Author Topic: Seeking Feedback: Partial Financial Independence  (Read 11798 times)

jonwinn23

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Seeking Feedback: Partial Financial Independence
« on: November 01, 2014, 03:39:05 PM »
Dear Mustachians,

My girlfriend and I have been excitedly reading MMM over the past few weeks as we have just now started to discover the world of investing.  We were hoping to get some feedback on a developing idea we like to call “partial financial independence”.  Here goes …

BACKGROUND:
I’m 34 years old high school teacher and have accumulated $44,000 in my saving account and put additional funds into my state teacher retirement account, which has since grown to $28,000.  My girlfriend (soon to be fiancé, shh) is 30 years old, has $58,000 in savings and $35,000 in an old 401(k).  So, in total we have $102,000 in savings and $63,000 in retirement accounts.

CURRENT STATUS:
At the moment I am on a one-year, unpaid leave of absence from teaching and my girlfriend quit her job so that we could travel for a year.  We have been in Mexico for the last two months and we will be continuing our travels through Latin America and other inexpensive areas of the world for the next 10 months.  We have calculated the total cost for this year of travel to be $10,000-$20,000, which would leave our savings accounts with about $82,000-$92,000.

INITIAL INSPIRATION:
With all of this free time (our idea of “travel” is not to see the sights, but to relax) we stumbled upon a few blogs about financial independence (FI).  The concept of FI has been very inspirational and at the same time we have been developing a theory we like to call “partial financial independence” (PFI).

OUR THEORY OF PARTIAL FINANCIAL INDEPENDENCE (PFI):
One thing we noticed in common about all of the bloggers who achieved FI was that they actually continued to earn income once they no longer needed it.  Our guess is that once you no longer need to work your creativity, imagination, and passion really begin to flourish, thus creating more happiness and income.  I have already experienced this phenomenon twice in my life while on “intentional unemployments” like our current travels. We have decided that we cannot go back to the 9-5 work life.  We believe that PFI will give us the freedom to generate income in a more organic, satisfying way ... rather than depending on and being held to a paycheck from a "job".

OUR DEVELOPING LIFE PLAN (upon return from traveling):
1) Continue to live on $20,000 per year
2) Rollover our retirement accounts to IRAs with Vanguard
3) Invest a large chunk of our savings with Vanguard
4) Ensure our Vanguard investments are diversified, rebalanced, and in harmony with their (and other) investment principals
5) Withdraw 4% from Vanguard every year (~$3000-$4000) to supplement income
6) Use new found free time to generate remaining funds (~$16000-$17000) for annual living expenses

OUR QUESTIONS FOR YOU:
1) What percentage of our savings (the $82,000-$92,000 we’ll have left after traveling) should we invest and what percentage should we keep as cash on hand?  Our current thinking is to keep about 3-6 months worth of living expenses as cash so as to ensure a smooth transition back home and into developing our new income stream (which may be a business or some other idea we come up with).
2) What are your general thoughts about PFI and/or anything else we’ve written above?

NOTES:
We wanted to note that we are not the least bit worried about “failing” as we’re more than willing to tighten the belt to survive a hiccup (i.e. living in a tent, eating rice and beans every day, exercising my union right to another teaching position, etc).  In addition, we are also what you would call “die brokers” – we’re not planning to leave behind any inheritance for anyone.

Thanks for reading,

Cory & Vickie
« Last Edit: November 02, 2014, 07:42:14 AM by jonwinn23 »

waltworks

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Re: Seeking Feedback: Partial Financial Independence
« Reply #1 on: November 01, 2014, 04:04:40 PM »
As I understand it, what you are proposing is that you quit your jobs and live on 4% of an $80k nest egg (most of which is in 401k/IRA funds that you'll need to do some finagling to get without paying penalties on) and *then* find some other work to do to make up the rest of what you need to live on?

Unless you really hate being a teacher, I think it would make a lot more sense to keep your job and save up more to invest, then *really* be FI. Your sorta-FI thing doesn't make sense to me. I mean, you are still under the gun to make money to support yourself - you just have a "free" few thousand bucks a year coming in. By all means, if you think you've got an awesome idea for a business or side gig that you'd love and would pay well - quit your job and do it. You've got several years of living expenses available.

But don't fool yourself - you are just quitting your jobs to go find new jobs (maybe better, maybe not) to support yourselves. You don't need to invent a new name for that, it's just finding new work you like better. Even at your low spending level, your investments aren't going to provide more than ~10-15% of the money you need.

-W

mozar

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Re: Seeking Feedback: Partial Financial Independence
« Reply #2 on: November 01, 2014, 05:49:34 PM »
The flaw in your plan is that it actually pretty tough to make 16k a year. Your options are retail/fast food/freelancing/blogging/seasonal jobs like ski instructor which are actually pretty tough to get. I recommend figuring out what the business is going to be first, then quit your job. You're going to be stressed about money if you have to make 16k a year, and that's called living in poverty.

BPA

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Re: Seeking Feedback: Partial Financial Independence
« Reply #3 on: November 01, 2014, 05:59:09 PM »
Two people trying to live on the investments you have right now is not realistic. 

Partial Financial Independence really means nothing.  $5 in the bank could be PFI.

I am pretty much a go ahead and live it person much of the time, but I think this plan is unwise. 

frugal_c

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Re: Seeking Feedback: Partial Financial Independence
« Reply #4 on: November 01, 2014, 07:49:18 PM »
As others have said, it comes down to how easy it is for you to make the 16k.   If you're working for minimum it would actually be pretty brutal.

I read an article, on this site I think, about a couple in their 40's that have done for decades what you suggest.  I am not even sure if they have $90k.  They basically travel for 1-2 years, then go back and work full-time at regular jobs for 6 months or so.  Similarly, it might make sense for to you work at your current professions in that manner.  This way you are building up that $16k with the least amount of work.   So maybe you could take the year off, go back and teach for 10 months and save up another $30k, then take a couple of years off.    If you built up a side hustle that you enjoy maybe you could stretch the money you save up in your year teaching for 3 or 4 years.  Ultimately the side hustle could takeover.

