Solidifying and Automating My Way to Financial Independence

Recently, I shared how I went from a negative net worth to over $500k in 4 years. The past four years have provided a great foundation for financial independence. However, I still need to think through a few items and finalize my plan. My rental properties provide great monthly income but I will need more than rental income to leave Corporate America in the dust.

The following actions will get me to my goal retiring early:

  • Automate investing
  • Increase dividend income
  • Increase assets in non-retirement accounts
  • Buy one more rental property
  • Budget & Spending
  • Debt Reduction
  • Cash buffer

Automation

Like a car on cruise control I want to automate my path to financial independence. Paying bills sucks. In fact, I have over 20 bills I must pay every month. Going forward I want to will automate as much of my life as possible. This will free up more of my time, reduce stress, and eliminate the possibility of late payments.

Likewise, I also want to automate a portion of my investing. Moving forward, I will be opening up a new brokerage account. A portion of every paycheck will be directly deposited into this account. The funds will go towards weekly purchases of a low-cost index fund.

Also, I am not giving up on dividends. This strategy will allow me to dollar cost average into the market AND increase my dividend income (index funds pays dividends).

I am fortunate to save a lot of cash every month, however, I am not comfortable with so much cash sitting idle. These funds are not providing a return. I plan purchase index funds while saving for another investment property.

The brokerage account will be with Vanguard. I looked at several options and all the major brokerage firms offer low cost index funds. However, Vanguard does not charge you a commission when you buy their funds. Vanguard’s funds also offer one of the lowest expense ratios to manage the fund. This will save me hundreds or even thousands of dollars over the next few years.

Increasing Dividends & Non-Retirement Account Investments

Dividends will provide 25-33% of my income when I achieve FIRE. Ideally, I would like an average of $1,500/month in dividend income.

Most of my stocks and index funds are in retirement accounts (Roth IRA & 401K). There are ways to access these funds early, however, I would like to increase my non-retirement account balances and dividend income.

As previously mentioned, this will be accomplished by regularly buying index funds. Additionally, I will continue to buy undervalued dividend growth stocks when the opportunity presents itself. Divided growth stocks provide a great hedge against inflation since most dividends grow faster than the rate of inflation.

Buying One More Rental Property

My rental property portfolio currently consists of three properties. The portfolio provides quality passive income which is evident by last month’s Landlord Report.  However, I would like to purchase an additional rental property before stepping away from my day job. 

Why?

My first property was an accidental rental. I bought the place to keep my cost of living low and to house hack with roommates; they paid most of my bills. The cash flow from rental property #1 is not very strong. The other two properties provide great cash flow and were bought with the intension of being rental properties.

Adding one more property with strong cash flow will greatly improve my (mostly) passive income. In fact, the cash flow from an extra property will likely help me hit my estimated FIRE number and cover most (all?) of my annual expenses.

Also, there is a good chance rental property #1 will not be rented once I go FIRE (more on that below).

Solidifying a budget/spending

Several members in the FIRE community track spending and budget religiously. I do not have an exact budget and may never make one. Additionally, I am unable to report my monthly spending since I do not pay close attention to my spending habits.

I do have a general idea of my expenses and could guestimate my income needs. However, we do not want to leave FIRE planning to guess work.

Over the next year or two I will hone in on my spending habits. Knowing how much I spend every month will help determine how much I need to save and how much income my rental properties and stock portfolio must generate.

My current goal is $45,000/year in passive income. However, I believe my spending is closer to $30,000 annually. Fun fact, I lived on less than $1,000/month for two years after graduating college.

Clearly I need to do some work in this department to finalize my FIRE plans. Determining my spending needs may show that I am a lot closer to FI than I anticipated.

Debt Reduction

Debt is a wonderful thing. Debt also has the ability to crush dreams. One of my goals is to pay off all debts except my mortgages before going FIRE.

When I graduated college, I had five figures of student loan debt. I have always paid more than the minimum payment and I am aggressively paying down my student loans. My student loans still have a few thousand dollars outstanding. This must be crushed before I can claim FI

In my FIRE life, I plan to have rental property #1 paid off (or very close to paid off). This house will serve as my ‘FIRE HQ’. I love the location and the neighborhood is very walkable. Additionally, the house is one block away from a major running/bike trail; this trail connects to over 100 miles of tails.

The upkeep on the house is minimal given it’s small size. The utilities are very manageable for the property; this will help keep my cost of living low.

The Cash Buffer

Cash is king.

I plan on having three years of living expenses in CASH when I step away from my job. Why?

Well, this will allow my portfolio to grow for three years without taking any distributions. This will likely translate into the ability to safely withdraw more funds in the future than if I were to start withdrawing funds day one. In fact, this may lead to me using a withdrawal less than 4.0% rule.

The cash buffer will also provide protection if there is a down market or recession during the first few years. I will not have to sell when prices are low and avoid losing money.

Peace of mind and further accumulation are two other reasons I would like to have three years of living expenses in cash when I retire.

The cash buffer will protect me from catastrophic events. Perhaps I will incur a large medical bill or need to replace a roof. Cash has my back.

I will be able to pocket my rental property income as well during this time and potentially reinvest the proceeds.

Lastly, I am fiscally conservative. The cash buffer will dramatically increase my chances of FIRE working.

What steps are you taking to solidify your FIRE plans? Have you automated your life as much as possible? Have you thought about a meaningful cash reserve?

14 thoughts on “Solidifying and Automating My Way to Financial Independence”

  1. Love how detailed you are with your goals. I have one rental property and building a second one at the moment (if it ever gets finished). I plan to grow that number and live mostly of that which I continue to throw money into Vanguard’s low cost index funds.

    1. Gotta have a plan to get where you want to be. In some sense, I use the blog as a way of tracking my journey. Bonus – some people actually enjoy reading what I write.

      Great choice utilizing vanguard funds.

      I would really like to hear more about your construction project right now.

  2. Solid and detailed plan you have here. Nice work! Gaining a better understanding of your yearly expenditures will definitely help verify the amount of income you’ll need in FIRE. You may even find you’re spending less than expected.

  3. GOF,
    Sounds like you have most of this figured out. Now it’s time to execute. That’s a big cash buffer you’re planning to amass. I like the idea of letting everything grow for three years before touching it. Three years makes a big difference when it comes to safe withdrawals.
    -RBD

    1. Thanks RBD. I am hoping the plan works out. I may sharpen my pencil as I get my journey progresses.

      Glad you enjoyed the ‘cash buffer’ idea. Three years can do wonders for a portfolio

  4. Guy, I’m really impressed that you’ve been so successful in your FI pursuit without establishing the budgeting/spending details early on! That said, I strongly encourage you to challenge your “year or two” timeline for gaining command of this, it may have a bigger impact accelerating your FIRE timeline that you think.

    I really like Mint.com for this and found this course helpful for getting started with it.

    Using Mint daily has really helped me to meet/exceed my monthly savings goal, and put me well on my way to FI. Now I just need to get on your real estate investing level!

    1. Thank you, Matt! I had a loose budget my first year out of college but never truly tracked my spending or each category. I’ve been frugal most of my life and spending has never been crazy.

      Mint is a great resource and one I look forward to utilizing more over the coming months to truly understand my spending. Thank you for reading. You’re real estate game will increase over time.

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