I started my debt payoff journey in January 2017 because I had come to hate being in debt. As I shared here, it was my student loans that finally sent me over the edge. Even though neither the interest rate (6.55%) nor the starting total (∼$38,500) was extraordinarily high, the balance had barely budged despite years of making payments.
A funny thing happened to me on my way to becoming debt-free, however. I realized it wasn’t enough.
What is Financial Independence?
I read a lot about personal finance during the 16 months it took me to pay off my debt (hey—it was a cheap way to fill the time!). When I finished with the books available from the library, I went searching for other voices. And that is when I discovered the world of online personal finance blogs.
Many of these amazing writers had done exactly what I was doing: sacrificed for a specific period of time to forever retire their debt. They hadn’t stopped there, however. Now they had set their sights on something I had never even heard of before: financial independence.
According to these writers—you can find a list of female financial independence bloggers on the blog Tread Lightly, Retire Early—it’s entirely possible to stockpile enough money so you are no longer dependent on a job even if you aren’t wealthy to begin with (although a higher-than-average salary is very helpful). The key is to:
- Avoid debt
- Keep expenses low so you can save more but also so you won’t have to save as much to maintain the same standard of living
- Save as large a percentage of your income as possible (try for at least 30%) in tax advantaged accounts such as a 401(k) or an IRA
- Invest this money in index funds that charge very low fees such as those offered by Vanguard
- Trust in your investment strategy so you don’t panic and sell when the market gets rocky.
Do these five things and, depending on your age when you start and how much you are able to save, you will no longer have to work until you are in your 60s before you can afford to retire because the money you saved will generate enough income to meet your needs.
My mind was blown. Was it really possible that I could save enough money that I wouldn’t need to work until age 62?
I didn’t believe it at first. Or, at least, I didn’t see what they were saying as applicable to my life. But the more I thought about it, the more it seemed possible. Not easy, but possible.
I created an elaborate spreadsheet and factored in a whole heap of variables: savings rate, estimated market returns, inflation, salary bumps, etc. And when I was done, the results were astonishing. By following the above steps, I would only have to achieve average market returns to be able to stop working my W-2 job in seven years! Seven years!
I will still need to earn some income for the eight years between ages 52 and 60 but only enough to cover my day-to-day expenses. This means I can go to work for myself full time without the pressure of earning enough to keep me and the cats in food and putting money away for retirement (I’ve seen this referred to as CoastFI).
This really appeals to me for several reasons. First and foremost is because a lot of people in my immediate family have died young. My dad died at 45 from an aortic aneurysm, my mom at 55 from a rare autoimmune disease, and my brother from suicide when he was only 44. Just because they died young doesn’t necessarily mean I will, of course, but their deaths do make me more aware of the passage of time.
Other reasons include: not loving my job as much as I used to; watching friends who delayed retirement for various reasons develop serious health issues soon after that limit what they can do; and a strong desire to have a more balanced life, where I control the hours I work and the tasks I focus on.
For all of these reasons and more, I have decided to embrace the goal of financial independence and work toward achieving it in the next seven years. And that’s where this manifesto comes in.
Why a Manifesto?
As noted above, working toward financial independence is simple but not easy. There are some things I have complete control over, such as my savings rate and my living expenses. But there are a lot of things outside my control, including market performance and health insurance costs.
Being single adds another layer of complexity. While I think in many ways being single is an asset when it comes to saving for retirement, single-hood does mean there is only one salary, one employer retirement plan (hopefully a good one with a decent match!), one person to research investment options and decide on an approach, one person to do the work when it comes to managing accounts and rebalancing , etc.
A Single Woman’s Retirement Manifesto will help me focus on the things I can control and to not get distracted by everything else. It will define the scope of all of my responsibilities and provide clarity in how I approach this challenge so I can act more decisively when a problem arises.
So, without further delay, here is my manifesto:
- Keep a high-level budget that sets parameters for how much I can spend and on what.
- Practice purposeful spending when it comes to both needs and wants. Saving money today is not a punishment but is how I will be able to live life on my own terms—while I’m still healthy enough in mind, body, and spirit—to enjoy it to its fullest.
- Maintain awareness of my spending by reviewing my bank and credit card charges weekly.
- Use my travel rewards cards for daily expenses ONLY IF I am able to pay off the balance in full each month while still meeting my savings goals.
- Build up and maintain an emergency fund of $32,000 and actually tap it in case of an emergency. This money is not to be invested but held in a high-interest savings or checking account.
- Contribute the maximum allowed to my Roth 401(k), my Health Savings Account, and my Roth IRA each year and invest these savings in index funds that charge very low fees.
- Once my emergency fund is built up, contribute $6,000 each year to a brokerage account opened with a company like Vanguard. Invest this money similar to how my tax-advantaged accounts are invested.
- Re-evaluate my investment strategy once a year and rebalance my portfolio in light of what I decide.
- Calculate my net worth at least 3 times a year (but no more than 4).
- Learn to live with market volatility because in the end, history tells us that the market always goes up.
- Continue to lead a rich life along the way to financial independence. This means: building in money for travel (but try to use travel reward points to keep costs down!); buying quality clothing and housewares when they are needed; donating to causes that I believe in; and helping out my family when they need it.
- Be kind to myself. Financial independence is a great goal but if I have to work a few more years before I feel like I have enough saved (or to maintain health insurance), that’s okay too. By setting this ambitious goal, I will still be way ahead of where I would have been if I hadn’t done so.
What Do You Think?
What do you think of my manifesto? Have you thought of creating something similar to guide your path to retirement? What would you include that I missed? Let me know in the comment section below!
P.S. Thanks to Fritz over at The Retirement Manifesto for letting me borrow his catchphrase and for being an inspiration for those working toward financial independence!