Time has passed quickly, and I’m slowly nearing the end of my two year experiment of trying to live financially independent. The day I packed up my things in the office held a lot of uncertainty for my future. Read my story on how I retired here. I wasn’t entirely sure if I could live on the rental income or if I would need to tap my savings to supplement my reduced income. Giving up an amazing income stream didn’t come as an easy choice either, but my body was telling me it was time for a break. I had an intense career in technology and management consulting requiring me to be on the road over 90% for well over thirteen years.
Initially, I had two rental units with one being fitted out and not rented yet. My net income from my rental unit was a mere 4% of my previous corporate income. “How could I survive on that?”, you might ask. Well, 4% equated to about $6,700 net a year, or $580 a month. It is possible to live a frugal life on that in Poland. But, boy, it was a change, as I was used to netting $15,000 a month and easily spending roughly two thirds of that. Yeah, I admit I had a pretty amazing paycheck. But before you think it, luck had little to do with it. I worked very hard for a long time to move up the ranks in a very competitive industry.
Time for a Re-education At the time I left my career I was truly awful at managing money and investments. I never took the time to do it properly. Further, I recognised the need to learn to live significantly more frugally. My expenses, while somewhat justified compared to my income, were truly mostly unnecessary. My education didn’t stop there however. I started budgeting and managing my cash flow like a Chief Financial Officer, actively looking out for opportunities to save, increase the value for the spend, and create or maximise additional income streams. I learnt about minimalism and I found out about the likes of the Mad Fientist and Paula Pant from Afford Anything. They and so many other bloggers inspired me and provided a tonne of great advise. I love listening and interacting with this community.
LeanFIRE and FIRE Most Financial Independence bloggers would consider having earnings below $40,000 pre tax as being in the LeanFIRE camp. That is a pretty American view and that’s totally cool. Let me tell you that I had an amazing past two years on far less than $40,000 per annum. I traveled almost 1,000,000km across Europe, Asia, North and South America. Hostels and the cheapest hotels were completely avoided – I feel definitely too old for that kind of adventuring.
Since I took the jump into semi-retirement I added three more rental units to my portfolio. I converted my cash into assets not only to increase my income but also protect it. One of these apartments is actually my base for when I visit Poland. Over the past two years I grew my income to some 3,500USD per month mostly from my rental units. This equals roughly to 23% of my past corporate income and is probably considered entry FIRE level. Meanwhile, I reduced my living expenses by about 80% from previously over $100,000 per annum down to $18,000-$24,000. It really depends on where I travel to and how often. My saving rate when staying in Poland can be as high as 80% but it significantly reduces when I go travel abroad.
Moving up the Ladder to fatFIRE The past two years have been amazing and I have self developed a lot. I improved my spending habits, learnt what truly makes me happy, grew my passive income stream, gained experience in property investing, expanded my financial literacy, and lived a much simpler but extremely happy life. Having said all that my dreams have also grown in the meantime and Mrs Financial Gladiator and me decided we want to have kids. My income needs to increase to realise our ambitions in a safe and sound manner. I estimate that I would feel very comfortable with about $100,000 of passive income per year.
With the above in mind, I have decided to return to the corporate world for a second stint. The goal is to improve my financial security and built the basis for a family in a high cost of living location (HCOL) in Asia next. Guess which is the most expensive place in Asia these days. Yeah exactly, right there in Singapore, at first glance not a FIRE friendly place. At second glance, income and taxes are extremely favourable to save a lot in a short time if you have desirable professional skills.
Reasons for Going Back to Work According to some conservative calculations, I can more than double my asset base and passive income. At the same time, I plan to reduce risk in my Polish portfolio through geographic diversification. I plan to include property ownership across Australia and Indonesia in a handful of years. Of course I will not break my iron rule and avoid going into debt.
As I have written earlier, I believe we are nearing a once in a lifetime chance to invest in Australian Property. The Indonesian economy is one of the fastest growing globally and has still a lot of potential; the exchange rate is and will likely stay favourable for a few years from a Dollar perspective. Indonesia is a great country I could see myself and my planned family moving to in the future.
Secondly, I believe I can still develop my career while having loads of fun. I always enjoyed my roles in the corporate world, especially working with my colleagues and demanding customers. It would be a waste to not leverage my years of study, work experience and earning potential to that end.
Thirdly, I have achieved what I set out to do. I became an investor, a dive instructor, my Spanish skills improved, and I am in the process of realising my number one dream right now: Exploring South America. In fact Mrs Financial Gladiator and I are in our third month of traveling this beautiful continent.
Doubling my asset base would mean reaching the two and a half million dollar net worth mark and increasing my passive income stream to about $100,000 a year. This is the entry level considered by many bloggers for fatFire, others call it Financial Abundance. For me it would mean reaching the ultimate stage of freedom.
The Maths of Doubling my Income Returning to my professional career, I would expect to earn similar figures as when I left. Over 5 years I expect to work towards two further promotions, calculating a 20% pay rise each time. In total that would net around $1,143,000 over five years. My living expenses would be much lower than before, having learnt what I did over the past two years. I estimate the costs to be around $230,000 over five years. Meanwhile my passive income from my properties should generate most of what I will spend. Reinvesting the net savings should generate approximately $118,000 over the course of 4 years. I am being conservative in my approach at 6% return. Overall my savings rate should hence hover around 84.3%. See the table below for details.
Looking at my net worth (see table below), I estimate an increase from around $1,100,000 to roughly $2,500,000. This is when I enter that fatFIRE range. Life for a family should then be sorted for living anywhere in the World. None of these calculations include Mrs Financial Gladiator’s income nor assets, the platform business I am building at the moment, nor any other potential side hustles. The calculations assume that my property investments will increase in value at 3.5% per year (it’s been 5x higher over the past 2 years). My equities invested plan for a 7% on average.
I’m banking on the fact that my rough calculations are realisable. If so the value of my assets should increase to $2,500,000. If I manage to keep netting +6% after taxes, costs, and fees from my investable portfolio, my passive real estate income should increase to around $138,000. Of course being the conservative Financial Gladiator let’s look at 4% return only. In that case passive income will equate to roughly $92,000 per annum. Quite a respectable sum. The truth will likely lie somewhere in the middle.
Whats Comes Next? From there on, I plan to move with the family to a lower cost country, where I would increase my lifestyle significantly for the same expenditure and saving around 30-60%. This would allow me to grow my cash funds for reinvestment and growth of the passive income stream even further. This should more than cover additional and unplanned costs like a little lifestyle inflation, increasing health care and education costs for the family over time. Fingers crossed!
What do you think? Would you go back to work for 5 years to double your monthly income for life? Of would you stay happy with a passive net income of roughly $40,000 a year. How much is enough for you?
For Freedom and to Live Your Dreams,
Your Financial Gladiator
Listen to the Podcast here:
The post The Move from LeanFire to FatFire appeared first on Financial Gladiator.