My family and I could have been set for life. Instead, due to my inability to beat back real estate FOMO, I blew up our passive income. And because our passive income is now much lower, we are no longer financially independent.
Desire is the cause of all suffering. Due to my desire to own a nicer home, I sold stocks and bonds. By doing so, I lost about $150,000 a year in passive income for the foreseeable future.
In 2023, my passive income was tracking to generate about $380,000. However, by buying a real forever home this time, my passive income is estimated to decline to about $230,000 in 2024. Sadly, $230,000 is not enough to cover my family's living expenses.
Due to purchasing a new house, I lost about five years of progress while taking on more financial responsibilities. Ugh, writing this hurts.
Alas, since starting Financial Samurai in 2009, I've always shared the ups and downs. Whatever you expect to happen in the future will likely be different. So stay on your toes!
This post is especially interesting for future or current parents thinking about how to juggle growing a career, raising a family, enjoy your hard work, and retiring comfortably in the future. As a father, it also highlights the pressure of being a provider and the sacrifices one must make for his family.
I’m not asking for sympathy or empathy, as I know they are hard to come by in this competitive world. All I’m asking is for you to read with an open mind to better prepare yourself for an unpredictable journey. I could just write about how life is always great. But that’s unrealistic, and frankly, annoying to read.
At the end of the day, you must do what’s best for your family.
Thought Long And Hard Before Losing My Financial Independence
If you subscribe to the Financial Samurai podcast (Apple or Spotify episode discussing the dilemma), you know I've thought long and hard about whether it was the right move to buy this house. At first, my wife was against it since we were happy in our old house. But over time, she came around to the idea.
Ultimately, I decided to blow up my passive income due to the following reasons:
- The house rocks partly because it is on a triple-wide lot with a view and is 100% recently remodeled
- I believe the best time to own the nicest house you can afford is when there are the most number of heartbeats at home
- As a father, I want to give my family the best life possible
- I'm bullish on artificial intelligence driving San Francisco real estate prices higher
- We're past the bottom of the latest real estate downturn according to Fundrise CEO, Ben Miller
- I have a plan to return to work and want motivation to fulfill the plan
- I believe I'll be able to regain financial independence over time
Actions have consequences. We must own up to the results, deal with the repercussions, and continue forward.
Household Expenses Going Up
Starting in September 2024, when our daughter attends preschool full-time, I estimate our monthly expenses will grow to $24,033 a month, or $288,396 a year. Until then, our expenses are closer to $22,000 a month, or $264,000 a year.
To generate $288,396 a year after tax requires a gross household W2 income of about $400,000 using a 28% effective tax rate. Or if we want to stay unemployed, we need to earn about $379,000 in gross investment income using a 24% effective tax rate given investment income is taxed lower.
If we hadn't bought a new house, we were all set to have our $380,000 passive income pay for all our expenses this year and next. But now we've got a gaping hole.
No Longer Financially Independent
Our once $380,000 in passive income at a 24% effective tax rate would have generated $288,800 in net income. That was enough to cover our $264,000 – $288,000 in annual expenses and save.
However, now that our passive income has been reduced to about $230,000, using a 24% effective tax rate, I'm left with only $174,800 in net passive income. $174,800 is $90,200 short of my existing annual expenses and $113,200 short of my Fall 2024 future expenses.
As a result, after twelve years of financial independence, I'm sad to say I am no longer financially independent. And you know what? It’s a little depressing living paycheck-to-paycheck and carefully watching my spending now.
Definition Of Financial Independence
My strict definition of financial independence is when your passive income covers your basic living expenses. The more you desire, the more you will need and vice versa.
Being financially independent doesn't include having a working spouse, making side income, or running a business to pay your bills. That’s all active income activity. Contrary to what some people believe, my articles don’t write themselves, not even with AI. No writing, no online income.
I'm unwilling to break the most important rule of FIRE just to win the game. Instead, I want to adhere to the rule I established in July 2009 by earning enough passive income to cover my basic living expenses.
Below is my estimated 2024 passive income streams by investment type. Every line item should be pretty accurate +/- 10% except for my venture debt and private real estate funds. Hopefully, there is upside as I’ve tried to be conservative with the distribution estimates. I also haven’t included my venture capital investments because they are still too early in the 10-year fund lifecycle.
If I had just invested the money in Fundrise or another private real estate fund instead of a forever home, I'd have kept my financial independence and potentially earn more money in the future. Now my real estate is highly concentrated in San Francisco, which can be both good or bad depending on how well the local economy performs. Hopefully AI will boost SF real estate prices.
I want to continue diversifying into Sunbelt residential and industrial real estate due to demographic trends. Thanks to technology, more people are relocating to lower-cost areas of the country because they can. I’ve invested $954,000 in private real estate since 2016.
Paying The Price With More Stress and Anxiety
Given the difficulty of finding a job after being retired for years, I've felt more anxiety about my new lower level of passive investment income.
The first month after my home purchase was particularly stressful as I second-guessed whether I had made the right financial move. My kids had been happy in the old house.
Interestingly, the first month after the house purchase felt eerily similar to the first month after I had negotiated my severance. I was full of uncertainty and trepidation about blowing up my career for freedom. When the final paycheck arrived, I felt like I was floating in the middle of an ocean with a defective life vest.
What have I done?! I thought to myself.
Eventually, after three months, I got accustomed to no longer having a steady paycheck. Thankfully, after five months in our new home, I have also gotten used to no longer getting a nice monthly or quarterly credit from my Treasury bond income and dividend-paying stocks.
I don’t feel happier owning a nicer home. However, I do feel greater satisfaction for providing for my family.
Household Budget For A $420,000 Household Income
Now that we're no longer financially independent, one thought process is for one or both of us get day jobs or consult again. Thanks to inflation and greed, our family is facing ever-higher expenses.
