Gyroscopic Investing

Pointedstick wrote: Maybe you want to be the primary caretaker for your kids for a while.

Pointedstick wrote: It's CEO Nwabudike Morgan, from the Alpha Centauri video game! Check out the video in my signature.

Jake wrote: I'd be interested to hear feedback on this recent podcast I did on milestones to financial freedom. You can hear the podcast here http://thevoluntarylife.com/TVL_E080_fi ... stones.mp3 and I've posted a summary of all the main points below from the accompanying blog post http://thevoluntarylife.blogspot.co.uk/ ... tones.html

This episode is a about the significant milestones along the way towards achieving financial freedom. In my opinion, reaching each of these milestones brings you closer to being financially free and it is useful to take a step back and consider what the steps along the way of your journey will be. Some milestones to consider are suggested:

Financial independence or "paying your own way", whereby you are sustaining yourself from your job or work income on a month to month basis. You are not living off parents, not living from significant subsidies from your family, not accumulating student debt and not accumulating credit card debt. It's important to note role how going to college significantly delays reaching this milestone and how many people do not achieve this milestone until they are in their 30s or later.

Achieving positive net worth, whereby your assets are greater than your liabilities. This is often what people mean when they talk about "getting out of debt" (although that is not exactly the same). It is important to be aware that consumer credit and mortgate debt can significantly hinder or delay you reaching this goal.

Making your first investment, for example by purchasing an income producing asset like shares or bonds.  The key distinction is that this is not just money you haven't used yet which you are putting aside until  you spend it, it is money you do not intend to ever spend. You are putting this money to work for you creating income. Although a lot of people consider purchasing a house with a mortgage as their first big investment, a property for your own use is really a consumption item.

Net worth surpasses annual expenses- in other words, your savings (assets) could keep you going for 1 year if you needed to. This means you have a significant safety buffer, but if you did have to use your savings it would mean that you consume your capital and you would be back to square 1.

Annual passive investment income becomes larger than your annual expenses: this is real financial freedom, as  you can now live off your passive income. For this to be sustainable it needs to take into account the effect of inflation, taxes etc. However, once you can sustainably live from your passive income, you are financially free.

This podcast and blog summary contains only my personal opinions, it does not constitute financial advice and I am not a financial advisor.

Do you think these are the relevant milestones? Any others you think are more important? Feedback welcome.

Tortoise wrote:
An additional financial milestone occurred to me today, and it would go before the last one in that list above: "Annual passive investment income becomes larger than your annual contributions."

Another way of expressing it might be "Graduating from the accumulation phase."

This milestone refers to the point at which the dominant source of growth of one's investments shifts from new contributions to compound growth. It's when one's investments really begin to "take off" and gather momentum.

For a typical PP investor, I suppose this would occur when new annual contributions are finally less than about 9.5% of the portfolio value. (If we assume an average 9.5% return for the PP.)

Pointedstick wrote: ↑Wed Oct 17, 2012 11:50 am I wonder how many of us are engineers (I am too). It's sort of interesting how many engineer types are attracted to mastering money and adopting small government/libertarian ideals. The INTJ profile strikes again!

Tortoise wrote: ↑Thu Feb 04, 2021 8:42 pm
Bumping this gem of an old thread about reaching various financial milestones to financial freedom.

I was updating my net worth spreadsheet recently and noticed that my net worth (including home equity) is now about 25x my average annual expenses.

I can't retire yet under the 4% rule for various reasons -- my home equity doesn't generate passive income, I can't tap my tax-sheltered retirement accounts yet, etc. -- but it at least feels like an important psychological milestone for net worth to hit 25x annual expenses.

Tortoise wrote: ↑Fri Feb 05, 2021 12:00 am
Agreed, Vinny. It's just a "psychological" milestone, I guess.

Excluding home equity, my liquid net worth is 19x annual expenses (10x in IRA/401k, 9x in taxable). So I'm not yet FI, but it's approaching more quickly than I thought it would.

Vil wrote: ↑Fri Feb 05, 2021 8:12 am Well, Tortoise is to answer for himself, but personally I consider it fair to count family expenses too. If it was just me, I have already enough of assets generating passive income to declare myself financially free. I even keep my current well paid job (approx. 200K USD/year..) just for pursuing that goal, not that I really enjoy it .. But again - family life/kids change things dramatically - school expenses, vacations (abroad), etc. etc.
Hm, I start to feel I should read once again the notorious "Millionaire next door" and keep my/our expenses as low as possible (which is not the case... )

Vil wrote: ↑Fri Feb 05, 2021 8:12 am Well, Tortoise is to answer for himself, but personally I consider it fair to count family expenses too. If it was just me, I have already enough of assets generating passive income to declare myself financially free. I even keep my current well paid job (approx. 200K USD/year..) just for pursuing that goal
...

• FI Level 1: 4% of liquid net worth covers annual expenses if I were to live really frugally (requires significant downgrade in lifestyle)
• FI Level 2: 4% of liquid net worth covers annual expenses if I were to live comfortably but forgo most luxuries
• FI Level 3: 4% of liquid net worth covers annual expenses if I were to live comfortably and indulge in occasional luxuries
• FI Level 4 (Fuck-You Money): 4% of liquid net worth covers annual expenses if I were to live comfortably and indulge in whatever luxuries I want

dualstow wrote: ↑Fri Feb 05, 2021 11:30 am Pursuing the goal of what? Having enough capital to generate income which will cover the whole family's expenses?

Tortoise wrote: ↑Fri Feb 05, 2021 11:48 am For example, I can probably think about achieving various ascending "levels" of FI:
...
In that scheme, I suppose I already achieved FI Level 1 a while back and am now working toward Level 2.

Smith1776 wrote: ↑Fri Feb 05, 2021 12:49 pm I am currently in my final semester of school.

When I finish school I'll switch from part-time to full-time work again. For that first year or so I'm working though, I'm planning on staying with my folks so that I can do some serious moolah accumulation.

Smith1776 wrote: ↑Fri Feb 05, 2021 12:49 pm
I am currently in my final semester of school.

When I finish school I'll switch from part-time to full-time work again. For that first year or so I'm working though, I'm planning on staying with my folks so that I can do some serious moolah accumulation.

Vil wrote: ↑Fri Feb 05, 2021 1:17 pm

dualstow wrote: ↑Fri Feb 05, 2021 11:30 am Pursuing the goal of what? Having enough capital to generate income which will cover the whole family's expenses?

Yep, that was my point (not necessarily evident from the way I am torturing the written English ..).
..

Tortoise wrote: ↑Thu Feb 04, 2021 8:42 pm Bumping this gem of an old thread about reaching various financial milestones to financial freedom.

I was updating my net worth spreadsheet recently and noticed that my net worth (including home equity) is now about 25x my average annual expenses.

I can't retire yet under the 4% rule for various reasons -- my home equity doesn't generate passive income, I can't tap my tax-sheltered retirement accounts yet, etc. -- but it at least feels like an important psychological milestone for net worth to hit 25x annual expenses.