Our Freedom Fund: Creating a Portfolio That’s Built to Last

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Welcome to our first monthly update of our journey to financial independence. We’re getting closer to the finish line and are reporting to you on our final year into financial independence. That’s right ladies and gentlemen, we’re almost FI! We are projecting to reach our goal by July 2017. What does this mean to us? It means that we’ll have enough investments to live off of, without ever having the need to work to pay for living expenses.

Would we suddenly quit our jobs after reaching FI? Not right away, although we’d love to do that and start traveling for longer periods. There are other steps that we need to take prior to taking action on retiring. We’ll need to transition in stages. Unless the daily grind annoys us enough to quit, we’ll continue to work for a little bit longer, just a tiny bit.

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Success! I annoyed Pushok and got his attention while writing this article.

We’ve been on the path to financial independence since 2011. We’ve made so much progress in so little time that the years start to blend in. Thanks to technology, we can go back and see when it all started by looking through the archives. My book purchases below transports me to the time when I became more curious about living an awesome debt-free life. This is also the time when we discovered that we don’t have to work for money until our 60’s. (The novels were just free downloads.) Our spending ways changed so much that we no longer buy books. Our library has become the main source for our reading needs.

From July 2011 to March 2012 I read about: 1) How to spending to get the life that you want. 2) Debt settlement negotiation techniques. 3) How real millionaires live. 4) Intelligent investing. 5) And last but not least, how money is your life energy aka Your Money Or Your Life. Other books on the list also shaped our views. We thank the authors for bringing such great work to light.

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Screen shot of my book purchases

After we reach FI and take care of other financial priorities, we’ll need to sell our investment property. We plan to move abroad after retirement. The last thing we want to do is deal with the headaches of managing that particular property while living abroad. We’ll eventually get back into holding physical real estate but for now we’re building up our REITs holdings.

About a year ago, we reported that it would take us about three more years to reach FI. That number included other priorities such as buying a home/investment property and setting money aside to help our parents. We are categorizing our financial goals in stages. The first stage is to reach FI. After we reach FI we’ll continue to fulfill other financial goals.

Redefining our Freedom Fund

We’ll consider ourselves financially independent when our investments (Freedom Fund) can support a lifestyle equivalent to $35,000 a year. The typical retiree time frame is 30 years. We’re creating a portfolio that’s built to last because we have a much longer time frame than a typical retiree. We need these funds to last for at least 60 years, adjusted for inflation annually. The asset allocation model that we’re going to follow has a 92 percent chance of success.

Our Freedom Fund only goal will be to fund our living expenses. First, we secure the funds to be able to leave the rat race by continuing to invest in stocks, REITs and bonds. Second, we work on other financial goals that are more flexible.

We have options!

What do we mean by having other goals as flexible? First of all, we don’t need to buy a house. After we become financially independent we can continue to rent an apartment indefinitely. If we want to buy a nice house in the future, we can work a little longer to fulfill that goal. That framework gives us the flexibility to quit our jobs any time after reaching FI.

We do have the flexibility to buy a more affordable home in our calculations. In our Freedom Fund we’re including $10,000 a year in income to cover our rent (adjusted annually for inflation). If we decide to buy a house without working any longer, we can take the balance that funds the rent and dump it into a house. We do need to account for taxes and home repairs, which are already included in the monthly rent we pay.

We’ll be done saving for retirement after our Freedom Fund is fully funded. BANG!!! In less than 10 years we’ll be able to accomplish what gets marketed to us as a 35-40 year endeavor. Certain powers that may be promote lifestyles that leave very little room for savings. They turn us into consumer suckers that spend most of our money during our earning years. Then at the point of retirement, we downsize to smaller homes and can barely keep up with retirement needs. That’s not a life we’re aiming for. No, muchas gracias!

$35,000 a year might not seem realistic for folks that carry debt as a normal way of life. They might even think that living on such a budget is a huge sacrifice. The truth is that when you’re not paying monthly interest on debt and upgrading cars every four years, your money can go a long way. How much in interest are you paying on your car, mortgage and credit card debt? Deduct that from your annual expenses and you’ll see what I mean. How much extra in insurance and dealer services is that new car costing you? Deduct that from your living expenses and suddenly our budgets are more comparable and look like a million bucks. Let’s not forget about opportunity cost.

Where can we live on $35,000 a year? Almost anywhere since our essential living expenses are pretty low! Our essential living expenses, including housing, food, transportation and a few extravagances, were around $24,000 last year while living in Pennsylvania.

Living abroad is more appealing to us because it offers opportunities to discover a whole new world of adventure. It’s less expensive while providing us with a better quality of life than here. We enjoy eating U.S. imports of fruits and vegetables abroad because they are picked just at the right time. People are also more laid back and relaxed in other countries. That’s probably because they don’t live hectic lives as we do here.