To cover $288,396 a year in household expenses, if we had no passive investment income, I calculate my wife and I would actually need to earn roughly $420,000 a year from W2 income. Because if we go back to work, we're also going to want to contribute to two 401(k) plans at $20,000 each or more. I treat all my investments as expenses, which is one of my tricks for investing more money.
Making $420,000 a year from one job is unlikely for us since we've been out of the work force for so long. But both of us making $210,000 each is feasible, but also unlikely.
Below is how I'd think we'd spend our $420,000 gross W2 income. The budget is based off my ideal lifestyle for a family of four in a big city. Of course, there are areas to cut. But overall, it is a realistic and comfortable lifestyle if we choose to remain in San Francisco.
Yes, I know, $80,400 a year in private grade school tuition for two is a ridiculous amount. However, we highly value speaking a second language. As a result, we've decided to send our kids to private Mandarin immersion school. Not only does a second language help with career opportunities, it also helps with thinking, making friends, and appreciating the world more.
If the school isn't working, we can always homeschool, or send our kids to public school.
Time To Go Back To Work Or Consult
Given the self-inflicted $90,200 – $113,200 shortfall, I've now got to find a way to make up to $113,200 in after-tax income. Using an effective 20% tax rate, I would need to earn $141,500 in gross income from a day job or consulting.
Now you understand more clearly why I'm giving up on early retirement. I can no longer afford not to work. My wife does not want to get a day job again so the responsibility is left to me.
Once my daughter begins school full-time in Fall 2024, I will have two more days of free time. As a result, I feel it is prudent to do some consulting then to fill the void and earn.
Finding a job or consulting work that pays $141,500+ in gross income is more feasible than earning $210,000 each, let alone $420,000 total. As a result, I'm hopeful I will find the right fit.
Three Ways To Feel More Financially Independent
Although I'm technically no longer financially independent after 12 years, there are three ways to feel better about my regression. The first two ways take action. The second way takes a mental shift.
1) Sell my previous home or rent it out for cash flow.
If I rent out the previous home, I might be able to generate between $90,000 – $100,000 in gross rental income a year. If I sell instead, I might be able to net $1,300,000 after taxes, commissions, and transfer fees. The entire $1,300,000 could be reinvested in a 5% Treasury bond yielding $65,000 a year gross, or $52,000 net for one year.
The problem with selling now is that I would be selling in a still soft market with still high commission rates. It will take a couple of years after the real estate collusion lawsuit for commission rates to come down meaningfully to 3-3.5% from 5-6%.
Due to a bull market in tech stocks, the emergence of artificial intelligence, and a gradual decline in mortgage rates, it's only a matter of time before the SF real estate market recovers. The amount of wealth creation in the area is as high as it's ever been. It’s exciting to live in a big city with so many financial opportunities.
Hence, I'm inclined to rent out the property for a couple of years despite earning a low yield. If I rent out the property, I'll be able to save a majority of my consulting income.
2) Do a cash-out refinance
If and when mortgage rates decline further, I could do a cash-out refinance to feel more secure. However, taking on debt after paying cash for a home feels like financial regression. I also don't want to pay refinance fees. Hence, I'd rather rebuild my liquidity by working and saving over time.
3) Realize my net worth doesn't change much
Despite no longer being financially independent, my net worth is roughly the same. Paying cash for a property by selling stocks and bonds is simply a net worth asset rebalance. My net worth doesn't change much, except for any capital gains taxes and fees involved with the rebalance.
Instead, I have a cash flow problem where it's like living paycheck-to-paycheck, but with enough assets on my balance sheet to still survive. If I need to earn more passive income, I can sell more growth stocks for higher-yielding bonds.
Or I could sell my lowest-yielding rental property if my tenants ever move out and reinvest the proceeds. However, again, I'd rather work to make more money and regrow my depleted stock and bond portfolios.
New Target For Re-Achieving Financial Independence!
I estimate it will take at least three years, but more likely five years to achieve financial independence again. As a result, the next three-to-five years will be spent earning and saving more aggressively.
In a positive way, I feel invigorated! It's as if I've gone back in time as a 32-year-old who realizes there's no way I can last in banking until age 40. I started writing about FIRE in 2009, and three years later in 2012, I left my finance job for good.
Ideally, with the help of a bull market or some unexpected opportunity, I'd like to reach FIRE again in three years because I'll turn 50 in mid-2027. By then my children will be 9.5 and 7.
My biggest challenge will be making sure I allocate enough time and energy to them during this journey. The last thing I want is to spend so much time making money that I miss my kids growing up.
Let the new financial independence journey commence!
Update 12 months later
Despite technically losing my financial independence, I decided to look on the positives of earning less passive income. More than a year later, I feel like I'm happier because I have more purpose.
I've also clawed back about $42,000 of my passive income by renting out my old house. Having the house sit empty for several months was stressful with surprise capital calls and property taxes. Here's my latest on grinding back to financial independence by December 31, 2027.
Here is a more in-depth recap one year later of buying a home I didn't need. Overall, I think it's been a good move because we survived financially and my family is really enjoying the extra indoor and outdoor space. We are poorer because we didn't make as much in the stock market. However, I feel richer in satisfaction and experience.
I'm focused on decumulating wealth and trying to live my best life now because time is going by too quickly. There's no point buying a nicer house after I'm old and the kids are out of the house!
Diversify Your Investments Into Real Estate
If you want to invest in real estate more strategically, check out Fundrise. Fundrise manages private real estate funds that predominantly invests in the Sunbelt region where valuations are lower and yields are higher. It focuses on residential and industrial commercial real estate.
Fundrise currently manages over $3.5 billion for over 500,000 investors. I've invested $954,000 in private real estate funds since 2016 to diversify my investments and make more money passively. After I had children, I no longer wanted to manage as many rental properties.