I personally have known multiple people who do this.  It is quite common but I don't know if I would call it independence.  Still, if it suits you go for it.

expatartist

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Re: Seeking Feedback: Partial Financial Independence
« Reply #5 on: November 02, 2014, 12:06:14 AM »
So maybe you could take the year off, go back and teach for 10 months and save up another $30k, then take a couple of years off.    If you built up a side hustle that you enjoy maybe you could stretch the money you save up in your year teaching for 3 or 4 years.  Ultimately the side hustle could takeover.

I personally have known multiple people who do this.  It is quite common but I don't know if I would call it independence.  Still, if it suits you go for it.

Good call FC. A friend of ours (Canadian lawyer) would work for 2 years, then travel the world for one year, usually in lower-cost locations. He raised a family this way too. This approach kept his expertise relevant, and kept him enthusiastic about his work. Sometimes he worked for the government, at others he did private work. Often, during his years off, he'd do pro bono work.

homehandymum

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Re: Seeking Feedback: Partial Financial Independence
« Reply #6 on: November 02, 2014, 01:03:46 AM »
There was a couple in our last town who kinda-sorta did this.  They took turns working instead - so every (year? 2 years? 3years? I can't remember) they'd swop.  One person would be the principle income earner, the other would be free to volunteer at non-profits, pursue side-hustles that weren't necessarily lucrative, work their massive vege garden, or whatever floated their boat.  The only downside would be the lack of 'traveling overseas together' opportunities, but there'd be no reason why one of those job stints couldn't be teaching English in Japan or something.  No kids, so no need to think about schooling or college savings or disrupting their friendships or living in a house big enough etc.

2 people committed to living frugally can pretty much do whatever they want, but you're going to want to *actually* retire at some point, too, so your choices are
1) live frugally now, and also decrease your incomes so you can have lots of play time... but still be socking some of that away to retire on a more 'normal' schedule.  (And keep needing to head back to work every year or so)
2) do a double income savings sprint while living frugally to bring actual FI into play, and then you can work or not as you want, without there being any compulsion about it

BPA

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Re: Seeking Feedback: Partial Financial Independence
« Reply #7 on: November 02, 2014, 06:05:05 AM »
As others have said, it comes down to how easy it is for you to make the 16k.   If you're working for minimum it would actually be pretty brutal.

I read an article, on this site I think, about a couple in their 40's that have done for decades what you suggest.  I am not even sure if they have $90k.  They basically travel for 1-2 years, then go back and work full-time at regular jobs for 6 months or so.  Similarly, it might make sense for to you work at your current professions in that manner.  This way you are building up that $16k with the least amount of work.   So maybe you could take the year off, go back and teach for 10 months and save up another $30k, then take a couple of years off.    If you built up a side hustle that you enjoy maybe you could stretch the money you save up in your year teaching for 3 or 4 years.  Ultimately the side hustle could takeover.

I personally have known multiple people who do this.  It is quite common but I don't know if I would call it independence.  Still, if it suits you go for it.

This is a really good idea. 

jonwinn23

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Re: Seeking Feedback: Partial Financial Independence
« Reply #8 on: November 02, 2014, 06:55:16 AM »
Hi Everyone,

Thanks for all of the great feedback about our plan.  I just wanted to clarify our "theory" of Partial Financial Independence (PFI) in hopes of receiving some specific feedback addressing it.

The foundation of PFI (the name is probably silly, but giving it a name makes it easier to talk about) is built on our observations of the relationship between the mind (conscious and subconscious) and cashflow.  We have observed in ourselves and in many other people an exponentially increasing level of creativity and imagination as the doors of financial independence BEGIN to open (i.e. PFI).  Even just a reduced weekly workload from 40 hours per week to 30 makes a difference.  Those extra 10 hours eventually begin to fill with ideas which in turn lead to cashflow.  This increasing cashflow motivates a person (like us) to then strive to decrease the weekly workload to 20, then 10, then 5, then 0 or "Financial Independence".

So in other words ... we have seen some people choose to work their butts off for a decade, then be completely FI, only to find that their new found freedom is actually producing quite a bit of NEW cashflow.  The "Partial" in our idea of PFI is the key in that this partial independence will translate into fun, organic, natural cashflow rather than having to work your butt off for a decade.  And eventually the cashflow from PFI will lead to FI, just in a different kind of way - a way that feels better to us.

One other important side note is that we don't believe in the idea of passing on an inheritance.  We want to die broke.

We are looking forward to any feedback, thanks so much for reading!

Cory & Vickie
« Last Edit: November 02, 2014, 07:41:55 AM by jonwinn23 »

surfhb

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Re: Seeking Feedback: Partial Financial Independence
« Reply #9 on: November 02, 2014, 07:27:53 AM »
Let's come back down to Earth......you know, the one you plan to live on for the next 50 years.  :)

Your current vacation is eating through %7 of your net worth.  Lol

I disagree that a job impedes your creative abilities.

Why not work another 10 years to be certain your nest egg will support you both?   Your plan calls for HAVING to work forever.....that's the opposite of what this site is about. :). Having kids?
« Last Edit: November 02, 2014, 07:33:22 AM by surfhb »

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Re: Seeking Feedback: Partial Financial Independence
« Reply #10 on: November 02, 2014, 07:44:05 AM »
The flaw in your plan is that it actually pretty tough to make 16k a year. Your options are retail/fast food/freelancing/blogging/seasonal jobs like ski instructor which are actually pretty tough to get. I recommend figuring out what the business is going to be first, then quit your job. You're going to be stressed about money if you have to make 16k a year, and that's called living in poverty.

