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Whew, that was a long hiatus!
Was away on vacation for two weeks and faced all sorts of monetary temptations. My beloved Mr. Sparks was a pillar of strength in my multiple moments of weakness. Every dollar deployed on the trip was a happy employee. There was a bit of splurging on experiences that we both value, but not otherwise on things we aren’t too big on (e.g. food – neither of us is really a foodie).
On reflection, I think this vacation was in line with my FIRE journey (unlike many other vacations before).
Speaking of the journey…how would you or I know that we are making progress?
Well, let’s dive into this week’s post for one way to look things on the journey to FI(RE)!
Meet the Milestones
Progress.
Gotta love progress. It’s how to know if we’re winning or not. And everyone loves winning.
So, in the game of financial independence, it’s useful to track progress. A positive feedback loop will start forming, and then you start to snowball. A flurry of $ signs!
Oh Mr. Stark. I never quite know if I like you or not, but you are entertaining at the very least. And you are good to Spiderman. Who is, hands down, the best Avenger.
Image from SayingImages.com
I listened to the ChooseFI podcast episode sometime before the trip on Milestones of FI (great podcast, by the way – check them out!). That was a fun concept to contemplate as I chewed on my version of the Frugalwood’s Epically Frugal Lunch (my version includes Lao Gan Ma chili paste, which makes everything taste amazing).
*Side note: the Epically Frugal Lunch is batch cook-able, easily packable and very quick to eat. Does not require much chewing. Excellent qualities for lunch fare for busy residents and medical students (and for staff physicians too, I imagine – still looks pretty darned busy on the other side of the certification fence).
Anyways, back to the Milestones of FI. Below is a slightly modified list that I came up with, given the framework of operation that I talked about in the previous post of aiming for the financial position fatFIRE.
- Positive net worth
- Savings amount of 1 year of annual expenses
- $100,000 net worth
- FU money: 2-3 years of annual expenses
- Half FIRE – 12.5x annual spend
- Half fat-FIRE – 16.5x annual spend
- Lean FIRE – all essentials covered, no treats
- Classic FIRE – 25x annual spend (a.k.a. 4% rule)
- fatFIRE – 33x annual spend (a.k.a. 3% rule)
Nine milestones to guide the way! Your personalized list might look a bit different, which is awesome and totally appropriate since it’s your FIRE journey.
So where is Dr. FIREfly in all this?
- Positive net worth
- Savings amount of 1 year of annual expenses (but, do recall that I still have some student loans left, which are currently not accruing interest)
- $100,000 net worth
- FU money: 2-3 years of annual expenses
- Half FIRE – 12.5x annual spend
- Half fat-FIRE – 16.5x annual spend
- Lean FIRE – all essentials covered, no or very few treats
- Classic FIRE – 25x annual spend (a.k.a. 4% rule)
- fatFIRE – 33x annual spend (a.k.a. 3% rule)
It was actually pretty amazing when I realized that I had one year of annual expenses saved up in investments. Of course, that amount will take a hit when the markets next nosedive for a bit, but the markets will eventually correct themselves. For all intents and purposes, I have 1 year of annual expenses tucked away if I take the long view. Woot!
I also remember two other significant milestones – first was paying off my student line of credit and second was reaching a positive net worth for the first time ever. While those two were goals that I had been consciously working towards, this third milestone of having one year of annual expenses saved was an unexpected bonus! Always nice to have more reasons to celebrate.
(Of note, these wins occurred in the context of continuing to have some student loans hanging over my head – but these student loans are NOT accruing interest currently and will not do so until the end of residency. I should be able to pay the remaining amount down over the remainder of my residency…although I am currently weighing the opportunity cost of these dollars being deployed to the student loan which is not currently accruing interest vs. allocating the same dollars into investing and allowing a bit of extra time of compounding interest. Personal decisions to make!)
So, there are my modified Milestones of FI. Hopefully that provides some ideas to spark development of your own personal Milestones of FI! Let’s celebrate the wins along the journey to the state of financial independence 😀
-Dr. FIREfly
1. Allocating funds to the investment pile is “on paper” the best option.
2. Paying off the loans might have “psychological advantages”… help you sleep better.
Based on your previous post about being very conservative and risk averse, I’m guessing option #2 would appeal to you more.
The question might come up again when you are further along the journey, in the form of:
“Do I pay down my mortgage faster or invest more?” The computations become quite complex, because it’s obviously not a face value comparison of mortgage loan interest vs. expected investment ROI (because of tax implications mostly). There is a “spread” of maybe 2-3 % in the optimization, like paying down a mortgage with 3 % loan interest might be equivalent to investing with ROI of 5-6 %. I like to get the accountant involved to do that kind of heavy lifting as my head starts to hurt after contemplating this for awhile. (I think there are on-line calculators that attempt to “rule of thumb” this, but I’m not sure how much I trust them)
Yeah, definitely. I’m currently a renter, but might be looking at buying once all the training is done. Will definitely have to sit down with the accountant to try and figure this out. There must be software that they use for all this. I wonder how hard it would be to get a copy – and how hard the learning curve would be to properly use it!
At the end of the day though…that psychological advantage of well and truly owning one’s home might outweigh the paper advantages. I guess that’s the “personal” in personal finance! Would love to hear more about your decision-making process 🙂
I think I believe in the philosophy of the Millenial Revolution couple … just rent forever. Having said that, I’m in a largish house (2400 square feet) that I “own”. My justification is that it is hard to rent a place with 4 bedrooms. No, you don’t NEED that much space to raise a family. But sometimes “Ya gotta’ keep ’em separated…” (Offspring reference). This applies doubly when the kids have to practice some kind of musical instrument and sanity is threatening to slip away. When it’s just my wife and I, we’d be happy in a 900 square foot place with 2 bedrooms (convert one room into an office / guest room). Anyway, I don’t feel the need to “pay all my mortgage down” because that goal includes the implicit assumption that I will be living longterm in a paid-for house worth around $500,000. Once the kids are done high school, we’ll see what happens. If they move away, the decision is that much easier. Sell the home, throw the equity on top of the nest egg pile, sell off a bunch of our crap, and then rent somewhere.
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