Invest In Private Growth Companies
Also consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Fundrise venture product, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 75% of the venture product is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
I'm allocating $500,000 to funds that invest in AI or specific AI companies over the next five years. So far, I've invested $143,000 in Fundrise venture.
To achieve financial independence sooner, join 60,000+ others and sign up for the free Financial Samurai newsletter. Fundrise is a sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise.
When should one start their passive income stream? I’m 70 and still have not touched my pension or social security. Should I now take both and live happily ever after or postpone the pension until age 73 (due to the Secure act 2)?
At what age waiting to long?
Thanks
At age 70, I think I think it’s worth taking Social Security now.
The median life expectancy is 80. And you are well into full retirement age. I would focus on spending as much money possible now without running out.
See: When to withdraw from Social Security
Should have listened to Charlie Munger on why he never bought a nicer home.
Thank you, and happy Thanksgiving.
Even though I’m poorer now, I really enjoy living in this nicer house and taking care of my family.
I’m not sure I’d be OK with dying with $3 billion like Charlie. I would like to spend more of it and give more of it away while living. Different retirement philosophies.
Related: Reflecting on one year after buying a home I didn’t need
I am always wary of those who claim they are doing something for the sake of providing the “best life” for their kids. It’s disingenuous at best, and egotistical at worst. Disingenuous bc your kids will likely only make use of the house until they become very young adults. It’s you who is benefiting the most, and will continue to benefit even after they leave. Nothing wrong with that, but be honest about it.
It’s egotistical bc you are reducing your children’s “lives” down to the maybe 15-20% of it they’ll spend with you/in this house. That’s lofty words that a childhood home will give them the BEST life. Really? Their whole life is improved bc dad wanted a wider lot with a better view for part of their childhood years?
It’s also delusional IMO. Unless you were living in a crime-ridden area that created risk and anxiety to your family, simply having a nicer house (provided needs were met in the previous one), DOES NOT equate to providing the best life. More does not automatically mean better. Your childhood home is cherished for the memories and time spent there. But one day it will just be your childhood home (and certainly not the best part of your hopefully long and healthy life). And it implies that the many people who grew up in smaller homes without a view, shouldn’t think that that was the “best” they could have had.
Personally I would be insulted if I grew up to find out my dad wanted to “one up” me before I even started out in life. How could I be excited to meet and exceed the success of my parents, if they’ve set the bar so high already, so early in life? Why do you want them to experience what you presume is “the best” so early in life? Why do YOU have to be the giver of the best life? Why are you setting them up to have to stress out to maintain such a lofty lifestyle, risk feeling like a failure if they can’t, or experience the sad realization of lifestyle decline. It’s like you want to carry them up the mountain on your back, and give them the peak early in life, spoiling the view.
What if THEY can’t spend $80k to send their kids to school (but dad did), or provide such a luxurious house (dad did), or maintain such an inflated lifestyle (dad did it!). Would you say they weren’t giving THEIR kids the best? BC according to you, that’s what the best means. And that’s a little sad to me. I’m glad my parents taught me restraint. They COULD have moved to a nicer house, but they still live in the same house that I (as a 40 year old), lived in when they bought it when I was 3. I (and they) wouldn’t trade that house and its memories in for a mansion, then or now. They taught me that their love for me is not based on monetary capability (or even willingness) to sped more on me. They took care of me, and saw that I didn’t have to struggle as a child, or even as an adult. That’s all they have to do. That’s all their job is. They didn’t feel a need to position themselves into my dreams as a provider of my “best life”. They allowed me the courtesy of exploring my big wins without feeling the need to compete with it. They trusted in me to be able to someday provide myself with the life I wanted.
So, to summarize…I have no problem with you wanting a big house bc that’s what you wanted. But sorry you are not going to win me over with the “heartbeats” and “doin it for the kids” bit. Kids don’t need much. It’s the adults that do, and then to play it off onto the kids. Nope.
Thank you for sharing such a well-thought-out response! I completely get where you’re coming from—there’s real truth in acknowledging that decisions framed as being for our kids may often serve us as adults just as much, or even more. We might feel it’s “for them,” but there’s a certain reality that we’re also motivated by our own desires and our vision of what the “best” life looks like.
I agree that an extraordinary home isn’t what truly gives kids the best foundation. The lasting value comes from the relationships, experiences, and stability we can give them—whether that’s in a smaller home or a larger one. It’s definitely wise to avoid sending the message that a bigger house or a more luxurious lifestyle equals a better life, as you pointed out. I also think you’re spot-on about the potential downside of setting up a lifestyle that could add pressure on kids to maintain it, especially if they feel they have to reach those same benchmarks.
For some parents, though, there is a genuine desire to create a physical environment that matches their vision of a joyful childhood. It doesn’t necessarily mean “more is better,” but rather that they want their kids to have safe spaces, perhaps access to nature, or room for certain hobbies or family activities. That drive is real, even if it’s complicated and sometimes involves our own ego or sense of achievement.
Ultimately, as you wisely noted, kids don’t need a huge home to feel loved or secure. Sometimes we parents need reminders that, while it’s great to want to provide a beautiful home, we need to be mindful not to project our aspirations onto our kids or put them in a position where they feel they have to “match” or “beat” what we’ve achieved. Your comment underscores the importance of restraint and respect for their own journeys—a refreshing perspective that more parents should consider.
What are some of the things you are doing to provide for your family and give them a memorable childhood. It’s always nice to hear from people who do things differently, as I love to read different perspectives.