I don't think that's necessarily true, but the good examples I can think of are mostly self-employment.  My parents rarely worked formal jobs for other people, and could set their own rates and hours (of course sometimes jobs dry up).  My dad did mostly handyman work and my mom cleaned houses and later did interior and exterior painting, sometimes pulling down $40-50 an hour on bids in gated community type jobs.  It depends on what sorts of skills the OPs bring to the table.  I imagine as a teacher, tutoring might be a good side hustle.  Not sure what the girlfriend's got decent skills since she accumulated some decent savings by age 30.

For the OP, I'd personally thing of your current savings more as a buffer than something you're going to withdraw from annually.  It ought to be pretty easy for each of you to pull in $10K from part-time work while pursuing other interests, but honestly, I like the idea of a savings sprint better.  If you need $20K for living expenses, that's only a $400K stash, which would be pretty easy to accumulate if you both work and develop your side-gigs at the same time.  It could probably be done in 3 years, maybe less, and you'd be totally set.  I think part of the mental freedom you're looking for would materialize if you were on a 3-year exit strategy from your full-time job.

Villanelle

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Re: Seeking Feedback: Partial Financial Independence
« Reply #11 on: November 02, 2014, 07:52:49 AM »
Hi Everyone,

Thanks for all of the great feedback about our plan.  I just wanted to clarify our "theory" of Partial Financial Independence (PFI) in hopes of receiving some specific feedback addressing it.

The foundation of PFI (the name is probably silly, but giving it a name makes it easier to talk about) is built on our observations of the relationship between the mind (conscious and subconscious) and cashflow.  We have observed in ourselves and in many other people an exponentially increasing level of creativity and imagination as the doors of financial independence BEGIN to open (i.e. PFI).  Even just a reduced weekly workload from 40 hours per week to 30 makes a difference.  Those extra 10 hours eventually begin to fill with ideas which in turn lead to cashflow.  This increasing cashflow motivates a person (like us) to then strive to decrease the weekly workload to 20, then 10, then 5, then 0 or "Financial Independence".

So in other words ... we have seen some people choose to work their butts off for a decade, then be completely FI, only to find that their new found freedom is actually producing quite a bit of NEW cashflow.  The "Partial" in our idea of PFI is the key in that this partial independence will translate into fun, organic, natural cashflow rather than having to work your butt off for a decade.  And eventually the cashflow from PFI will lead to FI, just in a different kind of way - a way that feels better to us.

One other important side note is that we don't believe in the idea of passing on an inheritance.  We want to die broke.

We are looking forward to any feedback, thanks so much for reading!

Cory & Vickie

Even with that theory, I don't understand how you feel secure in the notion that you'll just "somehow" make $15k per year.

To me, it would make sense to work for even one more year, saving very penny, so you can get at least a bit more out of your 4% WR, and so you have a year to build up meaningful side hustles.  As teachers, I'd think you could pretty easily establish tutoring businesses.  There are even companies that hire people to be online tutors, which means you could travel while still working.

You can also substitute teach, which isn't great money, but it is something and it is extremely flexible.

It seems like there are a lot of possible options for you, but you haven't yet sat down and figured them out and worked to get the ball rolling.  If those things aren't creative enough for you, then use that as insensitive to monetize the creativity ASAP.  Tell yourself that once you get $5k/yr in reliable income from creativity, you can drop down to doing one less day of subbing per year, and ditch one tutoring client.

You want to walk the wire without a net, and you are prepared to do that before establishing any wire walking skills.  Not smart.  Practice with the net, so that when you fall, you survive.  Once you've proven to yourself that you can reliably make it across without falling, *then* ditch the net. 

Why not spend one more school year getting set up to do that, or to do something else, and o explore your options and put plans in motion?  Or have at least one of you go back to work for the year, while the other establishes an effective side hustle?   If the side hustle is making $16k, or of it is close and seems likely to make $16k when the other partner joins in, great.

After one year, you can decrease to your 30 hours plan, or perhaps even less if you've done a good job with your side hustles.  The great thing about most side hustles is that they are scalable.  So in 8 years when you want to drop from 30 to 25 hours, you can do so seamlessly.  And if, they year after that, we have terrible inflation and you need more money, you can scale back up.

But that takes planning and effort and organization and time, and it doesn't sound like you've put in any of things.  "We'll just find a way to make "$16k!" isn't a plan.  It's a dream.

And if I understand correctly, your plan is to return home to no jobs and with no income lined up.  You'll blow through your "supplemental income" of $4k in about two months.  Do you really think you'll have $20k of income for the year (because that year's "supplemental income" will be fully spent) established in 2 months?

Your plan to scale back is great.  You just need to put in the prep work before you do the scaling, especially because with numbers as low and tight as yours, there's very little margin for error. 

Also, dying broke is a pretty naive goal.  If you knew the date of your death, it'd be great.  But without that knowledge, it's not really feasible, because there is too much risk out outliving your money.  I understand not wanting to get to a point where you have worked so long that your net worth grows even after full retirement, or even that it barely decreases every month/year.  But can't have a goal to spend down to zero when you have no idea what the deadline (literally) for that goal will be. 

BPA

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Re: Seeking Feedback: Partial Financial Independence
« Reply #12 on: November 02, 2014, 08:35:48 AM »
Hi Everyone,

Thanks for all of the great feedback about our plan.  I just wanted to clarify our "theory" of Partial Financial Independence (PFI) in hopes of receiving some specific feedback addressing it.

The foundation of PFI (the name is probably silly, but giving it a name makes it easier to talk about) is built on our observations of the relationship between the mind (conscious and subconscious) and cashflow.  We have observed in ourselves and in many other people an exponentially increasing level of creativity and imagination as the doors of financial independence BEGIN to open (i.e. PFI).  Even just a reduced weekly workload from 40 hours per week to 30 makes a difference.  Those extra 10 hours eventually begin to fill with ideas which in turn lead to cashflow.  This increasing cashflow motivates a person (like us) to then strive to decrease the weekly workload to 20, then 10, then 5, then 0 or "Financial Independence".

