Financial Independence – What Does it Mean For You?

Financial independence, what does it mean for you? Each person’s journey differs in many ways. What works for me, may not work for you and vice versa.  I write everything below to keep myself accountable, as opposed to coming across as a rich jerk. As the FIWE 2019 crew would say, “Don’t be keeping up with the FIRE Jones’s…”

Would You Say FU to Your Boss After Turning FI?

We all dream of sticking two fingers up to our boss and escaping the cubicle. Would you actually do it though, after reaching that magical crosshairs moment?

I’ve never said FU to my boss, call me a coward. Although I very nearly did 7 years ago, where my boss squared up to me in the works car park. I felt like lashing out, but in reality, I’m not a man who advocates violence.

And I walked out on a project once after a heated debate with the line manager (which was totally against my personality). It was a typical ‘them and us’ scenario (contractor versus staff), where they were shitting all over me. I came back a day later (after a lovely walk in the park), and I tell you this. It was the most liberating thing I’ve ever done. Never lose respect for yourself, or it’s game over.

financial independence - angry man

I fell out with my boss on my last project (I don’t fall out easily). But in some warped way, he offered me more projects, with the same client. I’ve had 3 gigs already with this client, I must be doing something right. Maybe I earned their respect?

Anyway, I’m not the type of guy to give the client the middle finger and walk away from any project (well, only for a day), FIRE or no FIRE. I prefer to finish projects and leave on a clean note.

Perhaps you’re more rebellious?

Debt

Cheap debt is good.

But I’ve never been one for consumer debt. Not after taking out a loan on 5 spoke Compomotive alloys during my boy racer days in the mid-90s. After paying 14% APR for 3 months on the trot, enough was enough. I stopped becoming a slave to consumer debt with immediate effect.

I paid off my first property/debt in 2016 (start of my official FI journey), a 2 bedroom apartment in Cyprus. Falling prices/ period of deflation causes ‘real’ interest rates to rise. Hence, my thoughts on paying that one off.

The only debt I had outstanding (up to Autumn last year) was the bridging loan on my parents home, a modest 6 figure sum. It was a variable interest-only mortgage, so felt the need to eradicate that one. I fast tracked this debt, by doubling down for over 2 years (hence my 6/7-day working weeks).

financial independence - debt

The saving made on the interest felt good.  But clearing the debt 2 years ahead of time propelled my FI journey.

So, the journey hasn’t been all about my semi-retirement, I clearly did good things with the money I earned to see my parents right during their retirement too (twice).

I do confess to having another debt (mortgage) in Dublin. However, I have inflation on my side this time. Eroding my super cheap tracker mortgage (thanks to my then FA), and tenants paying it off. So why use sweat equity?

Paying that off would have cost me another few years working for the man.  That money is much better off in the market. Because even in a down market, I’m able to buy undervalued dividend stocks, ETF’s or drip feed into my pension (SIPP).

Thus, I have no more debt in my life

Cashflow/ Passive Income

You know, the strangest thing is…when you pay off debt, this magical thing happens..cash flow. It enables you to take time off, and live for the moment (and plan for the future).

It frees up extra cash that can be ploughed back into the market.

That’s why I was able to take 7 months off last year (my FIRE dress rehearsal).

After living in Budapest for a year, my little spreadsheet tells me I only need 9.5K (Euros) to live on. I’m passively making 13.3k, as per my latest annual income report.  Which is comfortable (made that one up) FIRE for a guy like myself.

financial independence - debt

My mid to long term goal is to FAT FIRE on 20K per annum. Naturally, I’ll bring this in through the power of compounding, time and ad hoc consultancy.

20k+ can be achieved during the official retirement phase when the SIPPs kick in. And another rental is paid off.

However – I’m actually 55% financially independent in terms of passive income.  IF I take FAT FIRE into consideration. But I have enough passive income for COMFORTABLE and LEAN FIRE.

Here’s the thing, we all adhere to this imaginary set of rules. There’s a great post by Jason Fieber (Mr Free at 33) re why you don’t necessarily need to wait until your passive income reaches that magical crosshairs moment.

Thus, I consider myself having enough passive income to live a comfortable life. But with the intention of FAT FIRING, because life really does get in the way

Net Worth

Net worth for show, passive income for the dough.  That’s my motto. It was a motto I once used in my golfing days and Stableford competitions. Driving for show, putting for the dough.

Officially, when your net worth is at or greater than 25 times your annual expenses, then you are considered financially independent.  So, mission accomplished.

I’m in the top 1% percentile point in the UK, according to Wiki.

financial independence - top 1% of wealth in the uk

You don’t have to be a gazillionaire to feature in that bracket. I’m sure most FI’ers in the late stages of FIRE are in this category. Then again, you can FIRE on much less.

I’ve learned currencies play havoc with the old net worth. I’ve been a millionaire, then I haven’t. As my funds naturally compound over time, I’ll become a full-time millionaire.

