Retirement

Declare your financial independence day

Declare your financial independence day!

Oh… I love Independence Day! It’s my favorite holiday of the year. Mrs. RB40 and our son love Christmas, but the 14th is not their cup of tea.D July is much better. The weather is usually perfect in Portland this time of year, and I can hang out all weekend. (Oh, and we had a heat wave this year. It was sooo hot.)

I guess I don’t relate to Christmas like most people do. Christmas seems to be so commercialized now. It’s all about spending money, plus it’s cold and wet. I can’t barbecue in this kind of weather! Independence Day is also a good time to celebrate my personal financial independence. I gave my notice of resignation after the Fourth of July weekend in 2012. It was one of the best moments of my life.

2024 looks like it’s going to be a nice year. The economy is doing well. Consumers are struggling, but most of us are holding on. Rent, travel, and eating out are more expensive than ever. If you want to achieve financial independence, you need to watch your budget very carefully. However, the stock market is doing well. Investors should be happy this year. Last month, our net worth hit a new high. That gives me confidence that early financial independence is working according to plan. Financial independence is the best. I can work on whatever I want, whenever I want. What are you waiting for? Declare your financial independence. Financial Independence Day And live life your way.

Declare your financial independence day

What does it mean to declare your financial independence day? Simply put, it means that you will strive to achieve financial independence.

Financial independence is a concept that many aspire to, but few achieve. Financial independence is difficult because it can only be achieved through forethought and perseverance. It’s a simple idea, but it can take years to implement. Here are the three basic steps to financial independence (more detailed article here).

  1. Track your finances Most people don’t realize what they spend their salaries on. Money flows through their hands like water. The first step towards financial independence is to reduce unnecessary expenses. This can be done by carefully tracking your spending and eliminating expenses that do not add joy to your life. The goal is to: Spend less than you earnDo this consistently and your financial situation will continue to improve. After you control your spending, you need to increase your income. This is also a crucial step. The journey to financial independence will be much easier if you have a good income.
  2. 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 the first step to the next level. You have to spend Much less Achieving financial independence requires you to save 10% of your income, and this will determine how quickly you achieve financial independence. If you save 10% of your income, it will take you 50 years to achieve financial independence, which is a lifetime. You can achieve financial independence in a more reasonable time frame if you save 50% of your gross income. This does not mean you have to live below the poverty line. Just start with 10% and keep increasing it. Eventually, you will reach 50%. It will get easier as your passive income grows.
  3. keeping it saving it – Financial independence is a long game. You have to keep saving and investing consistently. The market may go up and down, but you have to keep adding to your investments. Eventually, your passive income will exceed your expenses. That’s 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 living expenses. It’s best to build a small margin, of course. Your expenses will inevitably increase over time.

Our Journey Towards Financial Independence

Now, I’m going to share with you where we are on our journey to financial independence. Our ultimate goal is to generate enough passive income to outweigh our expenses by 2022. We’ve done it! Our passive income has outweighed our expenses for the past few years. That’s amazing. RB40 could retire whenever she wants, but she’s still working right now. She’s just not ready to retire yet.

Coincidentally, July 4thD It’s the halfway mark of the calendar year. It’s a great time to take stock and see if we’re on track. I do this by checking our FI* ratio which I update each month in my monthly passive income report.

Financial funding ratio = Passive Income / Expenses

Once our financial independence is consistently above 110%, we will be financially stable for the rest of our lives. Here’s how to generate passive income. I update our passive income page every quarter. Check it out if you’re interested.

Passive Income Report

Our passive income has done very well over the past few years.

  • 2017 This was the first year our passive income exceeded our spending. It was amazing.
  • 2018 Last year was a very expensive year for us. We spent more than usual on travel and also got a new heating and air conditioning system. Luckily, our passive income was also good. We were really close to 99%.
  • 2019 It was a great year for us. Our passive income was down a bit, but our spending was down a lot. This was mostly due to our housing expenses being down. We moved into our own duplex and were able to share a lot of the housing costs with our tenant.
  • 2020 It worked out well for us. Our passive income was lower than previous years, but our annual expenses were also much lower. Our financial independence was 120%.
  • 2021 It was a great year financially. We spent very little because we were stuck at home. Financial independence was 140%.
  • 2022 It was another great year for us. One of our real estate crowdfunding projects was completed and we got a great return. We spent a lot of money on travel, but it worked out. We had fun and our annual expenses weren’t too bad. Our financial independence was 146%, a new record.
  • 2023 It was tough, but we got over the line.

Let’s go over each item in detail.

  • Real Estate Crowdfunding – Our investment is going well. However, I am hesitant to invest more at the moment. It would probably be better to wait until interest rates go down. Overall, I am satisfied with real estate crowdfunding. It is more passive than being a property owner. You can read more details on my real estate crowdfunding page.
  • Rentals – We downsized to two rental units in 2019. Both are rented and the tenants are great. I plan to sell them when our son goes to college in 2029. Being a landlord is financially rewarding, but I want to travel more.
  • Dividend – Our dividend income goal is $15,000 per year. We haven’t reached that goal yet. Lately, I’ve been focusing more on growth stocks. I’ll be investing more in dividend stocks when Mrs. RB40 retires.
  • interest-This is the benefit of our bank accounts.
  • Retirement Accounts– Most of our retirement accounts are invested in low-cost Vanguard index funds. We are a bit behind because most of the dividends will be paid in the fourth quarter.

You 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 yours may vary. They have quite a few interesting projects currently. Check them out.

Financial funding ratio

What about the funding ratio? How are we doing so far?

Financial funding ratio = Passive Income / Expenses

2023 Financial Funding Ratio = $25,617 / $24,734 = 103.6%

Our FI ratio is a bit low this year. We’ve been spending more than usual on travel and various kids’ activities. Fortunately, our fixed costs are low. You can read more about how we’ve reduced our three biggest expenses here. We should be able to improve our FI ratio before the end of 2023. Our bond payments are due in December.

Register and view

Let’s take a look at our financial leverage ratio 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)
  • 2023: 103% ($66,806/$65,063)

These are our goals for the future years.

  • 2024: Goal 100%
  • 2030: The goal is 110%. Mrs. RB40 will be retired by then. Our passive income should be higher, but our expenses will also increase. I think 110% is a good long-term goal.

Financial independence looks good for the next few years. Like most families, our annual expenses have been increasing due to inflation. Fortunately, our passive income has continued to grow. Things are going as planned!

Well, what are you waiting for? Declare your financial independence day and go for it! Financial independence can take a long time. The sooner you start, the sooner you’ll get there. Don’t wait.

Are you tracking your passive income compared to your expenses? The ratio needs to improve every year if you want to achieve financial independence.

If you plan to track your passive income, consider signing up for Empower to help manage your investment accounts. They are very helpful and I can get all of my passive income data from one place. It’s much easier than logging into each brokerage, bank, and retirement account separately. It’s a great site for DIY investors.

Enjoy the long weekend!

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Joe started Retirement at 40 In 2010, he decided to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at the age of 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have several projects across the USA, so check them out!

Joe also highly recommends Personal Capital for do-it-yourself investors. It has many useful tools that will help you achieve financial independence.


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