As far as living expenses, in the DR you can live like a king for $25,000 a year. Not convinced yet on how inexpensive life can be elsewhere?  Check out the insightful articles by Frugal Vagabond on living abroad.  For $10,548 a year you can live comfortably in Malaysia, Thailand, Colombia, Vietnam, and Ecuador! For $13,200, destinations in Mexico, Serbia, Vietnam, India, and Georgia will fill your retirement with affordable adventure! And if you want to stay in the U.S. and enjoy the great outdoors you can move to Colorado. While there you might as well neighbour Mr. Money Mustache who manages to live an extravagant lifestyle under $25,000 a year.

Last March we reported that 72 percent of our eggs were in the Freedom Fund nest and we revisited our journey to see what it took us to get to this point. That number didn’t just include our Fi number. It also included an amount to buy a property and expenses for moving abroad. We felt that it didn’t make sense to lump it all into one goal. Therefore we are removing the extra amount from the FI calculations. Being financial independent means that we have the options to leave our jobs and still keep the same standard of living. Our Freedom Fund should reflect just that. As a result, the percentage on the redefined Freedom Fund chart will look a little higher during the previous months (prior to April) reporting because it’s now a larger percentage of a smaller balance.

The most important factor to our success so far has been lowering and tracking our expenses. Tracking them in Mint helped us become aware of how we were spending our money. We had some expenses that were shocking and decided to take action to eliminate them. We’ve come a long way from those days and have been tracking our expenses for about five years now. The expenses for last two years are posted here.

Aggressive saving it’s not something reserved for folks with high-paying jobs or for the rich. Some of our coworkers think that we’re in a special situation to be able to do this. The truth is that they also make comparable salaries. They can also plan an early retirement if they so wish. It’s true that it’s been easier for us without kids. However, we strongly believe that kids are as expensive as parents make them to be.

We do understand that early retirement is not for everyone. Some people do not mind sitting in a cubicle or attending endless number of meetings on a daily basis. That’s not our permanent cup of tea. We prefer to follow our path and are not afraid to be different. We keep investing no matter what the market does. One day our Freedom Fund will become our main source of income, passive income, that is!

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Don’t be afraid to think different from peers and follow your FI path. Being normal is too boring!

Dividend Income

Out of the annual income we expect in retirement we’re counting on a good amount to come from dividends. The rest should come from capital gains. We solely invest in index funds so no stock picking for us. The goal is to reach an annual dividend amount of $17,500.

We made $3,474.09 in dividend income for the second quarter. Our total dividend income for the past 4 quarters was $13,980. We are $3,520 away from meeting our dividend income goal!

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Freedom Fund percentage

In June we reached 85 percent of our Freedom Fund. Yay! That’s an increase from 83 percent in May. Our Freedom Fund is comprised of mutual fund investments, short-term reserves and a real estate property. We gain little ground because of market drops, mainly due to Brexit, but the dividends helped cushion the blow.

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The Freedom Fund will cover our living expenses in retirement.

Freedom Fund percentage reached since marriage

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During the past 10 quarters the Freedom Fund only dipped in the third quarter of 2015.  It will take a lot longer than a few months to get to 100% if a recession hits. It could even take years to reach final destination if we get into a bear market. However that would also provide buying opportunities while we’re still in the accumulating stage. No matter what the future holds, we’re building a solid foundation to ride out any financial crisis.

Would Independence Day 2017 also bring our financial independence? That’s a goal well within reach. In the mean time, we continue to enjoy our journey!

How are your FI plans going?

Risk disclosure: All investing involves risk, including the possible loss of principal. The material contained on this website is for discussion purpose only and should not be misconstrued as financial advice.

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72 Percent of Our Eggs Are in the Freedom Fund Nest!
What This Wonderful Journey Is Really About

Mr. Enchumbao

I work for a large investment management company helping people save for traditional retirement. During my spare time, I write about our FIRE journey here, at Enchumbao. My journey to FI began in 2012. I was in a lot of debt back then, but I turned things around and became debt free a few years later. My wife and I reached financial independence in 2017 and are preparing to retire soon.

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4 Responses

  1. Nice to see you guys make some progress on your well documented journey, truly inspiring. Happy 4th of July & Financial Independence Day!

    • Hi Blad,
      It’s great to get a comment on the 4th of July. I didn’t think anyone would be reading. We’re glad to be an inspiration to others. Happy Independence Day to you as well.

  2. M.C. Cheamp says:

    Very inspirational! Congrats on getting this far in your journey. Are you able to share more details on how you were generating this level of income (what you’re invested in and/or a ballpark principle amount)?

    • Thank you! If you’re referring to our dividend income. We invest in index funds and are investing a large portion of our new non-retirement investment money in a high dividend yield index fund that generates over 3% in dividends. Large caps generate most of the dividend income but we’re diversified in different asset classes. The key here is to stick to an asset allocation that works for us.
      As far as our job income, we work as project managers and have been with our current company for about 10 years. I didn’t save much during the first years, except for 4% of the salary to meet the company’s match. We don’t have 6 figure salaries but get paid decent salaries. As I paid off debt, we continued to increase our savings rate. We’d be able to share more details after we retire.
      We’ll have an updated post on our asset allocation soon and will touch upon how we are invested. Thank you for reading!

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