Inspiring Life Design

31 January 2020

How Soon Will I Be Financially Free progress update

It’s been a lot longer than I expected since I last wrote about my progress toward becoming financially free. So it’s high time to give you an update!

The last time I wrote about my progress was back in February 2019. I cannot believe that it’s been nearly a year since then! If you’re curious to know about my baseline for becoming financially free I wrote about this back in November 2018.

If you’d love to know what it would take for YOU to become financially free (and why wouldn’t you be? who wouldn’t love the option to never have to work again?!) check-out these 2 posts on exactly how to do it:

Create Your Freedom Plan - Part One
Create Your Freedom Plan - Part Two (you will also find a free Financial Freedom Plan to download and print out to help you keep on track)

To recap on my current financial freedom plan, I have a 2 pronged approach:

Financial Freedom through investments: Saving and investing to build up a large investment pot
Income Freedom through online business income: Creating my own small businesses (mostly online) to provide me with regular income. I have previously written about my progress with this in my Income & Profit reports - although it’s been a little while since I last wrote an update (hopefully I’ll be able to rectify that soon!)

Today’s post provides an update on the first part of the above approach: Financial Freedom through investments.

Building Up My Investment Pot For Financial Freedom

I know exactly how much money I need to amass to cover all of my current expenses using the 4% safe withdrawal rate. I intend to build up an investment pot that will cover all of my expenses (even though I will be receiving money from my passive income side hustles). Why? Because I would like the security of having all of my expenses covered by investments, just in case my businesses stop generating me money.

I use percentages to update you on how I’m doing, rather than sharing the actual monetary amounts. The reason for this is that I’d like to keep some of my personal finances private. I want to document my progress toward being financially free, and share this with you in the hope that it might motivate you to do similar, using percentages seems like a good anonymised way of doing it.

To explain how this works, if we consider my ultimate financially free number (the amount which would allow me to never work again, by withdrawing up to 4% each year) to be 100%, then I can refer to the amount I currently have invested as a percentage of this. For example, if my financially free number was £100,000 and I currently had £20,000 invested, then I would be 20% of the way to achieving my goal.

What My Savings Are Invested In

When I talk about my existing investment pot, I can tell you that it is currently made up of a mix of the following:

Pension
Stocks & Shares ISAs
Premium Bonds
Instant Access Savings account
Shares
Crypto currency investments (not many of these now - I’ve sold most as it’s a bit too volatile for me!)

The Three Different Ways I Track My Progress

There are 3 ways I’m tracking my financial freedom progress:

Through investments covering my expenses
Through business income covering my expenses (ie income hustles)
Through a combination of the above two

1. Progress To Being Financially Free Using Just My Investments

This is the percentage of my “financially free number” I currently have invested. This varies month to month based on the amount of savings I add to my investments and the latest valuation of my investments. Since I am invested in a range of funds, shares and gulp crypto currency (only a small amount) the value of my investment goes up and down.

If I were to write this out as an equation it would look like:

Investment Pot / Financially Free Number x 100

Result

As at January 28th 2020 my investments totalled 39% of the goal I am striving to reach. Just under a year ago my percentage was 32% so this is a 7% increase. I’m very happy with that.

Progress to financial freedom from investments chart

2. Progress To Income Independence Using Profit From My Businesses

This measure looks at the profit I’m making from my income hustles, as a proportion of the total annual expenses that I need to cover.

I calculate this by taking the average profit made over the past 12 months and multiplying this by 12 to get my annual profit. I then work out what percentage of my annual expenses my annual profit covers.

Putting this into an equation looks like this:

Annual Profit / Annual Expenses x 100

Where Annual Profit = average(last 12 month’s profit) x 12

NOTE: As my profit increases this calculation will eventually include tax and national insurance considerations, however at the current level this income would fall within the tax free/NI exempt brackets.

Result

As at January 28th 2020 my annual projected profit covers 48% of my total annual expenses.

In November 2019 this figure was at 12% so this is a massive jump up. That’s because I discovered a product that I was excited to become an affiliate partner for last year (because it aligns with my values and what I’m doing here at Inspiring Life Design), and as a result of people investing in the program I made some commission. It’s yet to be seen whether I will be able to repeat this level of income during 2020, because I am still new to affiliate marketing, and who knows - maybe it was a fluke last year, time will tell!

3. Progress To Becoming Financially Free Using Combined Approach

In my third calculation I track how close I am to being financially free using a combination of my current investments and profit from my income hustles.

To work this out, I subtract my annual profit from my annual expenses to get the annual amount I still need to cover using withdrawals from my investment pot. Then I multiply this amount by 25 to work out the total investment pot I need to amass to survive using the 4% withdrawal rule. Finally, I can use this figure to work out what percentage my current investment pot is.

In terms of equations this looks something like this:

Investment Pot / Adjusted Financially Free Number x 100

where Adjusted Financially Free Number is: (Annual Expenses - Annual Profit) x 25

Result

Now this is an exciting result for me. As at January 28th my progress to being financially free using this approach is a whopping 75%! That’s a huge 38% increase since the last update in November 2018.

If I need any incentive to grow my business helping others create income streams using authentically aligned affiliate opportunities, then being just 25% from my combined financial freedom target IS THE PROD I NEED!

To be clear, when I’m happy that my projected income can consistently allow me to hit 100% using this combined approach, then I no longer need to work for anyone else! I can continue to be my own boss, working from home, with my own rules. Which is my dream position to be in.

Take a look at this beautiful chart…it’s a thing of beauty:

Combined investments & income stream approach to financial freedom chart

Changes from Baseline

So within the last 11 months things have moved quite a bit:

Progress toward being financially free using investments alone: Increased from 32% to 39%
Progress toward freedom using income hustles: Increased from 12% to 48%
Progress toward being financially free using investments & profit from hustles: Increased from 37% to 75%

I’m delighted with this progress. My challenge over the coming 12 months is to work on my online businesses to consistently bring in an increasing amount of income. Key areas for me to target will be finding affiliate partners to work with, where their products are perfect for my customers getting set-up in online business (such as email list provider, funnel builders, design & meeting tools etc).

Hopefully the markets will also be kind this year and help my investments to grow. I do not withdraw anything from my investments while I’m in this growth phase, so as my pot accumulates it will hopefully lead to a snowball effect. Of course, if there’s a big market crash this year it will affect how my projections look, but I’m not planning to withdraw anything in the short term so I can hopefully ride out the storm…

That’s it for this financially free update. If you have any questions about this side of my financial independence journey then do let me know in the comments below…