Our Financial Independence Journey: Monthly Update #23 (November 2018)

Financial independence

Friends,

It’s time for a monthly update, and this update will be different from all the previous ones I have made. And boy, I have spent quite some time creating this new update format.

My wife and I have now officially combined our finances, so now we are not also legally married, we are also financially married. Crazy!

This means that everything changes from a financial point of view; our net worth (liquid and illiquid assets), our savings rate, our FI number(s) and our common journey towards FI.

Let’s get to it!

Personal life: What happened in October?

In our personal life, a lot has happened in the past month.

We have spent quite a bit of time on our house with new projects, been busy at work and been preparing for our mini-retirement coming up in a few weeks (we are so excited!).

We have spent time talking about the future and what we really want to do, and we will dive further into this on our mini-retirement.

Our combined finances and this blog have also been something we have discussed. My wife might start contributing a bit to the blog (I will have an interview with her online soon) and we are trying to figure out how our common (FI) journey will be, so it is not only my journey, but our common journey.

Financials: How are we tracking on our FI goal?

After spending a few months on it (and waiting patiently for our bank), we have finally managed to combine our finances across banks and investments, so we now have the full overview of our combined finances.

So what are the biggest changes? I had roughly 500,000 DKK (76,923 USD) in net worth before this, but together we have nearly five times more. What contributes to this? I have started including our projected real estate gains as part of our net worth, which makes up a fair share (roughly 1/5 of the total), and then my wife also came with a higher net worth primarily from real estate and stocks. I earn quite a bit more, so we figured it would be fair if we shared my salary and her net worth – doing this we will break even within a few years, and we both like the idea of sharing finances and “being a team” rather than individuals 🙂

Since this is the first month of tracking, it is a bit hard to track our savings rate precisely, but we had a savings rate of approximately 45%, which I consider relatively good. We will both see salary increases and bonuses coming in over the coming months, but we will not get salary during parts of our mini-retirement, so this picture might change in the coming months.

MoneyMow savings rate over time (%)

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Our combined take-home income was 66,001 DKK (10,154 USD) and we managed to spend 30,212 DKK (4,648 USD) resulting in the 45% savings rate excluding income from the blog.

Since we now have combined finances, I have created a new overview of our net worth going forward (I hope you like it 🙂 ). It shows our total net worth split into liquid assets (money we can use in the short-term) and illiquid assets (money we cannot use in the short-term).

Our total combined net worth is 2,379,275 DKK (366,042 USD) and as you will see in the overview, most of our assets are illiquid:

Liquid assets make up 24% of our total assets with a value of 571,643 DKK (87,945 USD).

Illiquid assets make up 76% of our total assets with a value of 1,807,631 DKK (278,097 USD).

Since we just combined our investments, I cannot report on how they performed last month, but I know that our stocks plummeted ~5% just as the rest of the market and that peer-to-peer lending was at 1% in return and cryptocurrencies remained relatively flat.

In the future, my wife and I will be striving towards three financial independence goals:

  1. Achieving savings equal to three years of expenses with zero income
  2. Achieving savings at the level of our optimistic FI number
  3. Achieving savings at the level of the traditional FI number

Why do we need three goals? Let me explain.

We need three goals (or milestones) because the road towards financial independence will take different turns, and we want to start experimenting with our lifestyle way before actually achieving financial independence (just as we do with going on a mini-retirement soon). What if we actually found out that traditional financial independence actually isn’t something for us? Then it would be stupid to spend many years trying to achieve it if we could be more happy with a different lifestyle.

The first goal of having savings equal to three years of expenses is to give us the freedom to make choices with a sufficient long runway of savings to experience new ways of living and potentially succeeding with different projects. As an example, one of us might start working part-time to see how that would work or start a small business. If we only chased our FI numbers, it might take quite a while for us to be able to do this.

