I define “Financial Independence” as “not having to work for money anymore”. This year, I hit a very satisfactory milestone, although not what most people would call financial independence: The money from my side gig in 2015 + 4% of my investments are matching our expected yearly budget moving forward.
In other words, I don’t technically need my job anymore, woohoo!
There are of course a lot of “buts” in here. The very first thing is that my side gig did exceptionally well in 2015, and I have no guarantee it will do that well for the years to come. My side gig was initially my “safety net” in my original Financial plans, but has progressively become my main source of income in my current plans (mostly because I can’t bother staying in my current job for more than a couple of years at this point). This is adding some level of risk here, by trusting a “business” that could really collapse any day. Or it could grow bigger if I dedicate enough time to it, but I am not comfortable taking it for granted in my plans.
So how do I compromise here in my budget? So far, in my plans, I’m assuming my side gig will generate 80% of what it’s actually generated last year (and is on track to generate this year as well), and the rest of my budget needs to come from my investments. The remaining 20% of what my side gig has generated last year, and I hope will generate in the years to come, is my safety net.
It’s reasonable to except that my side gig will actually generate more money in the years to come, not less. After all, I have way more time to dedicate to it once I’m off the 9 to 5. But again, I can’t take it for granted. 3 Years ago, it was generating a third of what it’s doing today, and I’m never sure things won’t dramatically collapse overnight.
My plans: 40% of income from my side gig, 60% of my income from my investments
Actual as of last year: 50% of income from my side gig, 50% of income from my investments (assuming 4% rule, these are not my actual returns in 2015)
Again, the good point is that my actual income from my side gig + the 4% rule on my investments cover our planned expenses moving forward.
Why I’m not financially independent yet
As you can see, my actual numbers heavily rely on my side gig. As much as I enjoy it, it represents a significant amount of effort and some might call it work.
Worse, as I mentioned above, the side gig could go sour. And with my current numbers, this would imply my side gig generates money until I die, meaning I would have to work on it until then, which is going to be pretty much impossible.
So I’m not financially independent, nevertheless this is a great milestone. I now have the “F.U.” money and just need to prepare to pull the plug from my 9 to 5.
What’s my safety net here? What are the risks?
My current plan is to work another year of two. I’m constrained by some of my goals, one of which is to go back to Japan early next year. I intend to make this happen with a position change within my company, meaning my company would pay for the relocation. That’s a significant amount of money by the way, and I’d have to pay back some of it if I leave the company within two years of the relocation. In other words, once I move to Japan in 2017, I might have to stick with my company until the end of 2019. I honestly feel I won’t stand it that long though. I’ll have to calculate at what point I have accumulated enough that paying back the relocation cost would not impact my financial independence.
In an ideal scenario, by the end of 2016 I’ll have accumulated enough to reach my goal, where my investments will cover 60% of my yearly expenses, and my side gig will “only” have to cover for 40% of it. Since my side gig covers for 50% of our planned expenses right now, this is one part of the safety net that I’m building. The few months I’ll work in Japan will basically be useful to 1) pay for the relocation costs and 2) give me the “right” credibility to get a loan for a house.
There is some significant amount of risk with my plan. One is that our expenses expectations are a bit “back of the envelope”. I did not precisely compute how much we would have to pay for our kids’ college. Instead I assume “some amount” to pay for them every year, clearly more than what they’d need today, but less than what they would need as teens. I’m hoping it will balance out. Similarly, in a very FIRE community fashion, I didn’t add social security benefits in the mix (although I’ll probably get some of it at some point), and my numbers assume I would pay a mortgage or a rent until I die. Bottom line, I probably underestimated college costs but also underestimated some expense reduction and I’m hoping the balance of those will be roughly zero or positive.
The other big risk, as I’ve mentioned a lot, is if my side gig goes wrong. I think worst case scenario I’d have to get back to a 9 to 5 job if this happened. Not great, but not a “life threatening scenario” either.
Last but not least, if the Japan economy keeps going nowhere, I’m worried about the Yen getting stronger every day, which eats into my buying power since my income (both from my side gig and my investments, as of today) is in dollars. Interestingly, the rise of the Yen comes mostly from the fact that inflation is basically zero in Japan, so I’m wondering if those two offset each other…
So, I’ve got some level of risk in my plan (who doesn’t), but I think I do have an answer for most of those, and some level of safety with Social Security that will come eventually.
Today’s probably a good day to celebrate though. I’m not financially independent, but it looks like I don’t really need my 9to5 job anymore