Last updated on May 20th, 2020 at 12:54 pm
By The Pointer
First of all, happy Cinco de Mayo! With that out of the way, I wanted to commemorate my first year of financial independence by taking a look back on how it went. Most of the feedback on the realities of this lifestyle (at least that I’ve seen) have come from successful bloggers and podcasters making handsome incomes from their blogs and podcasts. Hopefully, I can add another perspective.
What was my plan?
For those who need a refresher, the basic idea behind financial independence is that if you’ve invested enough money, there’s a point where those investments are likely to grow faster than you withdraw from them. In other words, your investments can pay you an income to live off of forever. No need to rely on income from an employer.
I hit that point of financial independence one year ago, and quit my full time office job as a marketing manager. My net worth at the time was about $870,000. In theory, that meant I could spend $34,800 ($870K x 4%) per year (adjusted for inflation each year) for the rest of my life.
The one catch was that part of my net worth was tied up in home equity. For my plan to work, I had to sell my condo and invest the proceeds.
After that, the plan was to spend a year traveling the world. I wanted to visit all of those places and do all of those things that are hard to fit into short vacations like…
- Hike the Camino de Santiago in Spain
- Slow travel along the Adriatic coast in the Balkans
- Take a road trip through eastern Australia
- Wander through the “stans” of Central Asia
After that year, I’d come back to the United States, and test out living in a few different areas of the country before picking one to settle into.
Did it go as expected?
No! That’s not necessarily a bad thing, but things didn’t go as planned.
I didn’t sell my condo
While I probably should have sold my condo before leaving my office job, I couldn’t take it anymore. The hours and endless demands of the job felt completely unnecessary given my financial situation. I figured selling the condo was essentially a formality.
I was wrong. My condo was unsellable (and may still be for a little while longer) for a few reasons:
- It turned out that my building didn’t have adequate flood insurance. That means most banks won’t give buyers a loan to buy a unit in my building.
- An engineer’s report showed that the building would need extensive repairs so the owners would have to pay a very large assessment.
- Prospective buyers said my apartment felt “dated”
This setback was a triple whammy for me because it meant:
- I was spending far more than I budgeted for housing.
- I couldn’t afford to travel like I wanted.
- I wouldn’t earn as much as I was expecting (real estate appreciation is lower than average stock market returns)
Oh yeah, there was a pandemic
Then, COVID-19 delivered a couple more gut punches. First, there was a stock market drop. Possibly the biggest risk to financial independence is a major decline early on…and it happened. My net worth is significantly lower today than it was when I quit my job. At least by the 4% "rule", I wouldn’t be considered financially independent anymore. It sucks, but it’s true.
COVID-19 also shut down pretty much all travel. Even though I couldn’t travel full time like I was hoping, I did a ton of travel hacking and manufactured spending to put together an epic trip to Southern Africa with $0 in out-of-pocket costs. I was going to fly there in Qatar Airways QSuites, see Cape Town, Victoria Falls, Kruger National Park, Eswatini (formerly Swaziland) and Lesotho, then fly back to the U.S. in Etihad business class. It just happened to be scheduled for the peak of the epidemic when travel wasn’t advisable and South Africa closed its border. Needless to say, the trip was cancelled. I never left the United States in the year I was hoping to travel full time.
It wasn’t all bad news
Just because this year didn’t go as expected doesn’t mean it was all bad. I’d love to share some of the great developments from living the FI life.
I’m still alive and money is not a major concern
There’s a pandemic going on. Thousands have died, and millions are facing economic hardship. I’m lucky that I don’t fall into either category. My investments have put me in the privileged place where work is optional. Even if there are risks to my financial independence, I could still go decades without running out of money. Very few people have the same options available to them, and I feel fortunate to have them.
Having money in real estate protected me during the stock market drop
Back on the financial side, I’m kind of lucky my plan didn’t work out. If my home equity really had been invested in stocks, I would have lost significantly more money in this bear market. The real estate market isn’t doing great, but I’ll take a frozen market over a depressed market right now.
I sold off my bonds at a great time
As many readers know, I’m not a big fan of bonds. The returns are poor, and they’re primarily a psychological crutch. Still, I had some bond investments from my young and foolish days. I had been waiting for the right time to sell them because they were in a taxable brokerage account. I didn’t want a tax hit during a year when I was making other income so 2020 (and my limited income) was a great opportunity.
The original plan was to slowly sell them off to fund my day-to-day expenses. When the COVID panic set in, and bonds jumped up, I decided to accelerate the process. I sold off my bonds just before a precipitous drop, and used the funds to buy stock at bargain prices.
I’m not saying I’m a great market timer. Most people (including me) aren’t any good at that. I’m just grasping at straws to find financial wins in a tough year.