So in other words ... we have seen some people choose to work their butts off for a decade, then be completely FI, only to find that their new found freedom is actually producing quite a bit of NEW cashflow.  The "Partial" in our idea of PFI is the key in that this partial independence will translate into fun, organic, natural cashflow rather than having to work your butt off for a decade.  And eventually the cashflow from PFI will lead to FI, just in a different kind of way - a way that feels better to us.

One other important side note is that we don't believe in the idea of passing on an inheritance.  We want to die broke.

We are looking forward to any feedback, thanks so much for reading!

Cory & Vickie


 

You want to walk the wire without a net, and you are prepared to do that before establishing any wire walking skills.  Not smart.  Practice with the net, so that when you fall, you survive.  Once you've proven to yourself that you can reliably make it across without falling, *then* ditch the net. 

...

But that takes planning and effort and organization and time, and it doesn't sound like you've put in any of things.  "We'll just find a way to make "$16k!" isn't a plan.  It's a dream.

...

Also, dying broke is a pretty naive goal.  If you knew the date of your death, it'd be great.  But without that knowledge, it's not really feasible, because there is too much risk out outliving your money.  I understand not wanting to get to a point where you have worked so long that your net worth grows even after full retirement, or even that it barely decreases every month/year.  But can't have a goal to spend down to zero when you have no idea what the deadline (literally) for that goal will be.

I apologize if I came off snarky by saying that Partial Financial Independence didn't really mean anything.  I was thinking along the same lines as Villanelle who explained the problems much better.

I like Frugal Canuck's idea and there is other good advice here. 

Good luck.

Ynari

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Re: Seeking Feedback: Partial Financial Independence
« Reply #13 on: November 02, 2014, 09:09:05 AM »
The on-again-off-again working could be a good compromise.

Alternatively: What's your bare bones FI budget? Really? What is the cost of living in a tent eating rice and beans when you still have to have health insurance, get around (even if it's just a bike), perform maintenance on your things, cover unexpected emergencies, etc etc.?  Most people don't want to live that way (forever), but having a stash cover enough for a decent existence could help take the pressure off of forced earnings.  This is one form of FI that may work for you - working until the stash covers basic expenses, and using any bonus money to buy luxuries like vegetables.

jonwinn23

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Re: Seeking Feedback: Partial Financial Independence
« Reply #14 on: November 02, 2014, 10:39:52 AM »
So much great advice, thanks everyone!

We wanted to add a little more detail to our situation as a few people have asked how we will come up with 16k per year without a plan.  We do actually have a plan, we just didn't want to convolute the water with even more detail than already given.  To supplement our 4% annual withdrawal from Vanguard, here's our 16k+ plan at the moment:

1) Earn AT LEAST 6k/year renting out a room in our apartment through Air B&B (we live in a very desirable location near the beach)
2) Cory can substitute teach on an as-needed basis making $125/day after tax (could sub 80 days to make the remaining 10k, Cory has done this before)
3) Cory can tutor rich kids for the AP Calculus exam on an as-needed basis making $75/hour, easily 6-9k per year
4) Vickie will be starting up a farmers market craft store for additional income (we have investors and our portion of start-up costs estimated to be about 1k)

In summary, we are VERY CONFIDENT in our ability to earn AT LEAST 16k per year.  What we'd really like to know is what people think about question #2 from our original post:  What percentage of our savings (the $82,000-$92,000 we’ll have left after traveling) should we invest and what percentage should we keep as cash on hand?

Again, thanks so much to everyone for your input.  Being able to bounce these ideas off of other people is an invaluable opportunity!  We can't tell you how much we appreciate you for taking the time to read and comment.
« Last Edit: November 02, 2014, 11:22:20 AM by jonwinn23 »

frugal_c

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Re: Seeking Feedback: Partial Financial Independence
« Reply #15 on: November 02, 2014, 11:13:03 AM »
Ok, this makes more sense.

I personally would keep 3-5k on hand and invest the remainder.   It sounds like you can always fall back on the teaching for income so if I was in that boat I wouldn't need as large of a safety net.   The other factor is, do you have any emergency family safety net?  Can you move in with 1 of your parents if your investments tank and you weren't able to teach (the only scenario I can see this happening is due to health reasons).   

You are in a very good spot because of the reliability and flexibility of the teaching job.  I wouldn't recommend doing what you are doing (personally I would rather save first) but it might work out for you.

waltworks

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Re: Seeking Feedback: Partial Financial Independence
« Reply #16 on: November 02, 2014, 11:55:55 AM »
Specific answer to question 2: I would invest all but one year's expenses. Then if your experiment doesn't work the way you want, you can go back to the daily grind. If you are going to be withdrawing constantly from that investment pool, you are going to need to do some planning on how to get money out of 410k/IRA accounts (Roth ladder/rollover stuff - which you probably should have already started) and do some Cfiresim calculations about ideal withdrawal rates/allocations.

To be frank, your investments (especially after the trip) are basically insignificant to your plan. At maybe $3-4k/year or so, that's only saving you from 40 or 50 hours of your tutoring gig or ~25 days of substitute teaching. Big deal. Deferring the gratification of quitting would pay off HUGELY in as little as 4 or 5 years:
-Assume you two bring home $80k/year or so after taxes and you are really living on $20k.
-In 5 years, you've saved another $300k and your investments have hopefully grown a little as well - say another $25k to be conservative. Now you can withdraw something like $20k/year. Boom. Done.

Obviously thats a moderately optimistic (and simplistic) scenario, but it isn't crazy optimistic. And if you are still doing any kind of income producing activity at all, you are more than set. Enjoy the next 50 years.

Or you can keep working that whole time and "quit" now. Your call.

-W
« Last Edit: November 02, 2014, 12:05:44 PM by waltworks »

Dodge

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Re: Seeking Feedback: Partial Financial Independence
« Reply #17 on: November 02, 2014, 12:00:14 PM »
So much great advice, thanks everyone!

