As some of you know, I have been struggling with the moment to moment aspect of FI. I recently wrote a post in regards to my Month of Financial Celibacy. From the comments I received on that post, most people assumed it would be the markets I couldn’t wait to check but really that has little impact on me. It is my spending and tracking of said spending that really gets me going. I am only a week in (actually, 9 looooong days), but I am still doing pretty good. Instead of focusing on the day to day numbers I am shifting my focus to the number one factor of the overall equation – how much is ENOUGH??
The idea of enough is one that haunts many of us FI seekers. What if we quit our jobs too soon? What if the market falls? What if we get sick? What if we forget to prepare for one of the other millions of little things that can go wrong??? It is all too much to ponder. For this, we need a strategy. My strategy comes straight from a childhood favorite…
Goldilocks and The Three
For those of you unfamiliar with Goldilocks, let me sum up her story. Goldilocks is a trespassing brat who not only enters into The Bears home without permission but then proceeds to spread her germs to all of their bowls of porridge before settling on one that was neither hot nor cold but just right. After she eats The Bears food, she decides she is quite tired from her jaunt in the forest. Instead of going home, which is what a normal criminal might do, she decides to wander into The Bears living room to rest in a chair. Naturally, 2 of the chairs were too big and the smallest (though being just the right size) falls to pieces when she sits down. Ugh… Goldilocks doesn’t bother to think that perhaps karma is trying to send her a message so she pushes the envelope further by going upstairs to test out The Bears beds. When The Bears arrive home to find their porridge eaten and the chair broken they decide to do a thorough search of the home. Sure enough, Goldilocks has tested all of the beds (one was too firm, one was too soft) and is still sleeping in the one she deemed just right. Upon their growls, Goldilocks wakes with a scream, runs down the stairs and out the door. The Bears never see or hear from her again…not even a thank you note!
So what does this fable have to do with my story?? Well, I am Goldilocks. Not the thieving, vandalizing, lice spreading version…but the one who is always looking for the FI number that is just right…
I have mentioned my tiers of FI in other posts (and in various comments on numerous bloggers sites), but I have yet to dig into it and spell it out. So here we go:
The first tier is based on my current financial situation:
$1500/month (expenses) x 12 = $18,000/year x 25 = $450,000
Based on that number and using the 4% rule (aka The Safe Withdrawal Rate), I need $450,000 to retire. Knowing my current Net Worth and using the Mad Fientist’s Lab* to input my numbers, I will be able to retire in 1 year and 2 months – June 2018!!!
But, let’s face it, my current spending is not necessarily my future spending. This is the type of budget that might cause me to break into some poor Bears house and eat all of their porridge!!! This budget is bare bones, too small, and leaves little room for error. In fact, last month I went over my $1500 benchmark by a couple of hundred bucks (though for a very good reason…CUBA!!). I want to have more flexibility in my future numbers…which brings me to my next tier.
My second tier is akin to loosening your belt a few notches after a fabulous meal of porridge. It gives me room to breath…and after only spending $1500/month for the past two years I NEED THAT ROOM. I have heard (and mentioned) several of my favorite PF bloggers that have gone through a sort of depression phase on their way to FI (and some once they hit it). Part of that depression is because we frugal ourselves into a corner. We are tracking our spending constantly in an effort to spread the gap between income and savings. The only way to spread that gap is by spending less or earning more. This kind of microscopic scrutiny takes all the joy out of the process. In an effort to not EVER have to do that once I am FI, I added a bit of wiggle room to my budget…wiggle room in the form of a $1000 buffer.
At $2500/month my new FI number throws me a few years down the road but it is still very much attainable:
$2500/month x 12 = 30,000/year x 25 = $750,000
Welp… According to the calculator I won’t be retiring until November 2020 – 3 years and 7 months from now. WHAT?! That is impossible….in a good way. For a girl making 80k a year how is it possible my nest egg will grow to that amount in a little under 4 years?? Even at my current savings rate of 75%, minus taxes and monthly expenses, the most I could possibly save is approximately 50k/year + my side hustle (average 10k/year) = 60k x 4 years = 240k. Add that to my current 330k and I wind up with 540k – about 200k short. Hmmmm… I guess that is the value of compound interest and, like, math. Bur don’t worry, chin up!! You see, even if I don’t hit that number, I have no plans to retire (or slow down) before my next and last tier. Tier 2 is my just right number, but it isn’t the just right time.
This entire blog started with the premise of me wanting to retire early. Well, in order to do so, I needed a reason. Without a reason I would hit my goal and wonder what came next but this way I am working towards something concrete. I wrote about my reasons in The How and Why in FI and, when doing so, I realized that I don’t even HAVE to quit when I get there! It turns out I happen to have THE PERFECT JOB to still work even after I meet my FI financial goals. But because I operate well with numbers and goals, I set my FI date to coincide with my work retirement date anyway. For those who don’t know, my retirement date is based off a formula calculated by my employer:
Years of service + age must = 65. That date is November 2022.
In November 2022 (5 years & 7 months from now), should things continue on track, I will have blown past both my tier one and two numbers and onto one that I can barely manage to fathom…1 million dollars. To get to this number I went backwards:
$1,000,000 divided by 25 = 40k per year / 12 = $3333.33/month
With expenses of $3333.33/month I will be FI in August 2022, still 3 months earlier than my work retirement date. How’s that for planning?? But, again, I have NO grand illusions that these numbers are even possible (even though it would be AWESOME to be in the Million Dollar Club!). I am a complete non believer that my money will grow to such a ridiculous amount…I’m pretty sure that is why they call compound interest the 8th wonder of the world. It’s just so unfuckingbelievable!!! The number is TOO BIG but the timing is just right. I would rather have too much than not ENOUGH. With wealth comes opportunity for greater generosity.
As I said earlier, regardless of whether I hit that number it won’t really matter. The purpose of Tier 3 is the date, not the money (though the money helps so I can sleep peacefully in my own bed and not have to take up with The Bears). My plan is to slow down work once I hit FI – not to quit. With healthcare up in the air, I am best to take that one factor out of my equation for as long as I can. I will instead focus on working trips with nice overnights in cities where my friends and family live. After all, I DO love my job. But how much more will I love it when it is my choice to be there and not my necessity?? Just a guess but… So much more!!!
Now for the $64,000 Question…what does one do with a million dollars?? I can’t even imagine but I can’t wait to find out!!
***Are you guys tracking your FIRE date? Anyone using the Mad Fientist’s Lab or another resource?? Feel free to share in the comments below… for someone without math skills I love testing out every FIRE calculator I can get my hands on!***
Until next time…
*My assumptions in the Mad Fientist’s Lab are based on a 4% withdrawal rate and a 7% growth rate. Neither of these are set in stone and will fluctuate during the life of a FIRE master. I have listened to multiple podcasts and read various bloggers that say they have used around 3% for their withdrawal rate and their nest egg has grown far more than the 7% growth rate (in fact, I used 3% withdrawal rate for earlier calculations HERE). Again, these numbers are all suggestions based on YEARS of input and data that my non math oriented mind can’t work itself around. I am trusting the kind folks ahead of me in the FI game to lead the way. 🙂