The second goal is achieving savings equal to our “optimistic FI number”. I have written articles on how to calculate your traditional FI number, and I have made a custom FI calculator with assumptions based on the traditional financial independence calculations. However, my wife and I will most likely not pursue traditional financial independence.

Traditional financial independence assumes that you will never earn a single cent in your life after retiring early. It also assumes you must be able to withstand all potential financial crises. We have always felt that these assumptions are relatively unrealistic. Firstly, we will most likely still earn some money after retiring from part-time work or this blog for example. Secondly, we are not afraid of having to go back to full-time work if somehow a financial crisis hits and wipes out a large share of our net worth.

Our optimistic FI number assumes we have part-time income of 20,000 DKK (3,077 USD), which is less than 1/3 of what we currently have. It also assumes a higher-than-usual safe withdrawal rate of 7% where 4% is the most commonly used – simply because we would rather start working part-time sooner and run the risk of having to go back to full-time work rather than waiting a long time to be 100% sure we will be financially independent forever.

The third goal is naturally achieving savings equal to the “traditional FI number”. For this goal, we assume we will never earn any money again and we use the more traditional savings rate of 4%. Ultimately, this is what we would like to achieve, but it is not what the whole FI journey is about. That is why we have three goals – you could call them milestones.

As you will see, just changing those simple assumptions means that we will be able to become “financially independent” nearly four times as fast with the optimistic FI goal compared to the traditional FI goal, but it of course comes at a much bigger risk.

In both the optimistic and traditional FI goal, we assume that we will move to a slightly less expensive house and realize a small share of the gains we have currently had. We have done this because a lot of our net worth is in real estate and it would be stupid not to include it when we expect to downsize a little in the future. It is not included in the first goal because we will most likely not be downsizing within the next three years.

Are we really going to be financially independent when we achieve our optimistic FI goal, you might ask?

Probably not by the standard definition, but I still believe it holds the same benefits as traditional financial independence. We will be able to do what we love and spend time with people we care about. We are not afraid of working – in fact, we like working, but we just want more freedom. Based on experience, we are confident that we can each earn 10,000 DKK (1,538 USD) with a relatively small amount of effort requiring us to work much less than we currently do with great flexibility to say yes and no to work in different periods (e.g. by freelancing as consultants). This being said, it is of course still our ultimate goal to be financially independent in the traditional sense – we just know that the road there might take a few turns on the way.

I will start reporting on the progress of these three goals in our monthly updates, and as you can see in the figure below, we have a good starting point for all three:

For the first goal, we are 39.7% of the way towards having three years’ expenses in savings with 571,643 DKK (87,945 USD) in liquid savings.

For the second and third goal, we are 29.1% of the way towards reaching our optimistic financial independence goal and 7.5% of the way towards reaching traditional financial independence with 814,526 DKK (125,312 USD) in FI savings including 15% realized real estate equity.

Next week, I’ll publish a post where I dive more into each of these three goals and the assumptions behind them.

Blogging: How did income and key metrics develop on MoneyMow?

MoneyMow had a record-breaking month in October in terms of traffic – mostly because of a feature in Rockstar Finance. The blog got 2,000 page views in one single day following that feature, which is roughly 20% of a normal month’s traffic. I was sure I was being attacked by hackers when I saw the number at first 🙂 Apart from this, the blog’s traffic was relatively flat compared to September.

My income on the blog for October was:

  • Affiliate programs: 295 DKK (45 USD)
  • Sponsored posts: 0 DKK (0 USD)
  • AdSense: 82 DKK (13 USD)

The total blog income for October was 377 DKK (58 USD). This is the lowest income I have had in the last year, and I believe it is a mix of my affiliate program not really performing as it used to and the fact that I have not been able to spend as much time on the site in previous months as I would have liked to. Hopefully, in my mini-retirement I will be able to focus in on this a bit.

