How I’m enjoying “pre FI” benefits

Financially independence is a beautiful thing. I hope to be there myself some day. While attaining financial independence is going to take us a few more years, I recently realized we are already enjoying many of it’s benefits today, without being financially independent. 

 

I used to think that the benefits from financial independence only accrued to you when you had reached the cash stash needed to exit the workforce and you were enjoying time on the beach, sipping pina colada’s. In fact, that couldn’t be further from the truth, because the slow steady progression toward financial dependence has led us to certain mindset changes which have been made possible because of the nest egg that’s already been built up.

The freedom for a flexible lifestyle!

I’m relatively happy with the work situation that I currently enjoy. It’s a good balance of stimulating, interesting work, stability and predictability and good work life balance.

You occasionally get offers for higher paying positions that are more stressful and demand more from you in terms of time and application. If you are a slave to the dollar, that sometimes distorts priorities. It can be hard to objectively see what the trade offs are for new opportunities. When you are focussed on the money, you don’t see the late nights in the office, the politics, the additional stress and strain that comes with the new role.

The beauty of having your own financial cushion is that it allows you to push all those distractions away and focus on what’s important, which, from a career perspective can often just be staring you right in the face all along.

My FI safety net gives me the freedom to only pursue what I want to pursue, and ignore the other noise and distractions that come along from time to time.

My wife also shares in the value of our FI safety net as well. Unlike me, she’s actively pursuing a job search at the moment. I’ve said to her that money shouldn’t be a consideration for her in the search (after all we have the equivalent of a part time median family income on the books!). Finding happiness in relation to the work life balance, flexibility of working schedules and commute and job satisfaction should trump everything else.

Even if we’re at a point we’re we’ve attained enough to fully satisfy our needs, I’d like to keep chugging away with doing what I’m doing. I couldn’t imagine just sitting around idle for days on end.

The freedom to not be in fear

Fear can be crippling.  It can kill your enjoyment of life.  Financial fear is a big one for many people.  Fear of an axe hanging over your head at work or a fear of not being able to have a suitable retirement.

I’ve found that my attitude at work is a lot more relaxed in recent times. I’m enjoying myself more. I haven’t been bothered by any concerns or fears about what future changes, layoffs or other dangers that could be lurking around the corner.

It’s empowering to be emboldened to speak your mind, without fear of the repurcussions in the workplace.  It makes for a far more satisfying work day!

My FI safety net has also better helped me find my optimal work life balance at work. It comes from having the security of knowing that we have a reliable, dependable backup that is working for us day in day out.

Fortunately, I love what I do so I am passionate about putting in solid hours at my day job. But I love the flexibility to switch off and work on my own schedule when I want to, without fear of my job being at risk. I’m better optimized all round.

Retirement fears are a big one for a lot of people. The threat of not being able to attain a comfortable retirement is one that hangs over many peoples heads.

I was shocked when i came across an article which claimed that more than  57% of  Boomer and generation X workers have saved less than $25,000 toward retirement.  Even if those numbers are overstated, this speaks to a really big problem.

The more steadily your FI safety net is built up, the more it helps to gradually reduce this fear. Our concerns and fears of not being set for a workable retirement gradually diminish with the more we are able to build up our various cash cushion, via taxable dividends, retirement accounts and others sources of income.

The freedom to max out!

Sheltering you current taxable expense is one of the most powerful things that you can do to really snow ball your retirement (in my opinion). If you are lucky enough to have access to a 401k, that’s $17,500 tax shelter annually.

Your annual tax free contributions  also compound tax effectively, with no annual tax leakage. This can make a huge difference over the years, close to a $500k net investment in our case vs investing in our taxable account.

And pulling out the funds? Close to an effective tax rate of 0% on the first $20k annually that you pull out (thanks to standard and personal deductions for a married couple). Combined with concessions on qualified dividends and long term capital gains, that’s close to 70k that we can pull out annually, tax free, in todays money.

Assuming that gets indexed over time, as a couple you’ll be living tax free on $70k. More than enough for us.