We wanted to add a little more detail to our situation as a few people have asked how we will come up with 16k per year without a plan.  We do actually have a plan, we just didn't want to convolute the water with even more detail than already given.  To supplement our 4% annual withdrawal from Vanguard, here's our 16k+ plan at the moment:

1) Earn AT LEAST 6k/year renting out a room in our apartment through Air B&B (we live in a very desirable location near the beach)
2) Cory can substitute teach on an as-needed basis making $125/day after tax (could sub 80 days to make the remaining 10k, Cory has done this before)
3) Cory can tutor rich kids for the AP Calculus exam on an as-needed basis making $75/hour, easily 6-9k per year
4) Vickie will be starting up a farmers market craft store for additional income (we have investors and our portion of start-up costs estimated to be about 1k)

In summary, we are VERY CONFIDENT in our ability to earn AT LEAST 16k per year.  What we'd really like to know is what people think about question #2 from our original post:  What percentage of our savings (the $82,000-$92,000 we’ll have left after traveling) should we invest and what percentage should we keep as cash on hand?

Again, thanks so much to everyone for your input.  Being able to bounce these ideas off of other people is an invaluable opportunity!  We can't tell you how much we appreciate you for taking the time to read and comment.

At the root of Financial Independence, is the idea that you don't have to work, but you can if you want to.  This is the exact opposite of your plan.  Your plan is to have to work, seemingly forever?  Your plan would be great, if you instead choose to *not* spend down your savings.  If you kept that $90,000 invested, and you get market average returns, after about 20 years you'd have enough to satisfy your inflation adjusted expenses (you'd actually reach FI):



If instead you only got 8% a year, it would take almost 40 years to reach FI:



This all assumes no increases in expenses (kids), no big emergencies, no vacations...etc.  Doesn't seem realistic to me.  If you really want this, I'd start living on the $20,000 when you get home, keep your day job, and aggressively save for one year.  If you can get that $90,000 up to say $150,000+, then you will be in the ballpark where something like this starts to make sense:





Also, that would be good practice, to see if living off $20,000 for an extended period is really something which would interest you.  You can even (as other have suggested) start trying out your side-gigs to see if your assumptions are realistic.

To answer your question, I'd keep none of it in cash right now, since my recommendation is to keep working :)
« Last Edit: November 02, 2014, 12:03:14 PM by Dodge »

Villanelle

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Re: Seeking Feedback: Partial Financial Independence
« Reply #18 on: November 03, 2014, 03:05:39 PM »
I'd keep out at least 2 years worth of expenses.  Your plan seems to have a lot of "should be able tos". 

For me, I'd want the security of know that if Cory is only able to sub 45 days, and he rich kids which you have not yet secured as clients, as far as I can tell, don't materialize, you can still survive.

 Really, though, if you can truly live on less than $20k per year, just one more year of working in your current jobs should be able to nearly double that savings.  That buys you some more safety. 

And Dodge makes a great point.  With your current plan, you will have to work until the day you both die.  And what happens if one of you gets sick and can't work for a few months, let alone a longer period.  You'll have almost no cushion, and little savings to fall back on.   

Cassie

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Re: Seeking Feedback: Partial Financial Independence
« Reply #19 on: November 03, 2014, 03:30:41 PM »
Besides there coming a time when you can't work for various reasons there will come a time when you will not want to work.  I know someone that did something similar & now still has to work as she nears 60.  She also was a teacher & did similar side gigs instead of working a regular job & saving.  YOu are having a rest from working right now. I would enjoy & then go back to regular jobs until you have enough to really make you FI.

Goldielocks

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Re: Seeking Feedback: Partial Financial Independence
« Reply #20 on: November 03, 2014, 03:34:21 PM »
Interesting idea, but I would rate the $80k as a start on retirement savings, and "FU" money -- that lets you walk away from your employment should your energy, health, creativity or opportunities become severely hampered.

Just knowing that you CAN walk away helps to trigger more creativity and active choice making in one's life. 

If you make future financial decisions about taking on debt, more responsibilities, etc in the light of "does this increase or decrease my future freedom to change what I am doing", you will be on the right track.


Sblak

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Re: Seeking Feedback: Partial Financial Independence
« Reply #21 on: November 03, 2014, 04:15:28 PM »
I have a friend who works 6 months a year and takes off the other 6.  I have a brother who is a teacher, and he gets several months a year off (where I live school is out for almost 3 months in the summer).  Neither is my style but it works for what they want to do for life.  I know what I want.  I want to work incredibly hard for another 15 years and then retire rich, never worrying about money again.  I have done the math.  I know how much I want, and how long it will take.  What do you really want in life? 

If you really want the freedom of partial retirement, I say figure out what you want first.  Then change careers and work a job that lets you do what you really want. Once you have that job established, you can pursue your dreams.  I strongly dislike your plan.  You are asking whether it is wise to jump off the top floor of a tall building, hoping that you can assemble a safety net before you smash into the ground.  Your theory sounds like you will do this because you believe the short time spent "flying" is a great way to force creativity and to discover the right safety net.

That is a poor theory to base your life on.  Do the self discovery first, build the net that works for you, and then jump. 

*Take this with a grain of salt.  I am conservative financially, and will probably work past the age when I could safely retire because I like to be sure.
« Last Edit: November 03, 2014, 04:19:23 PM by Sblak »

LifestyleDeflation

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Re: Seeking Feedback: Partial Financial Independence
« Reply #22 on: November 03, 2014, 04:18:14 PM »
Yikes! This thread is full of a lot of whiners. Guys- this is a blog about Badassity and freedom and escaping the 9-5. If these guys want to do it a different way then you do, be realistic, but don't be a naysayer.

Cory and Vickie- I love your idea, and as someone doing similar- presently generating most of my annual expenses via a few weeks of running my seasonal business, putting a bit of money away, and goofing off the rest of the year, I feel I can speak from some level of authority.

First off, congrats on being truly badass! If you guys are really willing to live in a tent eating rice and beans, that is awesome and admirable.