The metrics from October look really good:

  • Visitors: Number of visitors were 6,385 and grew with 33% compared to last month
  • Page views: Page views were 14,644 and grew with 6% compared to last month
  • Facebook likes: Facebook likes are at 2,765 up from 2,595 last month
  • Twitter followers: Twitter followers are at 925 compared to 904 last month
  • Newsletter growth: The number of people following my newsletter continued rising this month with 9% reaching 207 subscribers

Favorite posts of the month

My favorite posts of the month were:

  • Cubert from Abandoned Cubicle wrote a fun post on how to survive a cold, dark winter including the concept of “hygge” – and being from Denmark (which is mentioned frequently in the post), I found the survival guide both relevant and a bit provocative to find out that us Danes have cliques and are not as open-minded towards visitors (even though I know it is actually a bit true!)
  • Mrs YFG wrote a great post on FI and feminism. The post is about equality for all and having the freedom to choose – I can definitely recognize some of the prejudices they are facing as I might also stay at home while my wife is working for some parts of our life, which is generally not considered a “normal” thing to do
  • Kevin from Out Of Your Rut wrote a thought-provoking post on why financial content are often only directed towards the top 10% – and I believe some of his points are right, for example that FIRE might not be applicable for everyone (e.g. people with low-mid incomes). This is something I try to be aware of when I write my blog, but I also agree with Kevin that it should not be an excuse to give up trying to achieve financial independence and that FI should always be on the radar of everyone, although recognizing that for most it might be hard to achieve the 7-figure portfolios of the top 10%

That was all I had for October! Thanks for reading all the way through this update.

See you next month!

Onwards,
Carl

10 comments

10 comments

Gentleman's Family Finances November 23, 2018 - 11:14

Good to know you were able to combine assets – s One couples never manage to do it including some good married friends of ours.
It’s weird to hear them say “you owe me £10 for the beers I bought yesterday”.
For us – it’s all about the Family Finances

Reply
Carl November 24, 2018 - 05:51

I fully agree with you. I especially think it makes sense from a practical point of view too 🙂

Reply
Thomas November 12, 2018 - 14:05

Thanks for an interesting post. I have two practical questions to your approach, which I hope you might find time to answer. When combining your finances, what have you done about bank account structure, monthly allowances for spending etc? And, how do you calculate your home equity? Is it based on the initial purchase price less the payments you’ve made or have you chosen a different approach?

Reply
Carl November 13, 2018 - 10:22

Hi Thomas! Thanks – and great questions 🙂

1) When combining our finances, we have created one common account for both our salaries from which we transfer money to our common accounts (one key account for nearly all expenses, and then some for savings e.g. for vacation, gifts etc.) and to our individual accounts. Nearly all purchases will be done through our common account, but if there’s something particularly expensive or gifts to each other, we will purchase them from our own accounts. We have not set a value for this, but we will discuss how it works as we go along.

2) I have chosen an approach I have been tracking over a while, and I believe it works pretty well (although with some uncertainty). The equation is: Estimated value on Bolighed.dk – Remaining mortgage. I have found Bolighed.dk to be the most realistic in terms of what other apartments sell for that are comparable to ours and it updates very frequently with new data, although I think it undershoots slightly in our case (but then it also costs a bit to sell it). I’m not sure whether this approach will work in the long-run, but for now I think it is the best indicator of the actual value of our real estate.

