Anyone who has set long-term goals is familiar with moving targets. The timeline can change. The actual goal may be altered. Ether to FI, our anesthesiologist who has been documenting his FI journey for more than two years now, has seen his targets ebb and flow.
I can identify. For example, when I discovered we were financially independent, I wasn’t ready to retire just yet. I decided to shoot for a net worth goal of 40x to 50x our annual spending.
Later, I realized that would be overkill and figured I’d be in great shape with 33x and a 3% withdrawal rate. With great returns in 2019, we ended up at that original target anyway. Moving targets.
I want to thank Ether to FI for his regular updates and contributions to the blog. This is the 12th post in the series, which means I missed a golden opportunity to mention that this series goes to 11 the last time around.
E.T.F, may 2020 treat you kindly; I’ll be rooting for you and your family to achieve your first million!
Ether to FI: Moving Targets & a Net Worth Update
Happy Holidays everyone! Welcome back for another peek into the life of the E.T.F. family. As we progress into the new year, I want to look back at the last 2.25 years.
I have written eleven articles detailing our plans and goals. I went back and read every last word. It is funny how we had a definitive step by step plan, then life happened, and things changed.
PoF stated in a previous post that he never plans for more than five years at a time. It is sage advice. I am going to use this opportunity to summarize previous ideas and share our new visions.
The original post focused on my need to find work that I love so that I never have to retire. Since then, we changed our minds and stated we will “retire” in 2034. I am going to move the goalpost again and erase our 2034 retirement plan. Who truly knows what the future will hold?
Since the inception of this series, I have discovered work that brings me joy. It is financial education. It is the one thing that I do where hours can fly by, and I have no perception of time.
Sitting down with a friend or someone at work to discuss “basic” financial topics is the most rewarding part of my day. I have had the opportunity to give lectures to both small and large groups, and I enjoy the whole process. Weaving clinical medicine and financial education is a way for me never to “retire” and to do work that I love, which truly matters.
Our Current Net Worth Goal
Our original financial freedom number was $3.3 million when the blog started. It is now almost $4.95 million. This equates to $150k a year at a 3% withdrawal rate. I was initially self-conscious about this number because most people are planning their retirement on much less.
Each person has different goals and different plans when they stop making an income. I have family responsibilities that will extend to my parents and in-laws. I also want to spend money on my future grandchildren.
If I retire with “too much” money, I will not shed any tears. The opposite will not hold true if I retire with too little. There is a high likelihood we will need less than $4.95 million in assets to generate $150k per year in passive income. We plan to create a rental income portfolio.
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Changing Attitudes Towards Debt
Our use of debt has gone full circle. I started the FI journey through the lens of Dave Ramsey. I was an advocate of zero liabilities. I did not hold credit cards, and I was debt-free. Now I have a personal mortgage, I credit card hack, and I am planning to take on debt for real estate investments. How did we get here?
Travel was the catalyst that changed my status on the use of debt. I arrived at an airport a couple of years ago to rent a car with my debit card. I had paid off my last bit of student loan about a year before this incident.
Because I had no “credit” use, my score had been dropping. Since I did not believe in debt, I never checked. The rental car agency refused to loan me a car due to my “low” credit score.
I sat there bewildered, I had no debt in the world, plenty of money in the bank, yet somehow, I was deemed unfit to rent a car. I was both annoyed and frustrated. I thought I was doing all the right things. A simple event like renting a car became a turning point in my assessment of using debt responsibly.
As Mrs. E.T.F. and I began to spend more on travel, I started exploring the merits of credit card hacking. It did not take long to realize that I was spending more money than was necessary and getting no benefit. After switching to credit cards, we have gone to more destinations without paying a cent.
We have changed entirely from paying for things in cash to using our credit cards. I pay off my credit cards in full every week or sometimes more frequently, so I am receiving perks without paying any interest.
[PoF: Ramseye-esque behaviors must be tough to shake! Setting up autopay to pay the statement balance by the due date is all that needs to be done with credit cards. Going above and beyond that takes additional time and effort with no added benefit.]
The foundation of Dave Ramsey has been beneficial. Although I do not adhere to his credit card stance anymore, I still believe in paying off debt as soon as possible.
We planned on paying for our house in cash when I wrote the initial post and renting for five more years. We did not have the patience and decided to purchase a home within the last year.
Nine months after the purchase, we were able to refinance the initial loan, which was a 30-year fixed rate at 4.75%, to a 15-year fixed rate at 2.875%. Even with this low-interest rate, we still want to pay off the house in 5-7 years.
Mathematically, it makes no sense, but emotionally it is the right plan for us. It might be Dave Ramsey still circling in the back of my head, but I do not like owing anyone money. I have heard all the arguments for credit arbitrage through other venues, but I would rather be debt-free.
My insistence on paying off my personal residence also stems from the fact that we are planning to take on debt to launch our rental portfolio. Our idea is to purchase a multifamily property, preferably a fourplex, renovate it, and rent the apartments to begin generating passive income.
We plan to buy a new investment every 12-24 months until our passive income from the rentals and stock market investments creates our $150k/year target. Neither Mrs. E.T.F. or I have any real estate background. This has caused hesitancy in the past due to the “active” nature of real estate investing. I thought about investing passively through syndications, but I want to get a better grasp of real estate through ownership. This avenue will also provide diversity in our investments.
