Saturday, August 1, 2015

Countdown to FI

10...9...8...7...6...Financial Independence!!!!!!!!!

FI is fast approaching. The "Countdown" has begun.  That's the day when I can and will officially declare myself "Financially Independent".  What does that term mean to you?  It's certainly better than "retirement". Why?  Because retirement often evokes a picture of someone in his 60's or 70's lazing about, playing golf or bridge all day long.  For many, it can even create a negative image of someone who has no real purpose in life, drifting along in a life raft of leisure (Wait a minute!  What's wrong with that?) 

While "Financial Independence" tends to simply say that you no longer have to earn a living.  You're no longer trading hours for dollars.  You've already earned it.  You now get to pursue  whatever work, passion, hobby or [insert productive activity here] you darn well desire.  Full-time, part-time, what is time for that matter? Heck (pardon my language), do whatever you wanna do!  You're the master of your time.  Unlike many people's vision of retirement, you've not punched your last timecard and now ride off into the sunset.  No!  You are just getting started, but now YOU call the shots.  YOU decide how you'll spend your time without a job or a boss's interference, (unless you so choose).   That's the flipside of our reason for having undertaken the goal to pay off our last three rental property mortgages.  The other reason was to relieve ourselves of ALL, that's 100% of all debt.  What steps are we taking to live on our rental income?

New budget - Categories with amounts.

We have refined our budget to include all the little incidental expenditures that can bust a budget. Clothing, Property Taxes, Home Insurance, Home and Auto Maintenance to name a few. Beginning this month, we are attempting to live on the amount of income we anticipate from our rentals.  How much is that?  Approximately $2,323.00 per month or $27,876 per year.  That's the conservative figure.  It already takes into consideration the cost of Taxes, Maintenance, Insurance, Vacancies and professional property management.  This number could even improve by several hundred dollars a month if we decide to rent our personal residence and live in our 31' RV.  Decisions, decisions... 

It gets even better because we haven't even considered the passive income we'll be receiving from our Commercial Janitorial Company until we decide what to do with it.  Right now that additional income is fairly significant.  We'll likely convert that money to dividend growth equities and further add to our passive income with another income producing stream. 

Minimalism a.k.a. "Simplification"

What else will we be doing during the remaining nine months counting down to FI?  I'm taking a real interest in the Minimalist way of life.  No, I'm not talking about extreme minimalism where you own 100 items or less.  But I am talking about really simplifying and culling out those things that take up space.  Everything we own has a price attached.  You either have to clean it, maintain it, insure it, protect it, think about it or at least make room for it.  All those items big and small add up to a lot of clutter, mental and otherwise.  I want to minimize those things and add to my new-found sensation of freedom.  I want to have more time and energy to devote to things that are important to me, the things that have the most meaning for me.  Minimalism sounds like a worthwhile path to pursue during this countdown to FI.

Practice and refine for the next nine months

Nine months.  Wow!  It could possibly even be sooner than that.  Either way, this will be a lifestyle transition.  It's a big deal.  Like all other worthwhile endeavors, why not prepare and practice living my future right now in the present. I will have to show more self control with my spending habits than before.  Up to now, I've been able to buy anything and everything I wanted.  That's certainly not realistic when living on a fixed income.   

August Payoff Stats:

Jan 1, 2013 (Beginning Bal).                                                         August 1st, 2015                                Amount Paid Off
House #1 - $70,908                                         House #1 - $39,824                      $31.084
House #2 - $57,619                                         House #2 - $ 0                              $57,619
House #3 - $49,123                                         House #3 - $ 0                              $49,123
-----------------------------                                    -----------------------------               -----------------------------
Total:       $177,650                                                          $39,834                     $137,816 (-77.57%)

This month I was throwing money at this balance like a man on fire.  Every time I had available monies, they barely had time to register in the checking account before they were quickly transferred.  I made seven separate additional principal payments totaling $9,307.39.  Add to that amount the additional principal portion of  my August payment totaling $415.56 and you see a total reduction to the balance of  $9,722.95.  That's just stinking awesome!  The ability to apply monies that previously went toward mortgage payments is really helping the snowball efforts here. 

One way to highlight that is to look at the Principal/Interest ratio just a few short months ago:  May's principal & interest payment broke down to $340.24 principal / $213.64 interest.  Whereas with the snowballing of payments in May, June and July totaling $20,807.39 the August principal/interest ratio was $415.56 principal / $138.33 interest.  That's $75.32 more towards principal and less in interest every month (before compounding) going forward!  In short, if you divide the saved interest x 12 months then divide by the total principal invested, you arrive at your loan APY (Annual Percentage Yield) interest rate as the rate of return or just over 4.125% APR (Annual Percentage Rate).  Link to APY vs. APR

Compounding debt payoff is almost as exciting and fulfilling as compounding interest income.  The effect on net worth is the same, just different sides of the ledger except that often your trading a lower ROI (Return on Investment) or a lower reward in exchange for removing market risks.  And while that's a calculated trade-off for most who chose to pay off a mortgage over investing those monies, I can't wait to reverse the two sides of the ledger.  ;-)

The countdown has entered the final stage...


NoNonsense Landlord said...

I am getting close too. I want to pay off another $160K mortgage between now and next year. I will have a bit more surplus cash than you, but it really doesn't take much to live on.

Once your own mortgage is paid off, you can get by with a lot less.

Good luck! I have 329 days left to go before I am out of the cube farm!

Pay off my rentals said...


I'm rooting for you. That's a lot of mortgage to pay off in less than a year, but you're absolutely right about being able to love on a lot less when necessary

Thanks for the support, NNL!

p.s. Feel free to send some of that extra cash flow my way ;)

REIGuy said...

I'm in the same boat as you. I had 5 mortgages to pay off of ~$50k each and I'm down to only about $40k total.

I'm curious how consistent your cash flow from your rentals is.

I have a property management company handle mine. I assumed that my rentals would follow the 50% rule. (Total rent - 50% for expenses - principal & interest) = profit, but I've found that with $4k/month coming in, I tend to average about $1k instead of $2k a month in profit. For me, $1k a month is great, but if I leave my job and have an $8k roof go bad, that's no income for a year.

cdub said...

That's awesome. I recently relaunched my old wordpress blog that you commented on ages ago... it's now

(it was

It's great that you're so close to your goal... I had to put the whole project on hiatus for a while when S hit the F.