I made some income
It would have been stupid of me to throw up my arms in frustration and do nothing last year. I lost a lot of money on stocks (although I didn’t know that until later in the year) and my costs were far above what I projected. I did what I had to. I made plans to mitigate the risk:
- I took a freelance gig as a part-time award booker. Basically, I helped people who had miles/points, but not the time time/knowledge to book trips. For a fee, I helped them. I made just under $8,000 doing this. It wasn’t worth the time it required, though. We frequent fliers are picky and needy. I quit at the end of 2019, but got some earnings out of it.
- I got a nice tax refund (just under $5,000) since my employer withheld money as if I’d be working for the full year, but I was only with them until May.
- I also made money from manufactured spending, credit card piggybacking and bonuses from signing up for new credit cards and bank accounts. That was another $2,500.
- The federal government sent me a CARES Act stimulus check for about $800. I’ll get the balance of the $1,200 I’m owed (so $400) in 2021 when I file my 2020 tax return.
In total, I earned an extra $16,125, which more than offset my increased expenses.
I became a foster dog dad
At first, not having to go to an office is very liberating. However, you can start to get lonely with no one to interact with during most of the week.
I thought about adopting a dog, but I knew that I’d eventually sell my condo and do some international slow travel. With that on the horizon, I didn’t think adopting was a good idea. I compromised, and decided to foster dogs. I could give them love, food and shelter while they look for homes. They could hopefully give back some love and companionship.
So far, I’ve fostered 4 dogs. I was great decision! Let’s say we’ve each held up our sides of the deal. Especially during a lock down in the middle of pandemic, it’s great to have someone with you (even if you have to pick up their poop).
This was actually one of my goals for the year. I’m happy it was one of the things that went as expected. So what does “healthier” mean to me?
I exercise a lot more than I used. Usually, I’m pretty active 2 – 3 hours per day. Back before COVID-19, I was taking kickboxing classes. To be honest, you don’t really learn how to fight. It’s more of a HIIT (high intensity interval training) workout with a few kicks and punches mixed in. I was taking a 1 hour class 4 days per week, and walking for another 2 hours in the afternoon. On the days I wasn’t doing that, I was running to the edge of Liberty State Park, and walking back to my apartment. The round trip is usually around 2.5 hours. Throw in several dog walks, and I can tell you my activity levels are through the roof compared to where they were.
There are so many other health benefits of not being in an office job. I’m not eating greasy catered lunches or munching on candy because I’m at the office late. I’m not on anyone else’s schedule so I get as much sleep as I need. I think I’ve woken up to my alarm clock once in the last year. Stress has pretty much melted away, too.
A look at the numbers
I already wrote about most of what you’ll see in this section, but I want to quantify it. As I was preparing for financial independence, I found it useful when others shared their actual spending to get an idea of what things can look like in real life. Everyone’s circumstances are different, but here are mine.
My actual versus project spending
After taking in the numbers, I was pleasantly surprised. Sure, continuing to carry my condo greatly increased my housing costs. However, I was able to adapt pretty well. Between the additional income and a few cost cuts, I ended up withdrawing less money than I originally anticipated (3.6% actual versus 3.9% planned - both of which are below the already-conservative 4% withdrawal rate).
You may be wondering why my “Expected Year 1” budget looks nothing like the budget for someone spending the year traveling aboard. Don’t worry. That budget is nearly the same (in total, not by category) as the one above. The budget shown above is my ongoing plan for what I expect to spend living in the United States. It seemed like a better apples to apples comparison for benchmarking my year 1 spending.
My Outlook For The Next Year
In my first year of financial independence, I faced a few setbacks and adjusted. For year 2, I have what I believe is a pretty sustainable plan. Even if I can’t sell my condo, I can earn income (with minimal effort) to more than offset the additional costs. I’ll write a separate post about how I plan to earn that money. It’s too much to fit here.
Here’s the breakdown of my year 2 expectations:
The optimist in me (yes, he’s there, but he rarely comes out) had to check what year 2 would look like if I was able to get my originally planned FI budget ($34,164) and I earned the income I think I can ($14,500). My withdrawal would be $19,664 (2.3%).
Have I reached a state of nirvana because I don’t have to go into an office? No. Money doesn’t buy happiness.
But let’s be honest, money can buy time and options which contribute to happiness. I’m happy with what I’ve done with that time and those options. During a pandemic, my loved ones and I are healthy, and I’m financially secure. I’ve helped 4 dogs find homes while improving my own mental and physical health. The year didn’t go perfectly, but I’m confident my financial independence plans will survive this pandemic.
P.S. – Are you looking to buy an apartment? 🙂