Where Do You See Yourself in the Next 4 years?

by FI Fighter on November 10, 2012

in Thoughts

Now that the election has come and gone, I’m sure President Obama and his staff are busy at work trying to put together a plan for the next 4 years. In some ways, it’s hard for me to believe that it’s already been 4 years since he was last elected – as it so often seems, time seems to be moving along at a blistering pace.

The First Term

Here’s what I’ve been able to accomplish in the first 4 years:

  • Finished off grad school, M.S. degree
  • Promoted from intern to full-time senior engineer
  • Went from $5k in savings to ~$180k in net worth
  • About $60k dividend portfolio for early retirement
  • About $110k portfolio for traditional retirement
  • Purchased my first rental property

Analysis

Not bad. I’ve definitely come a lot further than I could have ever fathomed just 4 years ago. For that, I am most grateful. I realize how hard it has been for many young professionals to get their careers started, so I would say luck definitely played a role in my progress. I was fortunate to be able to land an internship, graduate, and be promoted to a full-time position without any gaps in-between. For that to happen, everything had to fall into place perfectly, and somehow it did. Most companies I know in high-tech implemented some form of hiring freeze in 2009, so I was extremely lucky that my employer at the time made the exception for me.

Lesson Learned

One thing I do regret, however, is waiting to get started in dividend investing until this year (2012). When the markets collapsed in 2008-2009, a window opened for that perfect “once in a lifetime” opportunity to invest in. I was an intern at the time, still very naive, and shunned away the markets when I saw older co-workers panic. That’s no excuse, though, and I should had known better. I had a gut feeling that I should be investing in the fear, but didn’t have the conviction to pursue my hunch any further.

The Second Term

Fast forward 4 years later to present day. Here are my preliminary goals to achieve by November 2016, when I will be 32:

  • Approach the final years of my engineering career
  • Start running FireCalc and Safe-Withdrawal Rate simulations/calculations to determine how soon I can check out
  • Stop investing in my 401k (should have enough of a foundation to allow for the compounding to take over)
  • Stop investing in my Roth IRA (hoping that my salary will be too high, thus making me ineligible)
  • About $140k dividend portfolio
  • Purchase 2 additional rental properties that generate positive cash-flow

The Gameplan

To make the above possible, I will of course need to stay employed at, or above my current salary. If I can save $50,000/year in net income (which is where I am roughly at), this will give me $200,000 to invest.

If I can secure two additional rental properties at ~$70,000 each for the downpayment, this will leave me $60,000 to invest in my dividend portfolio.

Based on the current market value of my dividend portfolio of $60,000, the additional $60,000 investment will allow me to double the portfolio’s value to $120,000. The other $20,00 will have to come from: share price appreciation, dividend re-investments, and any extra contributions made from windfalls – bonuses, stock options, etc.

If we rely strictly on share price appreciation, to take a $60,000 portfolio to $80,000 in 4 years would require an annual growth rate of 7.46%. I’m not counting on relying on share price appreciation alone, but this isn’t an absolutely outrageous growth rate figure either.

Who knows, maybe the president will come up with a plan that will actually help accelerate economic growth 😉

Results

If the dividend portfolio can reach $140,000, at 4% yield, this provides $5600/year in dividend income. This equates to ~$467/month which is about 31% of my current expenses.

If the rental property acquisitions come through, I am going to estimate that each unit contribute a conservative $350/month in profit. This would net an additional $1050/month (from 3 units, including the currently owned rental).

So, that works out to $1516/month in passive income, which covers 100% of my typical expenses in a given month ($1500). Thus, if everything falls into place, I will have *achieved early financial independence!!!

Summary

The president has received a lot of flak over the past 4 years for the lack of economic growth in this country. Many Americans have struggled to find work, and many more speak of possibly having to work until the ripe young age of 80.

However, not everyone should have to be confined to this fate. Those of us who have been fortunate enough to be blessed with good-paying, stable jobs, should have the foresight to plan for our futures. Anyone who was working and witnessed the financial meltdown knows first-hand how sudden a company’s philosophy can change. They will go from Hiring Frenzy Mode to Workforce Reduction Initiative in the blink of an eye. So, we must look out for ourselves.

If we rely on ourselves, save heavily, and invest wisely, extraordinary results are possible!

When President Obama first won the presidential election in November 2008, I was just starting off my career, working as an intern. I never would have dreamed in a million years that it would be possible for my working career to start at the same time as his presidency and to end at the closing of his second term.

 

*allowing almost 0% margin of error 😉

So, where do you see yourself in the next 4 years? What are you goals, dreams, and ambitions?

{ 12 comments… read them below or add one }

1 Dividend MantraNo Gravatar November 10, 2012 at 10:53 pm

FI Fighter,

Awesome stuff. Sounds like a rock-solid game plan there. I love it. You’ve made tremendous progress in only 4 years. You are LIGHT YEARS ahead of most people your age. You’re light years ahead of me, and I’m two years older. 🙂

I’ll be 34 years old in 4 years. I hope to be generating somewhere north of $6k in annual forward dividends by that time. We’ll see how it goes. That would put me just under half-way to my goal of generating about $14k a year in dividends. That would be on track to retire by 40.