You’ll enjoy these follow up posts based on your comment:
https://www.financialsamurai.com/rich-spoiled-clueless-work-minimum-wage-job-at-least-twice/
https://www.financialsamurai.com/the-fear-of-screwing-up-our-childs-life-as-financially-independent-parents/
https://www.financialsamurai.com/entitlement-mentality-wealth-destroyer/
https://www.financialsamurai.com/a-summer-job-landscaping-a-rental-property-with-my-children/
Feel free to comment on all of them and share what you would do differently and where you think I’m wrong. The more pushback and feedback, the better. Thanks.
“I believe the best time to own the nicest house you can afford is when there are the most number of heartbeats at home” – One of the best quotes
I hope you did not sell Nivida to buy a home..
I promise you, your children will never appreciate your efforts.
I didn’t. The funny thing is, with the way big technology stocks and San Francisco real estate are moving upward this year, maybe I don’t have to return back to work after all!
The bidding wars are back. But the mania can’t last forever, can it?
Methodically investing in artificial intelligence over the next three years.
Why do you think your children didn’t appreciate your efforts? My children say thank you and say they Appreciate the things I’ve done all the time, my picking them up from school and taking them home, etc.
To be honest with you, your definition of financial independence is technically right, but completely infeasible
No engineer in the world would certify an elevator that can carry 2000 pounds with a cable that can hold exactly 2000 pounds.
One needs a margin of safety. If an elevator is rated to carry 2000 pounds, it can hold at LEAST 3000, if not 5000 pounds before snapping. And then the elevator is equipped with weight warning indicators, AND arresting clamps to prevent an actual disaster.
If you need 250k a year in predictable investment income to replace your 250,000 dollars job to retire.
You don’t retire when your investment income crosses over 250k. You retire when that investment income exceeds your living expenses consistently (for YEARS for stress testing) by at least 50%, before you should even consider calling it quits.
it seems to me, that too many people just want the cool-guy flex of retiring early.
just remember a samurai, lives for his master (which i guess in this case is how the society views you). Maybe it is time to be a financial Ronin
True. Thanks for all your critical comments on so many of my posts Bob. Sounds like you’re really digging into Financial Samurai! Keep the comments coming.
It’s been a good 12-year run of financial independence, where my passive income covers my living expenses plus a 20% – 30% buffer that I’ve saved and invested. But all good things must come to an end. The key is to be flexible and plan for change.
I’ve planned ahead for Sept 2024, with new tuition expense and a 40-hour void to fill. And I’ll continue to plan ahead as much as I can. I’m going to enjoy these remaining months!
Subscribe to my posts here to get an update of my passive income. I made a decent +$50,000 move.
With all your comments, I’d love to hear more about where you are on your financial journey.
Yeah. Good content. But independence isn’t independence if there is time limit on it.
So in hindsight what caused the shortfall? Is it the stock market? Is the the high inflation? Is it the unexpectedly high cost of raising children?
Just life and change. But with the way stocks and SF real estate are performing this year, maybe I won’t need to fill the time!
How about you? Are you retired with young kids too?
Our circumstances aren’t too different. We are roughly the same age.
I too can retire if I choose to or if i am forced to. In fact it is definitely something that i have thought about. But I have decided against it, for a number of reasons. The final winning argument for continuing to work is: I have never once turned in my exam papers before time was called. Even when i finished early, i would just check over my work, as i realized that there is no reward for turning in a test early.
Life can be a long journey, full of unexpected events. No one knows how long they would live. No one knows what challenges may come. Who could have predicted COVID, Russia-Ukraine, or AI, just in the last 5 years!?
I am lucky to be in a profession where the work is not super taxing, and the pay is pretty good.
So my plan is to keep working until it is literally not worth my time to work anymore.
Sounds good to me. If you have a $10,000,000+ net worth, how do you reconcile continuing to work when investment returns can be far greater than your income in any given year?
Even with “just” a $5+ million net worth, this is the dilemma many investors face as they get older and wealthier with so many other fun and purposeful things to do in their lives.
If you have kids and money, how do you reconcile spending more time working for more money when the kids would love more of your attention? Again, a dilemma with no right or wrong answer.
There are no right answers. But overall networth can be a very misleading number. 5 million networth in San Francisco, likely means at least 2.5 of that is tied up in the primary home, leaving just 2.5 million to generate an income. The problem with THAT is 2.5 million doesn’t generate very much at all. Even assuming a 6% rate of return (if you want steady income that’s probably the best you can do), it is just 150,000 a year. And given the rate of inflation the purchasing power of that 150,000 (which will remain constant) is diminished every single year.
If you are in CA, you will likely need at LEAST 300,000 a year just to support a family of 4 comfortably (assuming the house is paid off). So the minimum you will need is 5 million in investible asset. But since your 300k annual expense grows with inflation, and you need a margin of safety. 10 million in investible asset is probably the absolute minimum you would like before you can consider yourself, ready to retire (in CA).
Sure. How about you? What’s your net worth and passive income target?
The consensus among my peers is, 10 million in investible asset (on top of the primary residence) is the minimum threshold. I tend to agree with that. 10 million on top on one’s primary home (which is paid off) should be a relatively solid foundation. Assuming it generates 6% or 600k a year. After taxes, it takes you down to about 400k, some of that money has to go back into the investment pool, so that you can pull 600k * 4% inflation (or 624k) the year after, another 4% compounded every year after that (without draining the nest egg).
I haven’t done the exact math, but i think 10 million is workable, but still a bit tight.
Oh sounds good. I did a survey ideal net worth to retire came out today $10 million.
But I can share from experience that even after you cross $10 million in investable assets, Compa still feel tired and couple of children in San Francisco or New York City.
So if you’re talking about that amount comfortably, I would encourage you to shoot for $15-$20 million in investable assets.