Here's what I would recommend as a plan that would both give you new freedom immediately, and ensure that you don't get stuck if your plans change.

Right now, your investment portfolio isn't going to be large enough to expect significant returns. The problem is that when we see the next market collapse, every dollar you spend when the market is down will hurt you a lot more than someone with a larger portfolio. Based on what you guys are thinking, I think starting to make small withdrawals once you reach 200k is a better plan. Bearing in mind that you really want to let that money grow- I would shoot for withdrawing no more than 2%  annually so you can still see it grow over time. That being said, here's the larger plan I would suggest:

-Start brainstorming now about potential jobs you'd like to work and or businesses you'd like to run. Be bold, but also realistic. Bear in mind that no business runs flawlessly, and the best businesses are the ones that start small and grow organically. Slow traveling is a spectacular time to plan- like you said, you'll be more creative during your travels than when your feet are on the ground. Take full advantage of it when you're feeling inspired (but also, don't burn yourself out brainstorming).
-Invest all but 2-3 month's living expenses in a balanced portfolio. Plan on burning through at least 1 month of your remaining cash as you establish your new lifestyle and income streams. Your investments should include AT LEAST 3-4 months savings in bonds. If you have an emergency and run out of cash, you can draw on those bonds as a last resort if the market is in a slump.
-I would suggest you guys start out with a good portion (maybe 12-15k) in bonds. This is mostly your worst case scenario plan- in case you can't find work, don't like tent living, and have car or medical problems all at the same time.
-Immediately begin reducing your expenses as much as you feel comfortable. Look at your biggest expenses and do everything within your willpower to reduce them. When I say everything, I mean everything. If you guys are comfortable with the idea of living in a tent, do it! Though a van or small RV may be more practical. Put your money where your mouth is, so you can make sure you truly feel comfortable with it. You may be fine, or you might find that you really like to cook, entertain friends, sleep without worrying about cops, and always have a toilet at 3am. I want to encourage you to try this lifestyle, because if you're truly willing to do it, you'll love it! I love it, but it's not for everyone. You want to know your comfort levels for sure.
-Start off by aiming for the same income that you had pre-PFI, but do it via a flexible work schedule that you can scale back on when you're ready.
-Rebuild your emergency fund to 3-4 months worth then Invest your income hardcore. Really take advantage of your lowered living expenses, and get that stash growing.

See how all that works for you guys. Then as you decide what your minimum comfort level is, scale back your income accordingly. Again, I'd recommend saving 200k before even touching your investments unless you hit that worst case scenario. And only after hitting that number, begin withdraw 2% annually. This will put you in a great position to slowly scale back your work hours as you continue to make new deposits, and even as your stash continues to grow itself.

I wish you all the best!


PS- To the poster saying it's hard to find a job as a ski instructor: It's actually ridiculously easy! Making $16k/year with it is the hard part. ;)

BPA

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Re: Seeking Feedback: Partial Financial Independence
« Reply #23 on: November 04, 2014, 12:00:36 AM »
Yikes! This thread is full of a lot of whiners. Guys- this is a blog about Badassity and freedom and escaping the 9-5. If these guys want to do it a different way then you do, be realistic, but don't be a naysayer.


Thanks for the condescension, but I am pretty sure that most people who posted about being more cautious have been members of this community for a long time and are aware of the MMM message. 


LifestyleDeflation

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Re: Seeking Feedback: Partial Financial Independence
« Reply #24 on: November 04, 2014, 12:38:48 AM »
Yikes! This thread is full of a lot of whiners. Guys- this is a blog about Badassity and freedom and escaping the 9-5. If these guys want to do it a different way then you do, be realistic, but don't be a naysayer.


Thanks for the condescension, but I am pretty sure that most people who posted about being more cautious have been members of this community for a long time and are aware of the MMM message.

Then what's the problem? 8/10 posts in this thread have nothing to do with the question OP asked.

Spondulix

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Re: Seeking Feedback: Partial Financial Independence
« Reply #25 on: November 04, 2014, 01:16:47 AM »
Do you live in an area where AirBnB or VRBO is being contested at all? Some cities are passing 30-day rules for rentals (meaning you can't just do a night, and it has to be a 30 days stay). So I would be cautionary about including it as guaranteed income, no matter how nice your property is.


BPA

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Re: Seeking Feedback: Partial Financial Independence
« Reply #26 on: November 04, 2014, 06:29:18 AM »
Yikes! This thread is full of a lot of whiners. Guys- this is a blog about Badassity and freedom and escaping the 9-5. If these guys want to do it a different way then you do, be realistic, but don't be a naysayer.


Thanks for the condescension, but I am pretty sure that most people who posted about being more cautious have been members of this community for a long time and are aware of the MMM message.

Then what's the problem? 8/10 posts in this thread have nothing to do with the question OP asked.

Actually those of us who recommended caution were answering the second of two questions the OP asked. 

So, I guess you missing that point is the problem. 

markbrynn

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Re: Seeking Feedback: Partial Financial Independence
« Reply #27 on: November 04, 2014, 07:46:09 AM »
I'm with LifestyleInflation, a lot of negative replies who don't seem to understand the main point of what the OP is making (I think).

The way I see it (and I definitely see it in my own planning), OP is questioning why they would save up for 10 years to FIRE when everybody who FIRE's seems to be swimming in money 5 years later. Why not PFI (which I agree with a previous poster is really just changing jobs) and get to FI while already "ER"?

If you look at it this way, then OP's current savings are not something that they should use at a 4% withdrawal rate, but is a safety net in case their new money making schemes don't work.

What a lot of people seem to want to tell OP is that this is risky. While it probably is riskier than keeping their current jobs and working 10 years to FIRE in typical MMM fashion, there is nothing saying that it's not a risk worth taking. The benefit should also not be ignored: not working for 10 years in a traditional job that they would prefer not to do.

jonwinn23

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Re: Seeking Feedback: Partial Financial Independence
« Reply #28 on: November 04, 2014, 07:52:14 AM »
markbrynn nailed it!  Thanks for clarifying (so simply) our sentiments.  We really appreciate all this great feedback everyone!!

