Post Financial Independence Budget
The Grizzlies have a bit of weird situation when it comes to Financial Independence vs. our current spending. If you follow this blog regularly you see the monthly updates we post on our current financial picture – net worth, income, and spending. We generally try to talk about the amount of time we have till we reach FI based on the tracker we use. However, the issue we face is that our current budget is heavily skewed by a few things that are way over what we’ll spend post- FI (e.g. Housing Costs, Childcare) and a few things that are way under what we plan to spend (e.g. Travel).
As a result, the picture gets a bit complicated for those following along at home. How are we actually doing towards our goal of FI? What do we actually think our expenses are going to look like once we make the transition? And when will we actually have the investments necessary to support that? I’ve had a couple requests from folks on the site for exactly this, so I thought I’d take the opportunity to lay out the details of our current post-FI annual and monthly budget and the assumptions behind it. Let’s get into some numbers! Below are the basic assumptions we’re currently operating under for our post-FI life. I’ll break the big items down.
The Grizzlies need to be honest about the type of people we are. We are not going to be happy just sitting around doing nothing. Grizzly Mom actually kind of likes being a lawyer when it doesn’t involve soul-crushing hours at an international law firm. I actually kind of like interesting business problems when I can decide which ones I want to work on and for whom. We’re going to keep doing these things in our spare time and it’s likely that people will pay us every once in awhile. We might even make some money off this blog!
But the bottom line is that we don’t need much to make this sustainable. We’re completly free to do what we want. I’m guessing that this number will actually come in far higher. But this is the base case. We can each make $20k a year and we’ll be perfectly fine.
Our current plan is to purchase a house for around $500k in cash. This equates to a pretty nice place is most areas of the US. With that as the baseline, we layer in all our other assumptions about housing costs. We’re assuming around 1.1% property taxes, 1.5% home maintenance expenses, and another .2% in homeowners insurance. The home maintenance assumption is well under what we spend now, but California is pretty mild on houses, so we’re building in a higher buffer for this.
We intend to spend a lot of time with our daughter post-FI, but we also want to acknowledge a few things. One, preschool is actually pretty good for the little buggers and can run on the expensive side for a good one, even one sponsored by something like a local church. Two, sometimes it’s nice for parents to be able to spend time on themselves or other projects without having to rely on relatives. It’s nice to have a consistently available option even if she’s only in there a few hours a day or a day or so a week.
We’re also bucketing into this category future expenses for our kids like school clubs and the like, not explicitly breaking them out because they’re such an unknown right now.
Honestly, this is getting a bit tough to model given the current uncertainty with the ACA. We’re currently pegging this at $500 per month. This is well above what we’d pay right now, but below what we’d pay on the open market if everything gets repealed. We’ll see what happens and rejigger this as necessary depending on any changes. We have more than enough buffer that we should be fine.
This is a huge bump from our current travel expenses – we intend to take a LOT more trips when we reach financial independence. Last year we spent a grand total of ~$2000 on travel, mostly on plane tickets back to see my family. We plan to up this to about 2 good family vacations a year. Nothing fancy, but a week or two at a good lakehouse, camping, or a trip to Hawaii. If we really want to blow it out we’ll head to France and stay with Mrs. Grizzly’s relatives.
Everything else is all pretty standard and reflects what we’ve already brought our budget down to. Groceries are lower than current levels due to the lower cost of living and more time to optimize. Restaurants are about where we are now but could come down if needed. Cell phone and the internet reflect a switch to Google Fi and Fiber but nothing out of the ordinary. Gas and auto reflect a LOT less driving. We might keep a cleaning service to scrub the toilets now and then but I’ll probably mow the grass.
All this amounts to a lifestyle of around $60k per year. Get rid of the childcare and reduce the travel budget and you can slip it in under $40k per year. With the planned post-retirement income of $40k, we need $20k in income from assets. Using a 3% withdrawal rate (this is pretty conservative) we need around $700k.
What does this mean?
It means we’re getting very close to being done. We just hit $1M in net worth. In order to have $700k in assets, we need $1.2M minus our planned $500k house. Another $200k in net worth and we’re officially declaring ourselves FI. Since we managed around $500k in gains last year this could feasibly come in the next few months!