Earning a low risk 6% return is aggressive
You will never retire then. You know what happens to people who have less retirement income than active working year income? They make it work. Funny how that happens. To your point, though, You have an equivalancy problem: the $250k job income doesn’t mean you have $250k retirement income need. First, depending on your savings rate, you already have a built in safety margin equal to whatever your savings rate. Typical rule of thumb is 20% savings rate, so your retirement income need is 80% lower at $200k. Rearing kids is 20% but HCOL like SF let’s put it at 40%. That means $120k is actual need in retirement. Chasing the next $1m has diminishing returns in terms of your maximizing your go-go retirement years.
Reading this just made me wonder again (I think this virtually every time I read your articles) WHY you choose to live in San Francisco? I can see moving there back in your employment days of non-passive earned income seeming logical. The cost of living was the highest in the country, but so were the salaries. Once you ceased to work for an employer, however, and were living on passive income, what on earth made you want to stay in the most expensive part of the country? It does not sound like your family is in the area (Hawaii rather) to tie you down there. Have you considered you could live in a mansion that far exceeds the comforts of this new FOMO home in San Fran if you just left the region you’re in now? Choosing to live in the most expensive part of this country when your lines of income do not require you to be there is hard for me to understand. Unless you believe the schools there are the best available in the country therefore giving your children the best possible education? San Francisco is nice, but even within the state of California there are better climates available at better prices.
Hey Sam, I’m 52 and just went back to work full time. I had the opportunity to buy a business with my son. It’s been a real privilege to work with him and see him grow. I couldn’t pass on such an opportunity!
At 47 I retired with enough resources that my wife (27 yrs married) and I would be ok for the rest of our lives. But, getting the chance to personally mentor my son and share this experience was enough to bring me out of retirement and now begin getting up at 4:30am every day. It’s been really hard work, but I’m having a great time.
So, there’s lots of reasons to go back to work… I admire your openness and authenticity. It takes a lot of courage to put yourself out there like you do. I’m sure you’ve made the best decision for your family. You are a great thinker and very disciplined- which is why I read your blog!
Being in the marketplace everyday makes me a sharper investor with more insights about what is really happening in the world. I’m sure you’ve had the same observation.
May God richly bless you and thanks for all your great thoughts!
Your fellow ronin, Brad
I gotta say, this really came as a shock to me. I’ve been following you for years, and your content provided a lot of the driving force behind my desire to become FI.
Ultimately I think this highlights a very important lesson – The critical piece of building your own business. It’s not necessarily financial independence we desire, it’s financial freedom. Financial independence through passive income is a great foundational goal for everyone. A business is the only way that we can control something to scale.
This got me thinking; Did you consider maximizing your active income, to match your increased desire of a different lifestyle? Ex. Increasing ads on the site, affiliate opportunities with the eBook etc.
Not being able to live off a $230k income however is something only you can fix. IMO it doesn’t really make sense to rely on a W2 to make ends meet at $140k clip. The logical step would be to cut your cost of living tremendously then use that free time you still have to build more revenue streams that you can control/scale. C’mon man!
Sam 2 questions that are tough for me:
1. I’m 60 yrs old with retirement target of 65. Upon retirement I’m considering relocating and buying a new house. My current house upon sell will yield me about $600k which I theoretically can apply to purchase the new house. I’m unsettled concerning if I have to sell my old house to get the new one or if I can rent the old one and still get the new one? I would like to keep the old house to pass on to my kids but this may not make financial sense. What financial rationale should I exercise to make the best choice?
2. I have a $200k parent student loan balance for my kids. I’m currently paying ~ $2k month via the 10yr repayment plan. The avg interest for the loans is 8.5% Do you think I should just pay the loan in full if I have the resources? Which makes most sense: pay from my CASH resources or sell some stock? One of my stocks in particular which could help me raise the money is APPLE. I feel bad though if I sell APPLE. I think it will continue to grow over time. How should I rationalize the best strategy?
Howdy,
1) Check with a mortgage officer at your existing bank to see what’s feasible. I don’t know all your financials. They can run through your numbers. At 60 years old, however, taking on a new mortgage, doesn’t seem like the best bet.
2) that’s a high interest rate. Can some of it be forgiven? If not, I’d implement FS DAIR.
I read this post attentively (most of them actually :))
I have one question for you: besides desiring a new home (which as far as I understood was the main cause of this discomfort) was not there also a “relaxion” in the way you were looking to things? a confidence which made you less alert?
I ask you that, in order to learn to avoid as much as possible such situations, because, unfortunately, I “stumbled” into the saving mode and understood the importance of such vision, kind of too late and yet, I cannot stop reading and learning from people who achieved their goals in the proposed time frame.
I am pretty sure that, with your focus, you will achieve your goal of 3 year target :)
All the best and I will continue to follow you and your short journey in the recovery tale.
Not sure exactly what you’re asking here “was not there also a “relaxion” in the way you were looking to things? a confidence which made you less alert?” like, letting my guard down?
Not really, because I had 15 months to decide whether to buy this house after many visits and much back-and-forth, and then I spent almost 3 months in the escrow. Uncovering every single issue I could find before purchasing.
The reality is, you can plan all you want financially, but until you actually make the move, you won’t know exactly how you will feel.
This is the main reason why I write from first-hand experience so I can share with people the good, the bad and the unexpected. You can be a retirement researcher and calculate your safe withdrawal rate, but until you lose your cushy paycheck and pension, you won’t really know what it’s like to be retired.
thank you for your quick reply
it is what I meant, indeed.
I am at the age of real retirement. Unfortunately, life caught up with me and my earlier careless decisions brought me in a place which is not desirable :) – lots of debts (banks and otherwise) and the feeling that the black pit hole swallows me taking me into the abyss.
Anyway, since I learned about this F.I.R.E. I learned a lot and I was able to decrease my debts considerable and as long as early retirement is not possible :), at least I can have a comfortable retirement (about for the time being I am sure I can achieve).
