I’ve never put much stock in the life altering potential of making new year’s resolutions. It’s a novelty that wears off in a month or less for most people.
In my view, the commitments we make (and keep) the other 364 days out of the year are more impactful. This couldn’t be more true when it comes to our financial habits and commitments. You build wealth with good habits every day, every pay check, not on an intoxicated midnight wish on January 1.
Many writers in the personal finance community, however, are into new year’s resolutions. They might encourage readers to renew commitments to frugality or perhaps to make bullish investments in some alternative investment class. Usually something that pays the writer an affiliate, such as crowd-funded real estate, life insurance, or some venture capital company.
I ignore this rubbish and so can you, so long as you have your financial house in order.
My reasoning is simple. If you have controlled and low expenses (I do), and you have a disciplined investment commitment (I do), then there is no financial cleanse/challenge/resolution or any other buzzword you need to concern yourself with.
My finances are and will remain on auto-pilot. I am so confident that I will achieve my financial target with my current habits, that I am starting a countdown to financial freedom. Starting now, January 2023, I expect to achieve my financial freedom target in 2 years (or less), or 48 pay periods. The countdown begins!
What happens in 2 years
As I shared here, my current net worth of ~$1.65M is $150K shy of my target of maintaining Financial Independence with a more expensive home in Denver. Closing this gap is my reason to continue working through 48 more checks.
While $150K sounds like a sizable gap, I am well positioned to cover this, even if the stock market is a total stinker for the next 2 years.
First, my household has two incomes. Secondly, my wife and I are at the height of our earning power. While our mid-career salaries are unlikely to elicit jealousy in our peers, because we have zero debt, our salaries far surpass our living expenses.
As we have for the last several years, we are currently saving and investing ~80% of our income (if you account for company 401K/HSA match). The 80% is being invested in a down market, which has tremendous upside from here. In short, we will easily clear the $150K gap in 2 years based on new earnings alone.
But in fact, I expect my net worth to grow even more due to a modest 5% ROI I have estimated. When I account for 2 more years of income and a conservative 5% ROI on stocks, I project my net worth will be at $2.15M ($0.4M home equity + $1.75M stocks) in 2 years. This figure far surpasses the “annual expenses x 25” early retirement threshold. Its closer to annual expenses x 36 for my simple life.
At that time, do I pop the champagne and celebrate? After all, I will have won the race to sustainable wealth in less than 18 years and moved to one of the highest cost of living U.S. cities to boot.
This despite starting my career late (post graduate school) at 25 years old, where my wife and I made a combined $47K a year (she was an underpaid graduate TA), against $60K in combined student debt. We had 4 useless English degrees between us and no marketable job skills to speak of.
We would go on to barely average the median U.S. salary for the next 10 years before our careers and salaries broke the upper middle class barrier. And yet in 2 years, by the age of 43, my wife and I will still have achieved financial independence with more than $2M in net worth.
None of our wealth came from real estate, cryptocurrency, individual stocks, inheritance, side hustles, or luck. It came purely from hard work, frugality, debt elimination, and aggressive index investing. If I can do it, believe me, so can you.
Is this countdown . . . final?
In two years, will I let my stock investments generate income for my new Denver living expenses and leave the workforce . . . forever? After all with $1.75M in stock investments, I could safely withdraw 4% a year ($70K), which is far greater than my living expenses, and still have my money last until I die.
Will it be time to call it a career and claim slothful solitude . . . forever?
Whether I retire or not in 2 years depends on a number of factors, but for argument’s sake, let’s assume finances will not be a factor. Let’s assume that rampant inflation is finally over and the stock market is back in bull territory (a pretty safe bet that the market won’t stay tanked for 3 years straight).
At that point, whether or not we retire depends on work stress and flexibility. Its a future I cannot predict. But I foresee a few potential options:
- Retire: If work is stressful, either or both of us will retire
- No change: If work is enjoyable and we have a reasonable work/life balance
- Sabbatical: Negotiate several months off at work and visit Kenya with family
- Part Time: Negotiate reduced pay/benefits arrangement in exchange for part time or hourly pay work
- Hang on for funny money: Work long enough to fund several international vacations or funds for some other frivolous and expensive novelty
A lot can change between now and two years: my health, my work attitude, tax laws, etc. What is unlikely to change much is what I am earning and investing.
So while I am counting down 48 checks, I am not too concerned about what environment awaits me in 2 years and whether to call it career at that time. I am focused instead on the present: maintaining work/life balance and staying committed to my aggressive investment strategy.
In the meantime, I don’t really care if the market drops 10% or recovers its 20% loss tomorrow. Either way, I am resolved to move to Denver when the opportunity presents itself over the next two years, while I count down 48 more checks to financial freedom and sustainable wealth. The first check is about a week out. Then 47 left to go.
I plan to revisit my net worth and investment projections periodically to see how close I am tracking. Stay tuned.