This is a guest post from Jon of Money Smart Guides who will talk about his action plan to become financially independent. Let me know if you would like to guest post on MMYW!
Last year, I wrote a post over at Reach Financial Independence talking about what financial independence means to me. In that post, I briefly touched on how I plan to reach financial independence with my wife. Today, I am going to talk about my plan more in depth. My hope is that others will find inspiration in my plan or learn some strategies for themselves as well. Additionally, I hope that by sharing my plan, others can provide insight on it and possibly see areas that I might have overlooked.
Our Plan For Financial Independence
Currently my wife and I are both in our mid-30’s. We are planning on starting a family within the next 12 months and would like to retire/become financially independent by 55 at the latest. Understand that retirement to us does not mean we will no longer work at all. We both plan on working after age 55, but instead of doing the typical 9-to-5 gig, we will instead be working part time (or full time if we want) on things we love. For me, it would be blogging. For my wife, it would be life/career coaching. But more on this later.
Sources of Income
As it stands right now, our income (money that we use to live on and pay the bills) comes from two sources:
- My wife’s job
- Our rental property
The salary my wife makes pays for all of our expenses each month, except for the rental house. The tenant pays for that. My main source of income is my blogs. I do earn a monthly income from my blogs, however we don’t use that money for living expenses. We use it for boosting our savings, in particular my solo 401k plan, general investing and our opportunity fund.
We have a healthy amount of savings. My wife is more of a saver than a spender, which is one of the qualities that attracted me to her as I am the same way.
At this point, we could let our investment portfolio ride (not add to it) and be OK if we wanted to retire at 65 and no major life issues arose. Obviously though, we are not comfortable with this scenario. We want to keep saving and become stock market millionaires sooner rather than later. With our investment strategy, we are confident we will get there.
Changes On The Horizon
As I mentioned at the start of the post, we are planning to have kids in the very near future. We do hope to have one of us stay home to raise the kids and are making it a point to do everything in our power to achieve this. We created an opportunity fund where we are directing a lot of our savings right now. It’s just an online savings account with the goal to cover us should we need to tap into money when the kid(s) come.
We have an emergency fund for unexpected expenses, but this opportunity fund is to allow for us to take advantage of opportunities. For example, after we budget for one of us to remain at home, we might find that we missed an expense here or there or that we budgeted too little for diapers. The opportunity fund covers us in these situations.
Another change on the horizon is my wife changing careers. The change will most likely result in a pay cut, which is another reason we are being proactive in saving as much as we can right now. We feel that the better we prepare for the future, the less stressful it will be money-wise. After all, you can never save too much money!
When this change does occur, I may be entering back into full-time employment. I am OK with this and still plan on running my blogs. The money from the blogs will still be used for savings.
During retirement, the goal is to be able to mainly survive on the income that our investments produce as well as income from the rental property. We understand that we may need to dip into our incomes from time to time, but the hope is that the majority of our monthly expenses will be covered by investment income and rental property income.
The biggest issues we face are all short-term: raising kids on one income and my wife’s career. We are confident about the income my wife can earn once her new career gets established. So it really comes down to being smart with saving as much as possible now and our spending after the kids arrive.
Putting Everything Together
Right now, we are saving close to 50% of our income. This will be lowered when my wife changes careers, but hopefully not too much. We want to be saving at least 20% per year going forward. If we can do this and keep our expenses in line – we are currently looking into reducing our cell phone and cable bills, and we’ve recently shopped our insurance coverage to save the most money – we should be able to reach our savings goals.
The takeaway for anyone reading this, whether you want to be financially independent or even financially comfortable, is to save and keep your monthly expenses in line. If you can do these two things, you will live a life of wealth.
The only difference between becoming financially independent and financially comfortable is sacrifice – are you willing to save more now to reach financial independence later?
As for my wife and I, I know we are going to have to keep an eye on our spending in order to make it, but we are both committed to our goal of being financially independent. Will there be setbacks? Most likely. But as long as we keep our focus on our goal, we are confident we will make it.
Author Bio: You can learn more about being a successful investor at Jon’s blog, Money Smart Guides. There he talks about getting out of debt and investing for your future so you can live the life of your dreams.