I am grateful that such people like you exist and more, sharing with us your experience.
I am grateful and as I said previously, I am quite sure that your goal shall be achieved as you proposed to yourself :) 3 years.
I will continue to read your posts, ideas and suggestions
Thank you
Clearly you are a very thoughtful and talented individual who enjoys a measure of mastery of the variable (financial and career) choices that you can make.
In my experience most people do not have these talents, and operate with short term and linear thought processes.
Also called “ tunnel vision “ thay are without the ability to foresee a range of possible results, rather than the linear “idealized” path they envision.
So when life delivers a curveball, thay are not prepared.
My position stands… I find FIRE to be a risky life/financial strategy that depends LESS on excellent planning…rather than the “bet” that life won’t deliver any curveballs…that one cannot deal with.
While FIRE may offer a measure of freedom (free-time) it relies on a large dose of LUCK, which is not commonly understood or acknowledged.
Simply put… staying in the workplace provides OPTIONALLY AND FLEXIBILITY to deal with life’s curveballs.
Jeff H
Thanks Jeff. I agree. It’s always been the journey I’ve enjoyed the most. And going on this new journey is both a challenge and exciting.
You may enjoy this follow up post: The most dangerous early retirement strategy to follow
I think the “fatal flaw” with F.I.R.E. is it makes the rather bold assumption that people can KNOW what they want, WHAT will happen, and what their GOALS and DESIRES will be…over the next 50 years.
The idea of “retiring” at age 35-50 based on (then) current assumptions, means largely cutting off working income, career advancement, and important employment connections and skill development. It also cuts short the most important stage of compounding wealth…the last stage…55-65…when sums begin to really be meaningful.
Retiring even at 60-70, is a “leap of faith” hoping that conditions (personal, economic, and other) factors don’t change outside the range that is assumed for the 20-30 years… one is retired. When you DOUBLE that “assumption time” you introduce much higher standard deviations and errors in assumptions.
I can only imagine the stress for folks who “retired” in the low inflation rate, high return era of “cheap money”…now confronting (likely) more normal periods of higher inflation and lower stock market return cycles ahead.
We are even seeing a wave or older “retirees” trying to “plug back” into the job market with diminished skills and connections, after miscalculating their readiness to retire.
I’ve tried to find a satisfying career, save as much as possible, and slowly pull back as I transition to retirement. Success for me…is retiring ONCE…and not being forced to QUIT retirement…to go back to work.
I agree. But I wouldn’t be so strict as to say success is only retiring once. To evolve with time and desires, I think it’s fun to retire multiple times. It means you’re trying new things. When you are no longer learning or earning you retire, take a break, then try something new again.
Since 2017, I’ve given it my best to be a stay at home father. Now I plan to retire from being a stay at home father by September 2024, when my four-year-old begin school full-time. Then I plan to do some part-time consulting and start up land because I think it’s pretty interesting. After that time and need is over, then I will retire again, and try something else.
The irony about a higher interest-rate environment is actually that it’s easier to stay retired and retire earlier because everyone can get a higher risk free rate of return on their cash. Also, to stay, competitive, companies are raising their dividends.
The converse, though, is working, blinking, and suddenly realizing you’ve worked forever and amassed whatever you’ve amassed and have very little active retirement years to enjoy all your efforts. Is chasing that extra $1m worth the opportunity cost as you get older? Unless you really don’t ever plan to retire, you will have to take the leap based on whatever assumption and planning you’ve done.
I’m nearly 10yrs into my retirement when 42yo, in that “low inflation rate” era you mentioned and I haven’t found a single moment of “stress.” Now I couldn’t imagine retiring in my 30s since I agree I don’t see where the years of compounding at that point? Unless you are making some serious cash, I don’t see how you don’t return to work, which is often the case with faux-FIREees.
This is an investment formula I hope more people calculate and follow to figure out when they can retire or take things down at work.
https://www.financialsamurai.com/minimum-investment-threshold-amount-work-optional/
What ultimately made you decide to bite the bullet and go for the new house? Since you clearly are someone that calculates costs ahead of time, enjoys spreadsheets, and plans for the future, you must have realized this decision was going to put you in the situation you’re in?
What made you ignore the data, and move forward anyway? I think there’s a real lesson to learn there. What made the right brain or heart beat the left brain?
Thanks for asking. Mainly it was the desire to provide the best possible life for my family outweighed the cost of needing to go back to work. I believe the ideal time to own the nicest house one can afford is when there are the most number of heartbeats at home.
After the kids leave for college or wherever, it’s not like parents will want to upgrade to a bigger or fancier house. Parents will want to downsize or just keep their existing house.
My daughter will begin attending school full-time in September 2024. As a result, both kids will be in school full-time, and we will have a 40-hour-a-week void to fill. I can’t write and play pickleball all day. As a result, I think taking a part-time consulting job at a startup in San Francisco and injecting myself back in society could be the ideal solution.
Having this new house to pay for will motivate me to work and interact. Otherwise, I know myself and will probably just be too lazy to change. The window of opportunity is getting smaller at my age. Hence, this could be one last hurrah.
How about you? What’s your background and work/financial situation? How do you figure out the right balance to take care of your kids, work, and make money? I’m looking to learn from people who’ve been able to find balance. Thanks.
Bigger house, fancier cars, more exotic vacations, the hedonic treadmill strikes again.
Indeed. All the time. Desire is the cause of all suffering.
You hit the nail on the head.
You have some blind spots, sir. Real estate is not passive income. Tenants are hands on, arranging maintenance is hands on, tax bills and bookkeeping is hands on.
Alternative: REITs
You are underinsured with your umbrella policy. It should be higher than your net worth, and I suspect your balance sheet is higher than 2m. You are also grossly overpaying for it.
