I’m planning to do monthly updates on my progress to financial independence. If nothing else, it will be an awesome way to look back on the journey in the future. I’ll also be able to look back on the change in value of my investments each month. I only recently began to experiment with Excel so I am by no means an expert with the graphs that are produced but I’ll do my best.
For the time being, I am going to avoid posting specific numbers but I may reveal more specifics later but I haven’t decided yet. It feels a little personal and unsafe to me to discuss my exact net worth and expenses in dollar amounts. Instead of specific numbers, I will track my progress to financial independence based on the “4% rule.” It you are unfamiliar with this concept, I will be publishing a post about it in the very near future. It basically states that, in a well diversified portfolio, you will be able to withdraw 4% of your net worth every year and never run out of money. This means that when my yearly expenses are 4% or less of my net worth, then I will consider myself financially independent. Here is a graph of how I estimate that my progress to 4% will look over the next four and half years.
As you can see on this graph, my current yearly expenses are approximately 24% of my net worth as of today. This means that I have quite a ways to go in order to get to that safe withdrawal rate of 4%. Since I have only been out of school for less than a year at this point, I feel that my progress has been pretty good so far. I could technically take at least 4 years off of work and not run out of money as long as I continued my current spending each month. That’s exciting for me to think about but not even close to the ultimate goal.
The really exciting part is on the right side of the graph. This shows that I should reach my financial independence goal around September, 2020. In reality, that is not that far away. If that estimate holds up, that will mean that it will have only taken five years and three months of working, after finishing school to reach financial independence. Pretty crazy, right?
Now, let me explain some of the assumptions that I used to create this graph. I’m estimating an average growth rate of 6% per year of my investment portfolio. Over the history of the stock market, this would be considered a conservative estimate but I believe that with the current valuations in the market it is probably realistic. I assume that my savings rate will be, on average, a little less than it has been over the past year. This is because I have been working overtime most of this year, as well as making extra money working a PRN job and completing credit card, bank account, and brokerage account sign-up bonuses. I don’t expect to be able to continue this for the next four and a half years, at least not to the same extent, so I estimated a little lower. I also estimated that my expenses will increase about 25% over time, especially since I plan to eventually have kids. If the numbers were based on my current expenses, I would be reaching the goal much sooner.
I am optimistic that my projections are conservative and that I will actually be able to reach financial independence sooner than September, 2020 but I would rather be more conservative since the future is unknown. I’m going to work as hard as I can to be able to get to the goal three months earlier so that I will be able to say that my “working career” was only five years. That sounds pretty awesome in my opinion. What do you guys think? How long until you reach FI?