Ms. Happy just got her second Master’s degree this May! Hooray! This is not just a moment to celebrate her academic achievement, but also an important milestone on the financial independence path: become worthless!
1. Milestones on Your Financial Independence (FI) Road
There are several milestones along the way to achieve FI and milestone #0 is to become worthless (Yes, as a Computer Scientist we always count from zero). Here is a rough breakdown of Ms. Happy’s finance and she will keep updating every quarter along the way. Being as transparent as possible means that she is fully committed to the FI goal. And it is fun to see your progress by sharing it with like-minded people.
- Student Loan: $107,621
- Investment: $22,621
- Saving: $17,879
Personal Net Worth: $-67,121 (As for June, 2018)
2. Achieving Financial Independence is All About Your Saving Rate
There is a misunderstanding about FI for newbies in this area, which is you have to earn a lot of money in order to achieve it. This is not necessarily true. I see people with 5-figure income achieve their goal with relentless saving effort. The game is all about how much is left in your account each month. It is great if you have a 6-figure income, but if you have to spend $12 on a cocktail on weekend to match up your life-style, I am not sure where you are heading to.
Before Ms. Happy graduated, she has a relatively steady cost of living. She uses the Mad Fientist to track her spending together with income and investment stuff. Each moth, her living expenses are normally within the range of $700 and $1200. Some month, the cost can jump really high(e.g: earlier this year I did a tooth surgery) but it is mostly due to some one-time event (and later I will write a post about how much you should set your emergency fund).
For now, before she settles her first full-time job, Ms. Happy works 3 days/week and earn $3200 as a programmer. Even though this is not a high income, she can still save $3200 – $950 (average of $700 and $1200) = $2250. In other word, her saving rate is $2250 / $3200 = 70.3%
To be fair, she gets big family support from Mr. Frugal for postponing family responsibility for now (house renting, electricity fee, etc). Her saving rate will drop to 26% if 50% of the family responsibility is taken into consideration. The point is if you earn less, you need to figure out a way to save more. Ideally, you want to save 2/3 of your income so that you can achieve FI faster.
3. Be creative to Generate Passive Income
Having a full-time job does not necessarily mean that you should stop thinking of ways to generate passive income. There are so many ways that you can utilize your free time and resources.
- Start a blog or podcast
- Start an on-line store, e.g: Etsy, Ebay, etc.
- Start hosting Airbnb if you have a free room
Recently, I started to host a class on Airbnb about how to make sourdough bread, and that was a lot of fun! I will write another post about my Airbnb host experience in the future. If you have any idea about how to generate passive income, I am excited to learn too!