With a title like ‘My Master Plan’, it’d be easy to think I’m up to something nefarious.

 

 

I promise, I am not trying to take over the world.

But I am trying to take control of mine.

Thanks to some kind, generous, and most importantly, knowledgeable people on the interwebs, I’ve been able to get some great information on personal finance.  This information has completely changed my views on investing and retiring, especially retiring early, and it’s also allowed me to formulate my own plan to reach financial independence, using JL Collins’ methods illustrated in ‘The Simple Path to Wealth’ and methods gathered from ‘Millennial Revolution’.

I never bothered to invest in the stock market until recently because I always just assumed it was difficult and risky.  While I knew that investing was key in becoming financially well-off, I didn’t know anything about it.  I wasn’t willing to lose all my money for a paltry gain, I told myself, so I just avoided investing completely.  Now that I know better, I feel like such a fool.  If I had started earlier, I would be much further ahead.  Unfortunately, I was pretty much clueless when it came to finance.

 

 

But I ain’t beating myself up about it (and if you’re in the same boat, neither should you) because it’s never too late to start taking an interest in bettering your financial life – and fortunately, it’s never been easier too.

 

MY PLAN

 

My plan to achieving financial independence is really simple, which is great because I can be really lazy.  It’s straightforward and totally achievable, even for someone who earns an average paycheck.

My plan is actually a mix of strategies from two different personal finance blogs, ‘Millennial Revolution’ and ‘jlcollinsnh.com’, with my own delicious little spin.  Basically, by utilizing a high savings rate, contributing yearly to my investments and keeping my debt down, I’ll be able to reach financial independence within the next fifteen years!

 

MY BUDGET

 

I currently spend, on average, about $15,000.00 per year.  The last few years, there were months in which I was spending only $1,100.00, sometimes even less, which resulted in an overall yearly expense of about $13,000.00!

*My new as of May 2017 car lease increased my yearly expenses by over $3,000.00 a year – but that’s a story for another post*

*My initial post contained a formula that included my overall income x my tax rate to equal my yearly after-tax income. I’ve since deleted that because the most accurate way of charting my income is just using my semi-monthly income x the number of times I get paid per year, like in the figure below.

 

This is what my monthly budget looks like:

 

INCOME:

 

I get paid semi-monthly, which means I only get paid 24 times in a year, as opposed to 26 (or even 27) times for a person getting paid bi-weekly.

Wow.  Looking at that after tax total makes me a little embarrassed.  I should be making much more at my age.  Let this be a lesson, kids; take school seriously  😀 !  Fortunately, I do have a few awesome benefits that I greatly appreciate – I have health care and a cell phone, both paid fully by my job.  That definitely saves me money.

 

EXPENSES:  

 

I was initially determined to save about $17,000.00 per year after my recent financial epiphany (but before I got the new car).  While this is doable by cutting out my restaurant and discretionary expenses, I would be cutting out almost all of the things that make life bearable; pizza, coffee, alcohol, and the occasional random splurge here and there.  It would also require me to save any extra income I receive throughout the year, including my entire tax refund (which I already do).  Because I believe there’s a fine line between saving and living, I’ve decided to try to knock down my annual savings to about $15,000.00 per year.

 

TOTALS:

 

While this doesn’t quite put me at the $15,000.00 I was hoping I could save, this total doesn’t include other potential sources of income I may receive throughout the year, such as money for babysitting my mom’s cat, the occasional odd job or my tax refund.  I generally receive a pretty sizable tax-return every year (almost an entire month’s salary) and I always save it.  With these included, not to mention the typical spending fluctuations per month, I should be able to push my savings up to $15,000.00 per year – a savings rate of 48%.  Not too shabby, eh?

 

 

 

Note:  Portfolio data, including investments and their amounts, are based on the time of writing (8/13/2017).  To get a more recent look at my current portfolio, check out my monthly net worth reports here.