Heck, even a multi-millionaire in the near future if I play around with a compounding calculator. Ok, a few million if I keep up the good work. But it doesn’t really matter.

Maybe the market will crash and I don’t get to be that millionaire playboy.

One may be accused of ‘keeping up with the FIRE Jones’s’ if I talk anymore about this.

Rent versus Buy

Ahh, that old chestnut. Indeedably delivers a remarkable piece of writing on this subject.

For my FIRE plan, it was important to have enough cash to buy a property to reside in. My period property bolthole, or central base of operations. Somewhere to lay my hat.

The leverage brigade will most probably disagree with me here, and that’s quite alright.  To let you know, Johnny Foreigner is unable to obtain a mortgage where I am (now). Which is a good thing for the economy.  Hungary did learn from their mistakes in the mid to late noughties, just as Cyprus learnt from theirs in 2013. You would hope so.

Foreign exchange loans are financial suicide. I’ve been there before.

Also, after taxation, housing is many people’s highest outgoing.  So by buying a place for cash, I will be able to improve my cash flow after tax. And it gives me peace of mind.

I guess there is no right or wrong. For me, however, homeownership does lower living expenses (over the long term, in the right location).

It provides an inflation hedge because I won’t have to pay rent that could potentially rise on an annual basis. Also, I’m naturally happier having my own place and personalising it to my tastes. But, that’s only my point of view.

We all have our own path.

Thus, I have no mortgage or rent to pay any more, just bills

Health Insurance

Do you rely on the State healthcare or private insurance? As I had some major surgery/ was critically ill in the past, my preference is private health insurance AND an annual medical. Plus, things can start going south in your 40’s.

financial independence - health

My recent annual medical (June 2019) revealed a cyst on my kidneys and the doctor discovered a lump on my back. Fortunately, they are not malignant. That’s why I prefer to catch things early with the annual medical. And get them treated (the abscess on the back) immediately via the private healthcare.

Again, there is no right or wrong. State healthcare is a great system, it just depends if you can afford the time to wait for certain procedures.

Then again, most of us should have that time on their hands during FI.

Thus, private healthcare with a complimentary annual medical is built into my FIRE plans

Emergency Fund

A built-in in buffer, a contingency plan. Call it what you like. without an emergency fund, you’re exposed to financial risk.

Thus, I have one year’s FAT FIRE expenses banked in Singapore with a next day, fee-free transfer.

Diversification

Someone in the FIRE community mentioned diversification was the only free lunch in life. It’s kind of true.

I’ve experienced the fallout of a fragile banking system during the great financial crisis. I’ve experienced the government changing the goal posts (to my detriment) when their economy tanked (the ROI).   Fortunately, I came out relatively unscathed.

That’s why my business banking, my personal banking, my corporation, my broker (s),  pensions (including state), my citizenship and residency are all set up in different countries.

You don’t necessarily have to go to those extremes. I’m sure everything is going to be alright. But I prefer the peace of mind and I’m kind of adventurous that way.

I’m a world citizen as a result.

There was a bit of work structuring everything, but everything is more or less on autopilot now (apart from the corp).

Thus, I consider myself fully diversified against a sudden change of government policy (well, up to a certain degree).

Hedge Yourself Against Surprises

I’ve been a firm believer of going down the Ltd Company route for many years.  I’ve made good use of the tax relief or optimised my taxes in some way wrt to company tax.  What I don’t want though, is some change of legislation.  

To keep things simple and knowing where I stand, I’m closing down my corp.  This way, I pay taxes at source and know what I have left over.

financial independence - surprises

My corp is going through its first tax audit.  I have a bunch of cash in my business account for any surprises.  One may say, if your financial house is in order Canny Contractor, then there should be no surprises.  Sure. But, if the government are looking for a way to claw money out of you, they’ll do it.

Taxes

As I stated above, I’ll close down my corporation and turn umbrella for the ad-hoc consulting work. It’s less stress in my life and things can run on autopilot.

For anything else i.e. personal taxation, there’s a flat 15% on worldwide income.

Cost of Living

After moving to Budapest, I have a lower cost of living here. Although, I see this more as a lifestyle change, as opposed to an arbitrage move.  Living here appeals to an eccentric guy like me. And, more importantly, it makes me happy (although it does have its nuances like anywhere else).

I would say, don’t just move somewhere to save cash. Money ain’t going to fix everything.

Other Things to Take into Consideration

What your FIRE number is today, will change over time with inflation.  With inflation-beating investments like dividend stocks, index funds, ETF’s and rental property,  you would anticipate dividend increases, index fund/ ETF increases with a real return of 6-7% (as Warren Buffet stipulates) and rental income hikes over time.

Based on the points in bold above, I consider myself FI.  I’m over the line, but not over in life.  The story is only just beginning…

How is your FI journey going?

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