I took a break when I achieved my FIRE goals. I did all the usual stuff -- worked on personal projects, cleaned up the house, and played an insane amount of tennis and video games. After 6 months, I was so bored out of my mind that I started interviewing again. I discovered that I didn't hate the work, just idiot colleagues. Working as a software engineer in the Silicon Valley is a very cushy lifestyle, and I'm blessed to be able to do this type of work.
I am a serious practitioner of the FIRE (Financially Independent, Retire Early) philosophy. Over the years, I have accumulated assets in a very conservative portfolio. This portfolio has reached a point where it has consistently generated over 150% of my base salary for more than 5 years.
Just curious, what kind of conservative portfolios are you investing in? I was recently trying to get my wife and I invested in something similar, but didn't find many products. We are very risk adverse and recently (after maxing out 401ks) have been "hoarding" saved money in our bank, which doesn't help much.
The key thing for me was to constantly and continually invest. I'm sure you've heard the saying to "maximize time in market; don't time the market." I buy a mix of bonds and stocks that pay dividends. I'll skip reading the financial news from time to time and buy shares in low-cost funds when I'm busy or just feeling lazy.
I'm doing roughly the same thing, but just starting out. The focus is on real estate and business ownership. How long did it take you to get to the RE point?
I reached 100% income replacement for myself in my late 20s. Then I got married and had kids. My spouse and I reached 100% income replacement in our mid-30s.
Glad to see a fellow practitioner. Best wishes on your journey!
You give me too much credit -- it's a really boring approach.
My portfolio used to be about 50/50 in fixed income securities and real estate. I got lucky with the real estate, and I got out because I didn't think my luck would last forever. Now my portfolio is made up entirely of fixed income securities and blue-chip stocks that pay dividends. The dividends and interest payments are laddered such that I recieve at least 2 payments a month. I didn't choose securities based on payout dates, so the amount does fluctuate from month-to-month. However, the portfolio generates enough monthly income that the "leanest" month is greater than my paycheck's monthly gross income.
Being a software engineer myself, I don't qualify for the Roth accounts so most of my investments are done in a standard taxable account. I don't buy any particular funds -- just a variety of boring bonds and stocks.
I did try the RE (retire early) part a while back. It lasted about 6 months before I got too bored out of my mind. I still continue to work because of the mental stimulation and the social connections.
It's a function of percentage income saved, not amount earned. The formula is (income / investment rate / percent income saved). If my investment rate is 4%, I need to save 25 years worth of salary. Saving 50% of my salary looks like I would need 50 years on the surface. However, my portfolio generates income from day 1, so it's actually a lot faster than it seems.
Just for reference, I was living on less than $750/month until I got married. The companies I worked at had plenty of free food. I didn't need a gym membership because the handyman work I did on my investment properties was more than enough. Until we had kids, my spouse and I were still able to survive on less than $1,000/month. We are based in the south SF Bay Area. We had 100% income replacement by our mid-30s.
I really appreciate the details! Out of curiosity, how did you manage to only spend $750 a month to pay for housing, utilities, phone (you mentioned food was free) in south SF Bay Area?
Digging through my old bank statements:
- $500/month for rent and utilities by splitting 1 bedroom apartment with roommate)
- $30/month for my cell phone plan
- $100-150/month for a car 15-year old beater at the time. Mostly gas and minor maintenance
- $70/month in spending money
The central tenet of my career was focused on budgeting and building a portfolio that can generate post-tax cash flow to enhance my lifestyle. My portfolio consists of dividend paying stocks and all sorts of bonds. I know I missed out on capturing value from the many peaks in the market of late, but there is a very soothing feeling knowing that I get a stable and sizable paycheck from my investments every month.
A self-managed portfolio consisting of various government bonds. Ever since I started working, I have been saving >30% of my annual income every year. Not accounting for the income from the portfolio or for raises since, this means that every year of savings, the portfolio can replace 1.2% of my annual income (assuming an effective yield of 4%). Been doing this for over 20 years now.
Step 2: Invest in very conservative investments that throw off free cash (I personally like fixed income like US treasuries and municipal bonds). The operative word is "conservative" so that the passive income is reliable and can be treated as a permanent offset to lifestyle costs.
Step 3: ...
Step 4: $$$ -- As the income in Step #2 grows, it increases the savings ratio in Step #1 (a geometric series!).
This is a doable formula anywhere (I currently am working and raising a family in Silicon Valley) and I've achieved financial independence in about ~10 years. I still keep working to stay engaged.
Diligent savings over many years combined with low-risk investments. The stable income it generates now covers all living expenses for my family. I'm still part of the 9-5 crowd by choice while I search for my next calling in life. However, the main job is now more of a training ground and networking center than a primary source of income.
Mostly fixed income securities and fixed income-like assets (like real estate, asset-backed loans, etc.). $10,000 invested at 4% brings in a little more than $1/day.
Yes, the market value of the securities and assets may fluctuate day-to-day, but the income doesn't. As long as the borrower is of sufficiently high quality, then there really isn't any concern about the principal getting paid back.
Thanks for sharing. Mind if I ask what your cost of living looks like? Seems like it would take a large amount of capital to get a livable income off conservative incoming-paying investments at 4%.
My cost of living is about the same as the typical family with kids attending good public schools along the SF Bay Area peninsula, but the approach should be repeatable in most places. My expenses over the years has stabilized at less than 50% of take-home salary (not including bonuses, equity grants, etc.) for my main job, in line with a previous post of 30% of income. So the absolute worst case scenario for a 4% return is 25 years.
In my particular case, I had saved all my bonuses (both cash and equity) and most of the income from the aforementioned portfolio. I was also fortunate to have held a consistent side job for most of my career.
I've also found that the longer you are away from school, the harder it is to go back for a variety of reasons (motivation, money, family, etc.). I guess in a world where there are statistically millions of people like me (C'mon -- there are 6 billion+ people in the world!), it would cost less political and social capital to hire or invest in somebody with a degree than somebody without.
I am a data point for the worst-case example. I don't have a hot application or a popular website, and most of my money is earned the old-fashioned way.
My passive income from my investments in government bonds is enough to cover mortgage, basic living expenses for my family, and two family trips a year.
Source of money for investments:
- savings from many years of working and diligently saving
To be honest though, since we're all inundated with startup and marketing information all the time, it's refreshing to know the old fashioned investing still works :)
I'd like to put some math with this because this is the path I took too. 4 years ago I was offered a job with a startup and a job with a government contractor at the same time. The contractor was offering 15k/year more and I took that offer and saved all 15k of it every year (index fund investing). 4 years in, with reinvesting dividends, my passive income from the money is around 400/month. Very happy I made the choice I did.
I tell everybody around me it's surprisingly easy to become financially independent. By saving s% of my income investing with a rate of return is i%, then the worst case is that I should be able to completely replace my income in i%/s% years. I was saving 30% (actually more) and investing at around 5%, which resulted in complete income replacement in around 10 years.