It’s not easy to find a spare $35k that you can put into maxxing out retirement accounts to allow you to reap the longer term rewards of tax free investing. Our FI safety net is allowing us the freedom of tax sacrifice today to reap the rewards tomorrow of tax sheltered sacrifice.

The freedom to experiment

I love the idea and discipline of investing. How businesses make money, and what drives the returns on certain asset classes. My FI safety net has been built on the backbone of a set of solid large cap companies… Coca Cola, McDonalds to name a few.

But evaluating alternative investments such as small cap companies, property investment, heck even my Venture Fund and it’s investment in BitCoin are all possible because of the FI Safety Net that we have.

If there was no current stream of passive income in play, there would be little way that I’d be able to have a small pocket of money that could be set aside to indulge my investing hobby and experiment a little.

Part of the freedom to experiment comes from having a strong core that makes up my financial safety net. If I had my whole portfolio invested in assets that moved up and down like a yo yo, I don’t know how comfortable or secure I’d feel about where my money or was parked and whether it would be valued anywhere near current levels in 5-10 years time.

Takeaways

Attaining financial independence will surely be a great thing. But just as importantly, the benefits start accruing to you while you are actually on your FI journey as well. Taking time to recognize these benefits and enjoy them for what they are will allow you to enjoy an FI lifestyle well before you are actually at your destination.

Comments

  1. Jon says:

    Hi FI, timely article. A friend of mine is stressed, fearful of losing his job, constantly works late night, has very little savings and his wife has just convinced him to move to a larger property with a larger mortgage ! You cannot underestimate the forces that exist that will try to pull people like us in the opposite direction – expensive cars, larger houses etc

    My wife and kids don’t really understand what I have nearly achieved. They don’t understand why we don’t move to a much larger house (paid my mortgage off at 33 years old) go on many more holidays, drive a new car etc.They don’t realise life is so pleasant and I’m a nice guy to be around because I’m close to FI and not at all stressed. Also I have time to walk 2 hours every day, do weights and am a fit slim 75kg all because I’ve got a huge safety net and I can choose the hours I need to work.
    Reg, Jon

    • Integrator says:

      Hi Jon,

      I love the example you gave. It’s regrettable with the unfortunate contrast with your friends situation, but it really helps to hit the point home. What’s the point of whatever we do day to day if we aren’t enjoying life? Freeing yourself of the material shackles in life is the first step. Whatever I spend on, I want to make sure I truly value and enjoy. These days for me that tends to be more experiences (ie a trip somewhere overseas, nice dinners etc) rather than just stockpiling more things for the heck of doing so.

      I spend freely, liberally on the things I love and not at all on stuff that I don’t value. Combine that with a discipline of trying to rapidly build up a diversified passive income base and then, all of a sudden, doing whatever you love between the hours of waking and sleeping very quickly become a reality — (i’ve been liberally using that Dillon quote everywhere I can by the way!)
      Cheers,
      FI.

  2. Kurt says:

    Hello,

    I followed your blog from seeking Alpha and am curious what I should be looking at. I’m 29 and have very small holdings in T, PFE, F, WMT, ABBV and VEU (2k annual div). I’ve always heard that the way to invest when you retire is in dividend stocks and always thought it odd not to start while I was young. Needless to say I am glad I stumbled upon your blog. I do feel a bit like a deer in the headlights. I am a Designer/Architect by trade and have little to no experience with the stock market but I like your strategy and it makes sense. A few questions:
    - do you reinvest automatically back into your stocks?
    - I hate the fact that my “emergency fund” is sitting in a low yield savings account. Should I put this in an un-sheltered portfolio or invest in bonds or some other liquid reserve?
    - where can I learn more in my spare time. I too am seeking FI and would also like to achieve your 50k goal sooner than later.
    Thank you for the time you spend on this blog it is really helpful.

    • Integrator says:

      Hi Kurt,

      Thanks for stopping by and I appreciate the feedback. The best investing advice that I got when I was in my early 20′s and it was through reading several investment books on the Dividend Growth Investment Strategy (see my Key Resources page, I’ve linked to a few of the books there). The fact is though that the strategy implementation is simple to understand, easy to execute and powerfully effective.