~ Cory & Vickie

RunHappy

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Re: Seeking Feedback: Partial Financial Independence
« Reply #29 on: November 04, 2014, 09:01:05 AM »
I love all the discussion on here, because my main goal is also PFI, although I'm working it from a different method.

One question to OP, why aren't you trying to monetize on your 1 year of travel via a blog or YouTube Channel?  I would love to live vicariously through your 1 year, but also see a daily/weekly/monthly breakdown of how money is being spent?  Are you planning to work local jobs to get a feel of local life?  What kind of places are you staying at?  Are you doing any volunteer work? 

VirginiaBob

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Re: Seeking Feedback: Partial Financial Independence
« Reply #30 on: November 04, 2014, 11:24:20 AM »
The main problem that I see with your strategy is that it appears that you seem to enjoy travel $20K/year, and my guess is that you will want to do more of that in the future.  Your assets simply do not support that.  A few more years of full time work would sure help.

DoubleDown

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Re: Seeking Feedback: Partial Financial Independence
« Reply #31 on: November 04, 2014, 11:48:12 AM »
I don't think I've yet seen in this plan how it addresses when you can't work. Old age, illness, disability, etc. -- how will you handle this? You could live for another 20 years past either one of your useful working ages, then what will you live on? You will likely have almost no Social Security earnings with so little paid in (or maybe even be short of the 40 quarters minimum, giving you no earnings), and less than $100k in savings will leave you in poverty in just a few years.

I also think it's overly optimistic to expect to live on $20k forever, with so many unknowns in the future, but whatever. I can see retiring when you're 90% FI and making up the last 10% with some side income, but not the other way around.

As so many others have said, I'd put in the work while you're able to earn now, let investing and compounding returns work their magic. Then you'll truly be independent.

Cassie

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Re: Seeking Feedback: Partial Financial Independence
« Reply #32 on: November 04, 2014, 11:52:51 AM »
A few posters have said that the majority of people posting are negative about this situation. We are not negative-we are realistic.

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Re: Seeking Feedback: Partial Financial Independence
« Reply #33 on: November 04, 2014, 12:04:56 PM »
The main problem that I see with your strategy is that it appears that you seem to enjoy travel $20K/year, and my guess is that you will want to do more of that in the future.  Your assets simply do not support that.  A few more years of full time work would sure help.

This^^^

They're already spending a very large portion of their net worth on a super fun trip.   Enjoy this now because you won't be able to do this anymore with your plan :)

Yeah it's a risk worth taking but don't discount security.... It's worth something too you know :)

Go for it but just make sure you have plan B in the back of your mind.   That will be having to go back to work full time
« Last Edit: November 04, 2014, 12:10:26 PM by surfhb »

OR

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Re: Seeking Feedback: Partial Financial Independence
« Reply #34 on: November 04, 2014, 12:34:53 PM »
Great thread.  Very interesting read. 

A person's plan is personal and depends on several factors: risk aversion, optimism, lifestyle needs/desires, etc. 

To use MMM as an example.  Some people "personally" feel that he is cutting it too close, has too limited a life style, etc.  Others (perhaps the original poster) "personally" feel that MMM may have over shot on his retirement and could have gone for freedom sooner.  MMM "personally" feels that he got it about right.

I think the original poster is trying to take advantage of the knowledge that once your "retire", you'll feel like working more.  It does happen to most of us.  I took six months off a few years ago and then charged into my own business and it was fun.  They are just optimistic that the same will happen to them.  They do need to acknowledge and accept the risk that if things don't shake out that they may have to go back to work and that they would be off the normal pace of a standard FIRE plan.  These are personal choices by him and seem based on valid logic. 

That said, others that feel different about risk, amount of work, etc are absolutely right that saving/working for a while longer would be a better plan for them. 

Others think that 2 years on, 1 year off plan is good.  They can only be sure that it is right for themselves. 

Good luck to all!

VirginiaBob

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Re: Seeking Feedback: Partial Financial Independence
« Reply #35 on: November 04, 2014, 12:43:55 PM »
Great thread.  Very interesting read. 

A person's plan is personal and depends on several factors: risk aversion, optimism, lifestyle needs/desires, etc. 

To use MMM as an example.  Some people "personally" feel that he is cutting it too close, has too limited a life style, etc.  Others (perhaps the original poster) "personally" feel that MMM may have over shot on his retirement and could have gone for freedom sooner.  MMM "personally" feels that he got it about right.

I think the original poster is trying to take advantage of the knowledge that once your "retire", you'll feel like working more.  It does happen to most of us.  I took six months off a few years ago and then charged into my own business and it was fun.  They are just optimistic that the same will happen to them.  They do need to acknowledge and accept the risk that if things don't shake out that they may have to go back to work and that they would be off the normal pace of a standard FIRE plan.  These are personal choices by him and seem based on valid logic. 

That said, others that feel different about risk, amount of work, etc are absolutely right that saving/working for a while longer would be a better plan for them. 

Others think that 2 years on, 1 year off plan is good.  They can only be sure that it is right for themselves. 

Good luck to all!

To use MMM as an example, I don't think many people will think he is cutting it close now, but originally they might have.  He kind of hit the lottery with a highly successful blog generating tons of passive income (more than most salaries).  He is not the typical FIRE person to follow now, but was so at the beginning (before his blog became so successful).  MMM is more a dot-com luck success story now than a typical person.   

OR

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Re: Seeking Feedback: Partial Financial Independence
« Reply #36 on: November 04, 2014, 01:10:46 PM »
VirginiaBob, you are right.  MMM's side hustle has taken over . . . and then some.