Better rethink private school. They can learn language other ways. Your housing costs are crazy for having no mortgage – do you have some lavish landscaping contract?
Chop that food budget in half. You don’t need expensive weekly date night. Grow up, you are living beyond your means. That vacation budget is immense too…didn’t you just buy some posh house? That’s your vacation now.
Check out: Ranking The Best Passive Income Investments that uses Passivity Level as a variable.
You’re right, living in my new house is like being on vacation. Have my parents here now and my sister here later. It is a blessing.
No judgment here at all, yet I’m wondering if you’ve truly made the middle class mind-set shift?
The bulk of your postings really boil down to retraining people how to think about where sources of income are generated.
Wanting a bigger home is fantastic and sure why the heck not!?
The real question here based on you providing “financial education” is, why didn’t you grow the investable networth (consulting, business, w2, whatever) re-invest for additional passive income for a downpaymemt and carrying costs of the dream home?
Applaud your honesty in posting, that’s commendable :)
It’s just an observation
I think I’m always going to embrace the middle-class mindset because that’s how I grew up.
I decided to pay cash to simplify, outcompete, and get a better deal. Now, the goal is to rebuild my passive income by living paycheck-to-paycheck while saving and investing aggressively.
Saving and investing is much easier once there’s a significant reason to do so.
Yup this reminds me of life immediately following the Great Recession of 2008-9.
– poor.ass.multimillionaire (my old handle back then ;)
Hi,
While I applaud your honesty, I still can not believe what I read.
I live in Sweden, 52 years old, and currently in a financial distress due to a work related injury in construction.
Most likely, I will never fully recover. Ripped tendont in lower arm, upper biceps tendonts, long biceps muscle, and chest muscle.
Rotator cuff injured.
This happened in november -2o.
Coming from an – at best – middle class working family, I learned quickly to stand on my own to feet.
My mother suffered breast cancer in -89.
My father – a stroke victim in October -87.
So a lot of time invested caring for my parents.
Trust me – the Swedish public health care system leaves a lot to be desired.
I needed and education of course. A fancy degree from a college?
Nope, not going to happen.
I write this for one reason only – to give you a perspective on your life situation.
Start working early was a given. Being forced to an 18 month stint in the army left ‘a dent’ in my financials, that a part of my financial losses are still struggling with to date (do the math).
But enough about me. That is not why I write this.
I mean – sorry for saying it, despite your professional approach – but talk about living beyond your means!
I respect the commitment you must have made on your education, but is ‘this’ what the ‘American dream ‘ has come down to – living beyond your means, and raise privileged children?
$80K in schooling? $16K in trips?
A big house with large costs?
I mean, this is unbelievable to any regular working man.
Sorry dude, but that list was repulsive.
I speak fluingly in Swedish, Danish, English, German, and some Estonian.
That doesnt come from school to a waste majority.
That comes from working in different countries, and studying on my spare time.
Do you want your kids to learn Mandarin?
Educate them outside of a cheaper school!
I respect you for your honesty, as well as for your commitments to your family. Beautiful!
Obviously, you got a great deal from a company I would never go near ( it represents everything I load) and deciding NOT to work? Un-imaginable in my world.
But impressive!
You made – based on my life experience, some weird choices, but it is impressive starting with two empty hands.
You are an accomplished man, having accomplished more than I can get a handle on.
An interesting question – I am convinced that there will be a ‘financial crises’ before the end of 2025.
My belief is that it will be the worst crisis of my lifetime.
That belief is entirely based on over-consumption, bad loans, over-prised US stock market, BRICS, and a world pretty much going down the drain.
How do you take a stand on that, considering a portfolio that is heavy on estate and 5oo- investments, while you life a high-expense life style?
At the same time, neither you or your wife are apparently working.
Best regards, Fredrik
Thanks Fredrik. I enjoy your positive attitude. What is it that your wife does? Hopefully her work can carry you over as you heal. Did you feel it was expensive to raise your children in Sweden?
Hopefully surgery can help your shoulder.
You may enjoy: Net Worth Serenity: When Feeling Bad Is No Longer Allowed
Wow, thanks for that fast reply!
Don’t know about a positive attitude though.
Just trying to be a realist about everything.
My wife works as a nurse, at the General Hospital in Malmö, southern Sweden.
She pulls in about $32.000 a year. Net….
I used to pull in about $42.000s year in construction. Net….
Right now – $17oo. Per month ….
So yes. She carries a BIG load.
Doesn’t make me feel like a man to be honest .
Have been carriyng my own load all my life.
What I am doing right now?
I don’t know.
We have a small house in a small village. With heating, electricity, wi-fi, food, etc, we are all in at about $16oo a month.
The house is paid for.
The medical bills are bad. Medication cost is ok.
Its cheaper to live here, and living in Malmö?
No way, that is a hell hole.
Your deal working at an invest firm is just..
Let’s not go there.
I’ve met about 15 different doctors, specialists and physical specialists.
No surgery. They just can’t find a way forward.
Well – about raising children in Sweden – Yes it is, and especially if your looking for private schooling.
Those costs vary a lot.
I have two grown up ‘bonus kids’ from her previous marriage.
I have no children of my own, my daughter died at an early age.
There is nothing wrong with your choices. You are upgrading your lifestyle. That’s the American Dream! Sometimes, you have to roll up your sleeve to make that kind of lifestyle jump.
