tenants are great. I plan to sell when our son leaves for college in 2029. Homeownership is financially rewarding, but I want to travel more.
- dividend income – Our dividend income target is $15,000/year. We are not there yet. Recently, I have been more focused on growth stocks. I will invest more in dividend stocks when Ms. RB40 retires.
- Interest–This is the interest on our bank accounts.
- Retirement Accounts– Our retirement accounts are invested primarily in low-cost Vanguard index funds. We’re a little behind here because most of the dividends will be paid in the fourth quarter.
Can sign up with CrowdStreet through this link if you are interested in real estate crowdfunding. My experience with CrowdStreet has been great so far, but your mileage may vary. They have quite a few interesting projects at the moment. Look at them.
What about the FI ratio? How are we doing so far?
IF system = passive income / expense
FI ratio 2023 = $25,617 / $24,734 = 103.6%
Our FI ratio is a bit low this year. We spend more than usual on trips and various activities for children. Fortunately, our fixed cost is low. You can read more about how we minimize our Big 3 expenses here. We should be able to improve our FI ratio before the end of 2023. Our bonus payment should come in December.
Recording and Projection
Let’s take a quick look at our FI relationship over the past few years.
- 2015: 54% ($28,415/$53,037)
- 2016: 71% ($38,222/$54,000)
- 2017: 109% ($53,664/$49,131)
- 2018: 99% ($56,918/$56,638)
- 2019: 122% ($56,204/$45,896)
- 2020: 120% ($48,200/$40,030)
- 2021: 140% ($60,469/$43,261)
- 2022: 146% ($82,086/$54,607)
These are our goals for the coming years.
- 2023: target 120%
- 2030: goal 120%. Mrs. RB40 will be retired by then. Our passive income should be higher by then. but our expenses will also increase. I think 120% is a good long-term goal.
The FI ratio looks good for the next few years. Like most families, our annual spending has been increasing due to inflation. Fortunately, our passive income has also increased in recent years. Things are going as planned!
Well what are you waiting for? Declare your Financial Independence Day and TAKE ADVANTAGE! Financial independence can take a long time. The sooner you start, the sooner you will arrive. Dont wait. Host a cookout and talk to your family about it this weekend.
Do you keep track of your passive income versus your expenses? The relationship should improve each year if you hope to achieve financial independence.
If you plan to track your passive income, consider signing up with Empower to help manage your investment accounts. They are very helpful and I can get all my passive income data from one site. That’s a lot easier than signing into each separate brokerage, bank, and retirement account. It is a great site for DIY investors.
Enjoy the long weekend!
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have a lot of projects in the US so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you achieve financial independence.