Eric

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Re: Seeking Feedback: Partial Financial Independence
« Reply #37 on: November 04, 2014, 02:02:11 PM »
If you can make $16K/yr, you can make $20k.  I'd keep all of your money invested (minus your emergency fund #) and definitely not draw 4%.  This money will then be able to continue its growth and you'll have at least some stash to fall back on if/when it's needed.  Hopefully you can still add some to it over the years.

OR

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Re: Seeking Feedback: Partial Financial Independence
« Reply #38 on: November 04, 2014, 05:35:13 PM »
If you can make $16K/yr, you can make $20k.  I'd keep all of your money invested (minus your emergency fund #) and definitely not draw 4%.  This money will then be able to continue its growth and you'll have at least some stash to fall back on if/when it's needed.  Hopefully you can still add some to it over the years.

Eric's response is right on.  If you want to make your plan work, I think he nailed it.  If your optimism is justified, the 20K plus still adding to your stash should be a piece of cake.  If not, then you'll still have a nice nest egg later on.

horsepoor

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Re: Seeking Feedback: Partial Financial Independence
« Reply #39 on: November 04, 2014, 06:17:36 PM »
If you can make $16K/yr, you can make $20k.  I'd keep all of your money invested (minus your emergency fund #) and definitely not draw 4%.  This money will then be able to continue its growth and you'll have at least some stash to fall back on if/when it's needed.  Hopefully you can still add some to it over the years.

Yes, this is what I was getting at, as well.  The money is a buffer, not really worth taking the 4% withdrawal from.  I think if you totally pull the plug on regular work, keeping at least one year's expenses liquid would be a wise idea, or maybe keep two years to start, then feed some of that cash into your investments as your new pursuits start to yield more reliable income.  If side gigs don't pan out at the same time that the market tanks you won't want to be withdrawing from a shrunken investment to stay afloat, so the cash buffers you from making that choice.

waltworks

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Re: Seeking Feedback: Partial Financial Independence
« Reply #40 on: November 04, 2014, 06:26:41 PM »
As I said before - the investments are irrelevant here. The plan is to work less and spend less. That's not a terrible plan. But it's not "partial FI".

-W

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Re: Seeking Feedback: Partial Financial Independence
« Reply #41 on: November 05, 2014, 04:36:37 PM »
I like this idea a lot.  Like most of the posters around here, I would encourage you to be a bit more conservative.  I get that you don't want to leave an inheritance, but you will need old person money.  Assuming you want to keep living on $20,000 per year, you need $500,000 by around 65.  If you can get a 5% return on investment after inflation, you need 500,000/(1.05^30) = $115,688 invested right now, and then you need to not touch it.  That means it's stach building time, not draw-down time.

My advice: keep $10,000 in cash, invest the rest aggressively.  If you ever find yourself with more than $10,000 in cash, invest the excess money.  If you ever find yourself with less than $1,000 in cash, find work aggressively.  If you end up having to take money out of investments, you'll know that you need to find a steady job.

My "partial financial independence" idea is this; save up enough money to be covered in retirement at 60.  I assume double what I'm currently living on and 4% real return.  Then do whatever I want, as long as I don't touch that money.

Goldielocks

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Re: Seeking Feedback: Partial Financial Independence
« Reply #42 on: November 05, 2014, 06:03:11 PM »


My "partial financial independence" idea is this; save up enough money to be covered in retirement at 60.  I assume double what I'm currently living on and 4% real return.  Then do whatever I want, as long as I don't touch that money.

I like that idea, for sure!

Villanelle

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Re: Seeking Feedback: Partial Financial Independence
« Reply #43 on: November 06, 2014, 09:59:29 AM »
OP, do you want to be financially independent (partially or fully), or do you want to simply work as little as possible now.

Because those are two different things.  If your goal is the latter, then your plan mostly works, though you don't have much contingency room for getting up and running or having a bad stretch, so I'd sill work one more year.

If you want to be FI, and by that I mean no having to work if and when you don't want to, then you plan is a terrible one.  It gets you no closer to ever having a day where you don't have to work.  Financially, you will be in basically the same position as someone who makes $100,000k and spends $100k, although that person is actually better off because he has much more room to scale back than you do.  But both of you will simply be working to cover expenses, with nothing set aside so that situation might one day change.  You will be 90 years old, if you live that long, need to to earn whatever inflation does to today's $20k in 60 years, plus coving health care, etc.  Of course most 90 years are unable to do most jobs, and most companies are unwilling to hire a 90 year old, so you might be a more than a little fucked.

To me, that's the key to all this.  Your plan gives you zero independence.  It allows you to live hand to mouth for as long as your expenses don't increase and your unsteady income happens to work out.  That sounds like pretty much my idea of misery.  Having to worry every month about whether you've earned enough, whether next month you will be able to cover expenses because two of your tutoring students are on vacation and the sub market was slow the last three weeks and you had a stomach bug and couldn't work for a week, whether the drop in the stock market means you can only withdraw $50 this month from that tiny investment account, etc.  You'd be just as much of a slave as the average American spendthrift. No room for unexpected expenses or loss of income, and no future on the horizon where things are different.  If that's the life you want, cool.  But know that that is very much what you are choosing. Sure, you might be able to make more than $20k, but unless and until you are doubling that amount, or more (and of course assuming your expenses don't increase at all), you are never getting ahead and never moving toward a day when you can work less or not at all. Don't fool yourself into believing you are independent, when in fact you are ensuring you'll be very much dependent for life, or as long as you continue making only what you need. 


Jags4186

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Re: Seeking Feedback: Partial Financial Independence
« Reply #44 on: November 06, 2014, 11:27:44 AM »
I didn't read everyone's response but if you have to work P/T for 16k a year now that means you'll have to work P/T for 16k forever. Maybe fine if you're 34 but not so much if you're 84.

If they raise the minimum wage this might work out somewhat better...you'd each only need to work for 4 months a year to earn 20k. If you worked 6 months a year at a hypothetical $15 min wage job for 20 years and left the 90k you have grow you could full on FIRE.
« Last Edit: November 06, 2014, 11:31:53 AM by Jags4186 »