1 Million Dollars

Monday, April 18, 2011

Financial Independence

My definition of financial independence is enough income producing assets to pay my bills without having a job. Right now the net income I need is about $24,000 per year but that would increase if my fiance lost his job, because we get health insurance through his job. The additional cost of insurance would be about $500 per month so $6000 per year. This means my goal, at this time, is to get enough income producing assets to make $30,000 per year.

So far my investment income from 401ks, Roth IRAs, Traditional IRA and taxable accounts give me less than $300 per year. This assume about a three percent withdrawal which should last me indefinitely. My rental should bring me $525 per month, which is about $6300 per year at best, more likely to be about $5250 because of vacancies. Obviously I am no where near financially independent.

But what could make me financially independent? I could buy more duplexs/rentals or I could put more in my investment accounts, or I could pay down the debt we owe. I should do all of them, but I do not have the money currently to do so.

This is when one must decide what minigoal will help achieve the goal the best. In my case, we were looking at buying a second duplex but with my other, nonfinancial goals, that did not seem to be a good idea at this time. Paying down debt, at this time would not change my monthly payments for quite sometime therefore I decided against prepaying my loans. However, in the end getting rid of my debts will remove $4595.76 of expenses from my annual budget. This amounts to 15% of the budget. That is major and I think I should pay down the debt but I do not think it will be as immediately helpful as my other option. Therefore I will be putting more in my investment accounts. As of next month I will be increasing our contributions to our Roth IRAs. I am still deciding how much to increase by, but it will be increased by at least $150/month.


  1. Good luck with your goals! It's great that you already have a source of passive income and are actively working to increase their output. Keep up the good work.

    -Ravi Gupta

  2. I'm wrestling with this issue too. FI is a goal of mine but my savings will be partly wiped out by my MBA program. I suppose my minigoal is to avoid student loan debt as it will only put me further behind.

    Congrats on your start! I've always heard the second $10k is easier... or was that second million ;)

  3. No Debt MBA, I checked and saw that you just got in to your MBA. One thing my fiance and I did was taking the subsidized student loan, when we did not need it and used it as an extra EF. We found a high yield checking and it is sitting there earning more interest than the fee. However, my fiance has three more years to earn the interest, you only have two years, correct? Then right when the grace period is almost over (5months after graduation) you pay back the student loan and only pay the fee, which the interest more than covers.