Reply
Nick @ TotalBalance.blog November 16, 2018 - 11:08

Hi Carl,

congrats on the “financial marriage” with the missus 😉

You know I’ve knocked you before, about including your house equity as an asset, because it implies that you eventually liquidate it somehow. I don’t include my equity in my assets – but I’ve been considering doing it…
Like you point out, the most obvious way to liquidate your property equity, would be to sell it and trade down to a smaller/cheaper place. Based on that idea, I actually proposed a thought experiment to my wife the other day: what if we didn’t invest any of our money, and instead shortened our loan period to 15 years (and used the investment-money to pay off our loan instead).
In 15 years (which I know is a long time for you, when your FI goal is only 6 years away – but for us 10-15 is more likely), we would then be debt-free, and our daugther would be 19 (and thus hopefully no longer living at home), so it would most likely make sense for us to move into a smaller house anyway. I signed up with KAB a few years ago, and I’m regularly offered rentals (town houses) with 3 bedrooms and 2 bathrooms at a price much lower than what we pay for our current house.
This idea appeal to me. I’ve always believed that owning your home is the most sensible thing to do – but now I’m not sure that it makes sense, when you’re 50+.
Of course, by doing so we waive the chance to actually reach FI earlier (provided that we hit some sort of jackpot with our investments along the way).
With your savings rate of around 40.000 DKK/month, I suspect that you would be able to pay off your mortgage in less than 10 years (Perhaps even less? This is a guess, based on your mortgage payments 😉 )

What do you think? 😉 It’s an alluring thought to me, I have to say!

Reply
Carl November 18, 2018 - 03:04

Hey Nick,

Thanks a lot! Yes, I know you don’t like me including real estate as part of my net worth 😉 That is also why it is now part of the “illiquid assets”, which I think is fair, since it is actually part of my net worth (If I died tomorrow, my family would inherit it) – and I do not use it towards my FI goals (except 15% which we expect to realize from downsizing).

I like your thought experiment and it would be amazing to be debt free like you describe in 10-15 years! My only two considerations would be:
1) I would be afraid of putting all my money towards real estate as it makes you highly exposed to the real estate market. I would say that with a large mortgage you are already quite exposed to potential crashes, but if all your money is in the house, it can be a dangerous game. If the market has crashed or you for some reason do not want to or cannot move in 10-15 years, you are left with very little flexibility (and potentially a much lower net worth)
2) Over 10-15 years I would expect you could generate a much greater return in the stock market compared to the current ~2% mortgage loans (given you have one of those), so essentially having a larger net worth

And yes, you also risk losing all of your money in the stock market, but at least you have then spread your money over different asset classes. What do you think? Am I missing something here? 🙂

Reply
Nick @ Totalbalance.blog November 19, 2018 - 11:32

I think you are right. Paying of your debt faster, only makes sense if your mortgage has a high interest rate, which mine currently doesn’t. Since I have a flex-mortgage, my interest rate can change. Should the interest rate climb above – lets say 3% – that’s when I’d really consider paying it off faster.
I’m currently working on a post to prove why it actually makes great sense to be in debt, at the current mortgage levels.
I grew up convinced that debt was bad. I believe that it should be a part of any balanced portfolio really 😉
It was merely a thought experiment, which alot of people find enticing (to be debt-free). I guess I will let the interest levels decide my strategy, going forward 😉

Carl November 22, 2018 - 08:33

I fully agree, Nick. If you have a flex interest rate, then I understand why you would consider it in the longer term 🙂 I also think it is worth considering how much of your net worth you want in real estate vs. other assets.

Johan November 11, 2018 - 11:24

Thanks for the post, really enjoy reading these as we are in similar circumstances (although earlier in the journey and with less income). I wish you would write a bit more about how you track compared to the budget as I am trying to figure out how to cut our spending. Also was wondering about the cost side of the blog. Thanks again 🙂

Reply
Carl November 12, 2018 - 04:46

Hi Johan,

I’m glad to hear you enjoy them! 🙂

Good point on the budget side of things. First of all, I need to update my budget after combining finances with my wife, but secondly, I actually don’t follow my budget that strictly. What is important to me is that I track on my savings rate and that I have a rough idea of where my money goes. Instead once in a while I take all expenses over a three month period and then group them to see whether it aligns with my budget or not. In a couple of months of having combined expenses with my wife, I believe that would be a healthy exercise – I’ll make post about that 🙂

The blog is relatively cheap to run. I run a few Facebook ads and other than that I pay roughly 1,500 DKK per year to keep it running. 500 DKK on hosting and 1,000 DKK on Facebook ads.

All the best,
Carl

Reply

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