FIRE is a great concept to get people motivated to save aggressively by providing them with a positive future end game of early retirement and 4% perpetual withdrawal until death. But there is a flaw. And that flaw is that it curbs lifestyle creep and taking big risks to achieve FIRE. Yeah, they account for that with labeling it FatFIRE or whatever they are selling. But you are basically in this conundrum, your whole blog is based on FIRE…yet you realize that you want to upgrade your lifestyle and taking big risks which may jeopardize your carefully laid plans of FIRE. I’ve always believed that in my prime years, I want to work and make as much as I can while I can. What is the point of sitting on the beach at 40 years old? Any bum can sit at the beach if their lifestyle is small enough. And at the end of the day, if it doesn’t work out, you are sitting on 4-5 real estate properties…own a $5M home in prime SF location. I think you’ll be fine, and your blog should really reflect that attitude instead of the “woe is me” vibe it is giving off. First, no one can relate. Second, it doesn’t fit with FIRE any more.
You have graduated beyond FIRE. You have a new mindset of getting into a much nicer lifestyle (even if means you have to get back into the workforce). You have decided that the RE in FIRE is optional. That’s your choice, and don’t apologize for it. Good luck.
TLDR Refinance into All-in-one loan and reinvest into cash flowing assets. Redirect all cash flow and expenses into all in one and have it paid off in 7 years.
Perhaps you could get creative and instead of refinancing your home with a traditional 30 year mortgage, you could refinance into an All-in-one loan. This is a first lien heloc product which is combined with a sweep checking account that automatically credits or debits your deposits or expenses against the property. If you are aggressively saving and have positive cash flow, you could completely pay it off in 5-7 years, paying far less interest than you would on a 30 year mortgage and retaining access to all the capital in your home which you can then use for additional investments if you choose. It might not work with how high your current expenses are, as you do need to be saving 10% to 20% of your income though for the sweep feature to make sense and actually offset enough interest vs a traditional mortgage. Your budget does not seem set up to save and invest so you might need to address that.
But the nifty part of an all in one loan is there are no minimum payments so long as you continue deposits to the sweep checking. So if you set up all your dividends and interest earned to automatically be deposited to the sweep account, you would not even have to factor in a mortgage payment and as your expenses come up, you set them up to come out of the sweep account and it would automatically borrow from the available credit on your home. This might solve the issue of not wanting to carry debt for an extended time and retaining most of your cash flow from before you purchased the house. Hopefully that helps.
Hi – I just came across this article while browsing online and found the thought process very interesting.
Is there a separate article where you are listing details of how you were making 380k in passive income in 2023 ? What is the portfolio distribution looks like – mostly rental, stocks etc ?
I am also curious, is there a language immersion option for Manderin through the public schools near you? Our youngest is in Manderin immersion (4th grade now) and we love it — though not sure if our older two would have taken to it quite as well.
There is one, which is under-resourced, and not in a great neighborhood. There is also no guarantee to get in given there is a lottery system in San Francisco.
Your budget of expenses needs to be reduced. The what is needed vs the what I likes. I found The what I like really can go and now my income is manageable for my expenses. Living within my means not trying to show off or living like the Joneses. Kids learn from parents if you live higher than what you can really afford your kids are wound to be in the same mess as you when they grow up.
Thank you. Yes, lesson learned. I’m in a mess now and will try my best to get out of it by cutting expenses.
Here’s my plan to get back to financial independence again in 3-5 years hopefully.
This is all B.S. in my opinion.
– What 401k contributions for people that don’t work?
– FICA taxes? When you don’t work you don’t pay FICA taxes.
– 68K housing expenses when you don’t have a mortgage? How’s this even possible?
– when you live on passive income there’s no need for life insurance. If something happens to you, the passive income will remain for your family.
Life insurance is necessary only to replace the income that you would have earned.
The average family has nothing to learn from this “budget for a family of four”.
Three weeks of vacation?
What is a “forever home”?
You might have missed the part where the $420,000 income was the PROPOSED household income we’d shoot for if we went back to work and the subsequent spending projection the budget.
I’ll make that more clear in the post. 68K would be property taxes and maintenance for a forever home, which is the realistic dream home for my family.
“Realistic dream home”? Of course, for you. Excuse me, but this shows only arrogance and very little sound financial or behavioral advice, especially together with everything else on the site. I get it, the property taxes and maintenance on a home around $ 5 M would be in the neighborhood of 68K.
There is nothing wrong in being successful and enjoying it. I think you are doing this site only to show off and feel good. That is not what I want to see. Maybe others feel differently.
My income profile doesn’t matter. My total annual income is more than $1M and less than that after taxes (it can also fluctuate), including passive income. The taxes and maintenance on my house (far from SF) are about a tenth of yours and our living expenses are less than a quarter of yours. I am just too busy to calculate them.
Your forever home purchase and how you manage the consequences can only add value to your brand. I will greatly look forward on how you take corrective action to retire again.
Good luck!
Love the blog, great content for financial knowledge and entertainment.
I may have missed it, but doesn’t this blog generate pretty good amount of revenue / income? It doesn’t look to be listed under passiv but would have assumed that might help bridge gap in reference?
Hi Dan,
Thanks for stopping by. Blog income is active income, so that’s work. It takes hours to write, edit, and prepare posts. The pay is not that great anymore (my wife pays me less than minimum wage hah, as she is the boss).
The definition of financial independence is when your passive income can cover your living expenses. If I have to work for the income, there’s no difference to working person who is not financially indepent.
See: I’m Unwilling To Change The Rules Of FIRE To Win The Game
Got it, makes sense. It sounds like it isn’t what it once was and now am seeing that had already been addressed way down in comments. :)
If you were to go back to work, would you still anticipate posting content regularly?
Yeah, just check out all the layoffs in the media business over the years. And goodness knows being an author doesn’t pay very well.
To provide for my family, I very well I throttle the amount of pulse I write a week. My goal in 2024 is the only published three times a week, which consists of two posts and one newsletter. But so far, I’ve been publishing three post a week and a newsletter until I find a part-time consulting job.
I’ve enjoyed writing for free and helping people solve their financial problems and helping people gain financial courage to live their lives. But now, I need to be more selfish for myself make my name to provide for my family.