Podcast: Play in new window | Download (Duration: 48:28 — 44.7MB) | Embed
In today's podcast we discuss the Milestones of FI with Joel from FI 180; this is a new look at the path to FI and the milestones along the way.
In Today’s Podcast we cover:
- The ‘Milestones of FI’ with Joel from FI 180
- We welcome Joel as our first repeat guest on Choose FI
- The Milestones of FI as a ‘master’s degree’ journey after Dave Ramsey’s baby steps
- Joel plans to be fully FI in January 2018
- Joel is completely debt free and is shooting for $25,000 per year in other spending
- FI creates a “magic money making machine” that spits out yearly ‘checks’ (the 4% rule)
- FI is the ultimate luxury purchase to save for this ‘magic money making machine’
- The Dave Ramsey Baby Steps explained
- To get started on the Milestones of FI: Debt Free and/or $1 of positive net worth
- First FI Milestone: $100,000 net worth when you first start getting calls from Personal Capital to setup a phone consultation
- 2nd FI Milestone: ‘FU Money’ set; 2-3 years of yearly expenses saved up
- 1st and 2nd milestone can be similar depending on your yearly spending
- The 3rd milestone is ‘Half FI’ which puts you halfway to FI in total spending, but actually more than that in terms of time on your FI path
- The path to FI is not linear and Joel explains
- Milestone #4 is ‘Lean FI’ which means you have enough money to stop working forever if you cut out the discretionary aspects of your budget (about 30% of Joel’s budget)
- Lean FI is an ‘emergency fund that would last forever’ as it covers your housing, food and other essentials
- Lean FI is perfect for people with a side hustle to do it with no risk
- The ‘crossover point’ could be another Milestone of FI. This is where your portfolio increase is more than the income you’re earning from your job
- The next milestone is ‘Flex FI’: This is a ‘5% rule’ or 20x your annual spending in your total net worth
- Flex FI is only viable for people who can build flexibility into their lives from year to year depending on the market returns, etc.
- FI is not one milestone but a smooth continuum towards this goal
- Flex FI has an 82% chance of success according to the Trinity Study (75% stocks, 25% bonds)
- Financial Independence is the 7th 25x your annual spending.
- All the work you do after you reach FI is completely optional. Now you can do what you want with your time.
- When you reach FI you can pick and choose what you want to do at work and in life
- The 8th milestone is ‘Fat FI’: This is 30x your annual spending which is the “closest thing to a sure thing” you can get in life
- Where is Brad in milestone continuum?
- Where is Jonathan?
- What does Alexis and Joel’s milestone celebration look like?
Links from the show:
19 thoughts on “032 | The Milestones of FI”
https://radicalpersonalfinance.com/finance-topics/stages-of-financial-independence/
Another resource for milestones. RPF has 7 stages where the first 3 stages get you to baseline (out of debt). Stages 4 through 7, Financial Security, Financial Independence, Financial Freedom, and Financial Abundance are analogous to the milestones mentioned in this episode.
This was a fun relational exercise, and a very entertaining podcast as always. For some reason I want to spell “Fat FI” as “Phat FI”, but I’m showing my age then.
The non-linearity point is a big key to perception. Most of your gains come at the end of the process. You can think about it backwards for some clarity. Suppose your number was $1 million and your time frame was 15 years. Imagining the process backwards, you are probably at $800K at year 13, $500K somewhere around year 10 and only at $200K in year 5 and $100K in year 3, with about $90K of that you just saved yourself.
This odd kind of non-linearity actually goes both ways, depending on whether you are going up financially or going down — “gradually, then suddenly”.
As Hemingway wrote in “The Sun Also Rises”:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
“What brought it on?”
“Friends,” said Mike. “I had a lot of friends. False friends. Then I had creditors, too. Probably had more creditors than anybody in England.” (13. 31)”
It’s easy to get discouraged in the first few years when the going is slow, go splurge on a monster truck or an expensive vacation and all of the sudden be back in lemming land. The moral of the story of course being, “avoid being close friends with lemmings.”
Ok, I’ll shut up now. 😉
Awesome podcast you guys. We’re 4.5 years away from FI.
That’s amazing congratulations!!
We’ve been FI for over 10 years now. Retired back in Jan 2008. Been traveling North America in our motorhome ever since. Our spending rate has averaged 7% per year. Our portfolio’s gross gain (since 2009) has been 14.1%, our net gain (after living expenses) has been 6.9%. We started collecting social security this year, so our withdrawal rate will drop to less than 3% moving forward. Even with that relatively high spending rate over the years we have a larger portfolio today than when we retired ($1.68M vs $1.51M) . We are closing in on Fat FI!
Just braggin’. 8^)
Love your podcast!
— jcw3rd
In case anyone else was looking for cleaned up list from this episode…
Milestones of FI
1. $100,000 net worth: Personal Capital call
2. FU Money: 2-3 years of yearly expenses saved up
3. Half FI: halfway to FI in total spending
4. Lean FI: enough money to stop working forever minus discretionary
5. Crossover Point: annual portfolio increase surpasses job salary
6. Flex FI: 5% rule or 20x your annual spending in your total net worth
7. FI: 4% rule or 25x your annual spending. Financial Independence!
8. Fat FI: 30x your annual spending
I was too dumb to find the comments option on 31R.
RE 031R where the 58 year old husband quitting a year too early to take 401k withdrawals without penalty… did I miss the part about how his 401k wasn’t with his current employer’s plan?! We decided many podcasts ago in this case you can quit after having turned 55 and withdraw that portion penalty-free for that current employer plan. Even if his IRA/401k is not with the current employer it sure could be – at least for the year and a half. I get that this podcast is almost a year old meaning it’s too late for him, but not for the next guy!
Thanks for everything! and definitely the realization that my wife could do the 5/24 gauntlet while I go crazy with everything else. One thing I’m trying to get my head around is how to transfer all my Chase UR points to her since I no longer will have a premium chase card… perhaps we should switch it around and have me do Chase and do all the shenanigans on her SSN.