40% Financial Independence – What it took to get here

Nearly halfway to financial independence. This is what I found out when I recently updated my financial metrics. The exact figure is 40.14% but this varies all the time as the stock market has its ups and downs. In this article I will reflect on my journey to get to this stage, what I have learnt and what may be in store in future.

The Calculation

I determined the figure by calculating my net worth and relating it to my yearly expenses using the 4% rule. This rule stipulates that you need to amass a diversified portfolio of 25 times your annual expenses in order to cover your expenses for decades. Real time updates of my progress are available on the goal progress page.

The Process

At the beginning, when I got my first job, I made a lot of financial mistakes like maintaining credit card debt without paying it off. Having debt is like carrying a huge weight on your back when you are trying to climb a mountain. At that stage, my net worth was negative, yes – less than zero. I did not care nor know about this as I was busy preoccupied with keeping up appearances and living large. To make things worse I took part in some substantial lifestyle inflation.

After three years, I had a lightbulb moment, learnt about financial independence and set about to improve my finances. By applying a number of strategies detailed in this book the trajectory in net worth was increasingly high. Key to this was understanding the differences between assets and liabilities. This has been critical. It has taken less than 6 years to get from broke to get to this point of 40% financial independence.

What does it mean

It is perfectly reasonable for anyone with an average income to achieve financial independence in ten to fifteen years. For these first few years, progress has seemed slow for me. This is to be expected, as can be seen on a compound interest calculator.

Frustrating as it is, it is important to stay focused and keep in the game; before you know it your portfolio will start behaving like a snowball, gathering speed and mass at an ever increasing pace. I have seen evidence of this in a number of personal finance metrics which I track regularly. An interesting metric is the quarterly net worth gain in the chart below.

My quarterly net worth gain

As you should view your investments as ownership in real businesses, as the CEO, it can be useful to review them every three months. As you can see, the compound effect is demonstrated by a general trend of increasing gains at every point.

The exception is a couple of major dips: first was a major expense for a car purchase in 2012 and secondly due to the recent volatility experienced in the global stock markets in 2018. It is not to  worry as even the best investors are affected by such dips as the second one too and it is often an opportunity to invest more. The following chart shows a change in Warren Buffett’s net worth, with a corresponding drop in the first half of 2018.

Warren Buffett net worth chart 2012 – 2018

The future

My plan for the future is to stay the course, sticking to the strategy and keep learning more. A couple of useful books I want to revisit are A Random walk On Wall Street and The Bogleheads Guide To Investing. These books fundamentally changed my though process for the better and are definitely worth buying.

If the compound effect continues at an exponential rate, what I achieved in the past six years will be achieved in the next three! By that stage there will be more life options available and more crucially the freedom to do what you want to do and when.

Useful Resources


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