We plan to make our first rental property purchase in 2020. Our first step is to become educated about the process. Mrs. E.T.F. and I are currently taking Paula Pant’s Your First Rental Property course. It has opened my eyes to the amount of information we still have to learn.
How are we doing with achieving our original set of goals?
1. Fully fund Backdoor Roth IRAs at $11,000/year:
We have dutifully made Backdoor Roth IRA contributions every year. We can now save an extra $1000 due to the changes in the law and are investing the full $12,000/year.
2. Max out retirement options at work for a total of $72k for E.T.F. and $36k for Mrs. E.T.F.:
This was started on day one, and we have not wavered. E.T.F. reduced her work hours this year, but we have continued to invest $38k in her account (another $2k due to the change in the law). I have continued to max out every opportunity presented with the new contribution limits.
3. Buy a 4-year-old minivan in cash for $25k:
No van for us. We decided that our family of four does not need a large vehicle. We purchased a hybrid hatchback instead. I love hatchbacks and, in my humble opinion, they are the best-designed cars on the market.
We do rent minivans or SUVs when our families come to town. I prescribe to the ideology of buying a product for its most common use. We do not need a minivan to drag four people around daily, just for the occasional need to drive guests.
4. Increase emergency fund to 6x monthly budget:
I think four months of an emergency fund is sufficient. I would prefer the rest of my money work for a higher return. $40k is an adequate sum to deal with most emergencies.
5. Finish 529s for each child by the age of 4 ($40k per child):
We missed little E.T.F. 1 by a year, but it is fully funded now. We have a full year to complete the goal for little E.T.F. 2.
6. Taxable Investments (freedom fund and college savings):
This is a goal that we have decided to put on hold. Each year, we are investing around $140k in the stock market. We are going to divert additional funds into buying real estate.
7. Save for a house:
We put 21% down for the initial purchase of our home. In the first year of homeownership, we paid an additional 12% down on the house. We own 33% of our house currently, the foundation and half of the first floor. We hope to own the whole first floor by this time next year.
We are achieving our initial goals, and hope to create more challenges for ourselves to accomplish.
There are still a lot of old points I would like to review, but I will save those for future posts. I just realized this post was getting very long. Below I will share with you our current net-worth numbers. When reading other people’s posts, their net worth is the thing I look forward to. It provides a combination of motivation and a benchmark to aim to achieve.
Net Worth Update
Tracking your net worth is an undervalued motivation tool. The first time we consistently tracked our net worth was when this article series began 2.25 years ago. It is interesting to look back and see where we started and to see our current asset level.
It’s an excellent snapshot of your financial life and has definitely provided motivation to move forward aggressively. Coasting past $700k is a huge milestone. It is difficult to wrap my head around the fact that 2.25 years ago, we had $80k in assets.
Being a financial nerd like the rest of you reading this post, I decided to put our numbers in an investment calculator. If we were to entirely fall off the savings wagon and put all of our assets into the stock market.
We would have over $8 million at the age of 65 without contributing an additional cent to our nest egg. Compound interest would account for over 90% of our growth. If we continue to add to our investments at the current rate, the numbers are staggering. Let’s see if we can reach our first million in 2020. That is our big goal for the new year.
I wish everyone a happy and safe holiday season. See you in 2020!
Follow Ether to FI’s progress to FI in his previous posts:
- Post 1: Introducing Ether to FI: A New Attending Striving for Financial Independence. Net worth $80,283
- Post 2: Ether to FI: Obeying WCI’s Ten Commandments & Net Worth Update. Net worth $145,194
- Post 3: Ether to FI: Home Days & Net Worth Update Net worth $176,674
- Post 4: Rest in Peace, E.T.F. A Love Letter from a Dead Man and a Net Worth Update. Net Worth $197,061
- Post 5: Ether to FI: Mrs. E.T.F., Are We on the Same Page? Net Worth $228,109
- Post 6: Ether to FI: Shifting Focus from the “FI” to the “RE” and a Net Worth Update. Net Worth $335,248
- Post 7: Ether to FI: Don’t Call it Retirement (and a Net Worth Update). Net worth $364,089
- Post 8: Ether to FI: Frugal Spouses: The FI Superpower & a Net Worth Update. Net Worth $429,155
- Post 9: Ether to FI: “I hate it. I hate it. I hate it!” Learning from Those You Disagree With & a Net Worth Update. Net worth $489,200
- Post 10: Ether to FI: Waste Not Want Not & a Net Worth Update Net worth $561,532
- Post 11:Ether to FI: Part-Time Work. Full-Time Life! And a Net Worth Update Net Worth $583,566
- Post 12: Ether to FI: Moving Targets & a Net Worth Update Net Worth $718,212
- Post 13: Ether to FI: Embrace the Dip & 2 Net Worth Updates Net Worth $682,028
- Post 14: Ether to FI: Time Waits for No One & a Net Worth Update Net Worth $937,709
- Post 15: Ether to FI: 3 Years to the First Million & a Net Worth Update Net Worth $1,023,261