Amanda and I have accomplished something that always seemed so big and so very far away. A dream summarized as “Let’s save up enough money that we don’t need to work anymore!” We want more free time in our lives, and have achieved financial independence in order to get it.
Well, how much did we need to save? To find out how much you need to become financially independent, you first need to know what your expenses are. Tracking our finances with Mint.com over several months, we feel comfortable with a monthly spend of $3,300/month or $40,000 per year. This is all-inclusive: shelter, food, gas, everything. Using the assumption that a 75/25 balanced portfolio of stocks/bonds will grow at an average rate of 7% (calculated in several studies, namely this one: Trinity Study), this allows us to skim 4% off the portfolio for living expenses and the remaining 3% is assumed to be lost to inflation.
$40,000 is 4% of what? $1,000,000.
“WOAH!” – Benjamin Franklin
We’ve really worked hard and have been lucky enough to save up a portfolio worth $1,000,000. Moving forward we plan to live modestly on the equity growth of this portfolio. We have always been decent savers, but have made this a serious goal for the last three years. How does somebody save up this much money? Did Amanda rob a bank? Did Travis sell drugs on the internet?
The summarized answer is: we reduced our cost of living, ramped up ‘reasonable’ savings rates to ‘aggressive’ ones, and then hustled to make money and achieve the goal. All earnings outside of our current monthly spend have gone straight to Vanguard Mutual Funds with low MER’s (fees), maxing out our 401k’s and IRA’s (american-speak for RRSP’s & TFSA’s). Every bonus or raise was purposely channeled toward this one goal. Purchases are always thought about long and hard, and delayed if possible. Often it’s realized that the magical desired item isn’t really needed to be happy after all!
Taken as a screenshot of our Mint.com account, here is our monthly spending for the year 2014:
You can see that spending for this trip down south ramped up in October / November. Here is the table showing the numbers:
Note that this shows our monthly expenses for everything except our two-story rental home in North Oakland, CA which we’ve lived in for the last six years – this is an additional monthly cost of $2,200/mo. So our total cost of living for 2014, including our rented home, was $47,576. Moving forward, our budget is $40,000 – which is one of the reasons why we’re moving away from the very expensive San Francisco Bay Area.
For our savings, in June 2012 we started checking our Mint.com balance every month and would update a spreadsheet to track our progress. Here is the chart showing the growth of our portfolio over the last few years of aggressive saving and cutting expenses:
We’ve been really fortunate to have pretty great careers, and we were able to reach our goal more quickly with our combined incomes. Also, we’ve had awesome families who’ve taught financial responsibility from a young age. Really, anyone at any salary can build wealth – all it takes is time and discipline. I hope by sharing the above details others are inspired to attempt similar goals!
One blog that has been a strong inspiration is Mr. Money Mustache (MMM), and we owe a debt of gratitude. His blog demonstrates that financial independence is not only attainable at any age, but that living a modest life and reducing consumption is also good for the planet – and everyone living on it! If you’re not already familiar with his blog, I highly encourage you to check it out: MMM.