“Based on the current market value of my dividend portfolio, the additional $60,000 investment will allow me to double the portfolio’s value to $120,000. The other $20,00 will have to come from: share price appreciation, dividend re-investments, and any extra contributions made from windfalls – bonuses, stock options, etc.” – I think you mean you’ll need an additional $60,000 from share price appreciation, dividend re-investments and the like since your goal was to achieve a dividend portfolio of $180k.

Best wishes!

Reply

2 FI FighterNo Gravatar November 10, 2012 at 11:24 pm

DM,

Well, that’s rather embarrassing, as I happened to butcher the math again. Thanks for catching the error! I think I may have been a little overly too excited about the potential of reaching early FI 🙂

It should really read $140k in dividend portfolio value. So, the additional $60k over four years + the current $60k would be $120k. The original $60k would need to appreciate to $80k in four years to reach $140k.

Plugging in the new numbers will leave me short of the $1500 target. To compensate, I went ahead and revised the target income from the rentals from $300/month to $350/month. Generally, I like to project estimates with a degree of conservatism, so even with this slight modification, the end goal should still be attainable.

Thanks for sharing your goals! To be able to achieve $6k/year in dividends by 34 would be awesome progress. That’s $500/month in expenses you would no longer need to worry about. To retire by 40 would be a blessing. That would give you a good 25 year head start, compared to the average American. Not too bad, and I’m sure you’ll put that time to good use.

Cheers!

Reply

3 Edward AntrobusNo Gravatar November 11, 2012 at 8:39 am

Congrats on reaching a senior level position in just 4 years.

My situation has improved tremendously in the last four years, but that is mostly because up was just about the only direction it could go. I opened my first retirement account, a Roth IRA. I don’t come anywhere near maxing out my contributions, but it’s really more of an insurance policy in case I one day get too sick to continue working. My grandfather managed to stay working until 74 when his doctor would let him work anymore. And then he was miserable for last year because he had too much time on his hands.

Reply

4 FI FighterNo Gravatar November 11, 2012 at 10:37 pm

Edward,

Thanks for the comment! Glad to see your situation has improved greatly over the past 4 years. I think opening a Roth IRA is probably one of the best moves you can make to help you save for a better tomorrow.

That’s unfortunate that your grandfather found life miserable by having too much free time. I think that’s probably a common problem people face who walk away from a place they’ve been working for basically their whole lives. They become so used to the routine, that it becomes their definition of normal. It’s their steady-state, which gives them their balance in the world.

That’s also why I’m such a huge advocate for early retirement. I simply believe human beings were meant for so much more than just working the same 9-5 for 30-45+ years. I think the sooner we can condition ourselves to believing this, the easier it will be to actually go out and do. I sure hope I won’t miss work at all by the time I check out.

Take care!

Reply

5 Brick By Brick Investing | MarvinNo Gravatar November 12, 2012 at 12:21 pm

In the next 4 years I see my wife and I putting our financial independence goals into overdrive. By that time both our children will be out of daycare and in public school so my wife will be able to go back to work. Currently we can live off of my income and still save 26%

Our Net Worth is currently around $250k and will likely be around $450k by then. We want to put all of our additional income into dividend stocks and rental real estate. I have yet to find a good deal on real estate but am looking to get into it very soon. Stocks are great but you can find the best cash flow immediately in real estate deals.

Additionally I am attempting to build an online business that would be “icing on the top” so to put it. I love my job and don’t mind working it until I’m 50 if I had to. Although that’s not what we plan to do.

Your plan is VERY thorough and encouraging. It gave me a couple ideas to go back and talk to my wife about. I feel that the further out you plan the easier things tend to go, even if they don’t happen as planned.

Reply

6 FI FighterNo Gravatar November 12, 2012 at 5:47 pm

Marvin,

Sounds like you have a solid plan for a very bright future ahead! To go from $250k to $450k in a span of only 4 years is no small feat, so that would be some tremendous progress!

I think it’s awesome that you love your job. I would say that over 99% of employees out there envy you 😉 Still, there’s really no drawback to achieving early FI. Once you do, you can elect to keep working if you want, but can choose to walk away anytime you want. That should make for some great peace of mind when the time comes!

Best wishes!

Reply

7 JC @ PassiveIncomePursuitNo Gravatar November 12, 2012 at 3:52 pm

Congrats on all the progress over the last 4 years. I’m sure you’ll exceed your expectations for the next 4. I sure would love to reach FI in 4 more years but I don’t see that happening, although I should be getting a raise soon which would average out to about an extra $10K per year based on the number of days I worked so far this year. And the best part about that is that every extra bit of income will be thrown at early FI.