 

MY PORTFOLIO

 

Because I work for a small business, I unfortunately do not have access to a 401k.  I do most of my investing in a taxable Vanguard brokerage account.  I’ve also split some of my money between a Traditional IRA and a Roth IRA for the tax benefits.  I’ve maxed out the contributions for both 2016 and 2017, and I expect to continue to do that every year from now on.  Since I save much more than the $5,500.00 limit, I’ll just put any additional investable income into my brokerage account.

 

This is my overall portfolio:

 

And this is its composition:

*Note that this is NOT my asset allocation

Yes, I even have a little crypto currency!  I’m hip – I’m with it!  Who says that I’m lame?

 

 

 

*I know it’s kind of a waste of good money to have so much sitting in a savings account, but it makes me feel secure.  My goal is to have $10,000.00 in my savings – anything after that will be used to pay down debt or invest in my accounts.

 

THE NUMBERS

 

Based on my current spending, I need about $15,000.00 per year to live.  Using the 4% rule, I would need $375,000.00 in order to retire early.  Based on my 48% savings rate, I can put away about $15,000.00 per year into my investments.  Because I’m starting with $23,500.00 worth of invested assets, my time to FI is much shorter than if I were starting from scratch.

This is what it would look like to get there.

Early Retirement Chart

This is based on an average 6% return, and doesn’t include dividends, nor does it account for receiving raises or a bonus, which even I have a hard time believing won’t happen.  If I were to get a second job or bump my income up in some way, I could get it done even faster!

 

CONCLUSION

 

Now, I’m sure some people will look at this and say:

“I couldn’t live on this much per year, this is so unrealistic.”

“Sure, but who wants to live in a crappy run-down duplex forever?”

“It’d not be possible to travel on that.”

For you, maybe these statements are true.  Maybe you live in a HCOL area.  Maybe you don’t (or can’t) live with other people, thus forcing you to pay more of your salary towards the basic necessities.  Whatever the reason, this plan may not be feasible for everyone – hell, in most cases, it probably isn’t!

Not everyone shares the same path to reaching financial independence, but that’s the beauty of personal finance – it’s personal.  We all don’t share the same budget, the same lifestyle or salary – but that doesn’t mean we can’t all use the same basic principles to achieve financial independence.  You have the power to create your path, just as I do mine.

What does your path to financial independence look like?  What do you think of mine?  Let me know in the comments!

 

          – NMI

 

 

4 Responses

  1. Shawn @ NMI

    Thanks for the kind words, Raman! I’m fortunate enough to live in a low cost of living area, and I split rent, which is pitifully low, with my brother. My two largest expenses are rent and the car lease – it probably wasn’t the best choice, but I needed a vehicle right away and was tired of driving cars that would crap out after just a year or two. It’s all a learning experience, right? 😀 Other than the major expenses, I don’t spend a ton of money on other “stuff”. I’ve found that clothes, gadgets and other things just don’t do much for me. I’d much rather “spend” my money on getting to financial independence sooner.

    Thanks for stopping by, and good luck with your jouney to FI as well!

  2. Raman K

    Shawn, this is great! Your frugality inspires me. I am amazed at how much of your income you are able to save. I’m not single but I am a little more aggressive with my portfolio and don’t keep cash lying around. I do understand the benefits of having a cash cushion for emergency needs but somehow I feel shortchanged if I have a bunch of cash which is not invested in the market. I’d also say leasing a car is probably not the best way to do things but to each their own! Keep up the good work and hope you get to FI soon!

  3. Shawn @ NMI

    Thanks Jay! I’ve actually gone ahead and deleted that info since it wasn’t really relevant to the post anyway. I’ve added a note in the post to reflect the change. Thanks for the feedback!

  4. Jay

    Might want to recheck your taxes on a tax bracket calculator. You should only pay 25% on the amount you earned over $37,651. I liked your ideas for investing!

I'd love to hear your thoughts!