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Pursuing Complete Independence

23 November 2009 9 Comments

Financial independence is a goal that most people have for their retirement years, typically though of as one’s 50s or 60s.  For me, financial independence must come sooner.  In this article, I will lay out my goals and my strategies to achieve financial independence.  Also, I will talk about other areas of independence that can contribute to the ultimate goal of complete independence.

Financial Independence

I define financial independence as having the savings and income available to live a chosen lifestyle without depending on any other entity, including an employer or government.

I’m not necessarily focused on having millions of dollars so that I can buy Ferraris. I’m more looking for the ability to not be tied to a 9-5 job, have financial security, and have the freedom and flexibility to pursue the projects and type of work I want to pursue and can pursue on a schedule more conducive to a quality lifestyle.

My goal is to achieve this financial independence lifestyle at the age of 35 (roughly 8 years away). Here is my overall financial independence strategy broken into three separate goals:

Goal #1: Have $300,000 in savings/investments.

Goal #2: Have online income streams producing at least $5,000 in monthly income.

Goal #3: Have monthly expenses less than my monthly online income (after taxes).

Let’s look at my strategy to reach each of these goals…

Getting to $300,000

Let’s say I have $50,000 in assets currently. To save the additional $250,000 in 8 years, I will need to do either of the following:

  • Put away $20,000 a year and earn 7% annually
  • Put away $15,000 a year and earn 10.6% annually
  • Put away $12,000 a year and earn 12.6% annually

As you can see above, the savings target is pretty high, so a combination of high savings each year plus an above average return is probably necessary. Depending on my performance in my career, my income should be able to support these high savings targets. Hopefully, my investment themes will pan out over time and reap nice returns on my funds.

Ramping Up Online Income

I honestly believe that I can get my online income up to the $5k mark in 8 years. Currently, I have a single site earning anywhere from $200-$400 a month in income. I am confident that I can get the monthly income for this site up to the $1,000 a year from now. If I can reach that intermediate goal, the $5k mark 8 years from now is almost certain.

Getting a site from $0 to $1000 in monthly income is much more difficult than getting a site from $1000 to $5000 in monthly income. Ramping a site up and getting it established is the toughest part. Plus, we’re only talking about one site still. Once I reach the $1000 level, I will most likely launch a second site which should be a faster process since I have the experience to draw upon and a first site to help promote the second one. You can continue this process with X amount of sites all contributing towards my goal of $5k online income.

As the online income matures, the goal will be to lessen the level of effort required to maintain (and continue to grow) the sites. Making the income more passive is a huge goal that will greatly improve lifestyle.

Suppressing Monthly Expenses

As I work towards goals #1 and #2, it is important to keep a tight control on expenses, preferrably decreasing the expenses.  An ideal solution would be to have my home paid off by the time I am 35, but this would require an extra boost in cash available, since I’m already putting a great deal of money towards goal #1.  If online incomes increase quickly, I may have that cash available to put towards my mortgage. If I can get rid of a mortgage payment, my monthly expenses drop by anywhere from 30-50%.  If this happens, financial independence is easily obtained.

In addition to the mortgage payment, expenses for autos, insurance, utilities, and lifestyle all need to be tightly monitored and decreased when available.

Putting The Three Goals Together For Financial Independence

If each goal is reached, I will be 35 with at least $300k in savings that is not touched unless a significant emergency event occurs.  I will have well established online income that will fund my lifestyle and even have a little money left over to contribute towards more savings.  Since I’m adding to savings from my income, and I hope to continue to have high investment returns, that $300k will grow significantly each year.  I will be completely free from a “regular job” or any kind of assistance from government.  I will be financially independent.

Other Areas Of Independence

As I mentioned in the beginning of this post, there are other areas of independence to pursue.  I fear for the future of America and I believe there is the potential for some crazy times ahead.  Areas of independence that I might research in the future (depending on current events) are energy independence, security independence, food independence.  I may write on these areas in the future.

Again the goal is complete independence.  The most obvious area is financial independence, but depending on what happens in our country, other areas might be more important than the money in your bank account.  Time will tell.

9 Comments »

  • Robby said:

    enjoyed the article kevin. had a couple of questions.

    how would you recommend using a company matched 401(k) to support the efforts to save 300k? wouldn't there be penalties for using any of these funds before retirement? is it ok to have that be my main means of savings?

    also, how did you get to the number 300k? With 60k a year from online income stream and hopefully 10% on the 300k you would be looking at around 90k a year, is that enough for financial independence?

    liked the advice on switching to cash too, that will really make you feel that burn in the wallet. hope you have a good thanksgiving!

  • 20smoney (author) said:

    Yeah, you will get hit with penalties in a 401(k) if you withdraw early. I usually say that you should max your 401k up to the point of getting everything you can from matching. Then, after that I'd put money in something else.

    300k is basically a number that I think is a bit of a stretch yet also possible if some things fall in place. Sort of arbitrary but a tangible goal nonetheless.

    Financial independence is a function of both income and your expenses. So, $90k a year may or may not work. To do any sort of "early retirement", it will have to be on less than $90k a year most likely because that probably won't be possible. I don't really want to touch my "retirement funds" but instead be able to live on income streams. So in that sense, it'd be more like living on 60k which is very do-able if you're willing to go without certain "luxuries" – so its a trade off… freedom vs. "things"

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