If I reach FI earlier than expected I might work a little longer to save up to be able to pay cash or at least a significant portion of the balance for a rental property or two. Do you manage them by yourself or go through a management company? Unfortunately I can’t diversify my passive income into some rentals just now unless it’s through a management company because I’m gone from home too much with my job and don’t have the greatest of cell service either. That’s a good way to piss off your tenants if something needs to be fixed ASAP.

Congrats again!

Reply

8 FI FighterNo Gravatar November 12, 2012 at 5:53 pm

JC,

Thanks for the support! I’m optimistic I’ll be able to reach early FI in 4 years, but I probably won’t hang up the cleats just so soon. Like the above numbers show, I basically have zero margin for error (although I also assumed zero dividend growth/reinvestment as well). Still, it’s probably best to be safe than sorry.

Best of luck on that raise. $10k would be a lot of extra fire power to help you fund your investments.

Right now, I manage the rental property myself. I’m banking on it being a somewhat long-term tenant, so I thought it would be in both of our best interests to establish a more personal relationship. If I get too busy later, I’ll probably hire a property manager.

A rental property is definitely more work than investing in stocks, unfortunately. You have to keep up with everything, and you never know when you’ll get that text/phone call at 2 AM b/c something went wrong again. But leveraging is a very powerful tool, which I’m hoping will really pay “dividends” in the long run. Once the properties get paid off, the flood gates will bust open for the cash to flow in!

Best wishes!

Reply

9 DavidNo Gravatar November 13, 2012 at 4:26 am

I think it is amazing and very commendable that although you obviously make a great salary, you still live a frugal lifestyle in that your bills are only around 1500 a month. I am sure you could afford a much more lavish lifestyle.

Reply

10 FI FighterNo Gravatar November 13, 2012 at 10:46 pm

David,

Thanks, I appreciate the kind words! I guess I was just born with that frugal gene, as I’m very much opposed to wasting money.

Don’t get me wrong, I’m no Uncle Scrooge, and will gladly spend money for things I deem worthwhile – life experiences, friends, family, quality. But I just don’t need the latest and greatest, and most things just end up as clutter.

$1500 is about steady-state for me, but I feel like I can do better. If I didn’t have to work, I could easily cut back on eating out and transportation costs. A paid off mortgage would go a long ways as well toward reducing housing costs.

FI is definitely for me. More money wouldn’t change a thing, and I would live life the exact same way. Ultimately, it’s the life experiences I’m after, not the material possessions.

Best wishes!

Reply

11 LeighNo Gravatar November 13, 2012 at 7:27 pm

I just found your blog today! It seems that we have similar goals and we both work in high-tech 🙂 I would love to be financially independent by age 30 (2018), but I think that’s a bit too aggressive of a goal.

Congrats on keeping your expenses at only $1,500! I’m not very good at that, though I do still save 50% of my net income most months and all of my bonuses.

At the end of 2016, at age 28, I plan to have:
1) The mortgage on my condo gone (so around $360,000 in equity)
2) At least $120,000 in my 401(k) after maxing it out for 6 years in a row
3) Almost $40,000 in my Roth IRA after maxing it out for 7 years in a row
4) A net worth approaching $600,000

In 2016, I will be approaching “too much money in my 401(k)” according to MMM, but my plan is to continue maxing it out until I quit the workforce since I can always convert part of it to Roth to withdraw the funds later. You seem a bit more interested in leverage than I am, as I am paying off my mortgage aggressively and plan to have it paid off in full within 5 years of the purchase date. I’m also not interested in rental property and plan to invest in a nice mix of stocks and bonds such that a 4% SWR should satisfy my expenses post-mortgage for life.

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12 FI FighterNo Gravatar November 13, 2012 at 10:54 pm

Leigh,

Nice to hear from you! It’s always great to find like-minded people. I don’t think I’ve met too many in high-tech so far. Most are more interested in buying the latest iphones and bmw’s than saving money it seems.

50% savings is an awesome rate. Most Americans can’t even manage 10%, so you are miles ahead of them.

Wow, those are some ambitious goals you have set out for yourself. If you stick to your thrifty ways, I’m sure you’ll be able to reach all of them. I wish I had gotten started earlier, like when I was your age. I wasn’t a big spender, but I didn’t have a plan in place either.

I tend to agree that after about 5-6 years or so, that the 401k should be sufficiently funded to compound the rest of the way through. If your plan is early FI, then it makes sense to invest more capital into an early retirement fund. I’m working with real estate rentals and and a taxable dividend portfolio, so far.

Yeah, I’m a believer in leveraging. It’s a big part of my strategy b/c I like real estate investing, and I’ve seen a lot of people succeed at it. It seems to really pay off big time in the later years when the mortgage gets paid off. I figure the sooner I start, the better. It’s always good to diversify as well, so I’ll probably add other investments down the line to complement the stocks and properties.

Cheers!

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