      I think the key thing that I’d suggest is to continue to build a strong core of classic dividend growth payers. These are companies like Coca Cola, McDonalds, Colgate, P&G, KMB, Walmart, MKC, CSX etc. The key is to acquire these great businesses that have produced stellar profits and dividend growth increases for long periods of time, at fair prices. You can use tools like Morningstar and S&P as proxies for a stock;’s fair value.

      Once you’ve bought a core stable of these companies, keep accumulating them, consistently and regularly. If you don’t need the cash reinvest the dividends. Eventually, you’ll be able to amass such a strong core of income that you’ll be able to add slightly riskier and earlier stage companies that have the potential for rapid income and capital growth, should you choose to add these companies. Your core holdings should keep powering the dividend income higher, year in and year out.

      As far as your specific question on reinvestment and the emergency fund, I went for a considerable period of time where I didn’t reinvest my dividends. I am back to reinvesting these dividends now because I am trying to accelerate my target of getting to our “FI” income state, which I reckon is near $50l/yr.

      I have a minimal cash balance currently (frankly I look to my dividend income to now play that role). I’m more comfortable keeping money in fairly liquid stocks. The rates of return are so poor I cant bring myself to hold substantial cash. Some minimal cash balance is probably recommended, and with valuations on stocks generally becoming fairly stretched, now isn’t a bad time to start building up the cash buffer.

      Best of luck on your dividend journey, Im sure it will be a rewarding one, and if I can help answer anything else, feel free to give me a shout out.

  3. Julie says:

    Hello! So glad I came across your website, I really enjoy reading your posts. I have recently begun my journey to FI. The australian dividend you get seems very attractive and I am interested in researching them further. I live in Canada and probably don’t have access to the Australian Exchange but I do see similar stocks in the US Market. Are they the same? And are the dividend yield similar? E.g. Telstra (TSLYY) or Westpac (WBK). Many thanks:)

    • Integrator says:

      Thanks for stopping by Julie!.
      The stocks that I have listed in my portfolio page are all ones that you can buy on the US exchanges that happened to be Australian companies which either have their depository receipts (ADR’s) or trade on the pink sheets. Companies such as Telstra and Westpac all have what I’d call “tracking stocks” that can be purchased on the New York Stock Exchange. Dividend yields should be very similar as the Australian listed companies, as ultimately as the dividend flows themselves are based on the same underlying stock. There may be slight variations in yield given translation issues for foreign currency conversion of the AUD dividend to USD. All the large Aus banks, Telstra and a few other companies can all be purchased on the NYSE.
      Best wishes for your dividend journey!

  4. moneycone says:

    Focusing on the positives is a good way to stay motivated. Truly enjoyed this post!

  5. There’s so many financial and non-financial positives when you’re working towards FI. One of the biggest is that money doesn’t need to be a deciding factor in any of your decisions. If you’re struggling to pay your bills, then that higher stress job that pays a bit more will surely look tempting. But the best thing I like about it is the knowledge that you have so much more freedom to do what you want. If you want to take a sabbatical you can because you already have a part time income coming in. If you want to switch to another career, that’s an option even if it pays half of what you currently earn as you don’t need the money the further along your FI journey that you get.

    • Integrator says:

      I think the option value that you get at various stages of the FI process is just as valuable as the actual dollar income itself. In the early stages, maybe it’s a few extra holidays here and there that you can enjoy, some dinners out or some cool toys. As you advance further, perhaps it’s the ability to pay off the mortgage faster, better schools for the kids…. and then as you actually approach your destination it’s the possibility of a career change, part time work…and eventually no work at all.

      Point is that you start to enjoy benefits of your journey from day1…. one just has to take the time to stop and appreciate them.

  6. FI Fighter says:

    Love this post since it resonates so much with my own experience. Once the passive income started rolling in, I did find myself less afraid of losing my job. I also started saying “no” more often at work, only engaging in the tasks I felt were needed for me to do my job.

    “enjoying time on the beach, sipping pina colada’s”… I’ll be doing that in a few weeks! I’m not going to wait until after FI to start enjoying :)

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