My goal is to be financially independent by having assets (investments and or business) that generate enough passive income to cover my essential expenses by age
65 43 40 39.
More detail and insights into how I am managing this are are provided in my book which is available here.
I am based in the UK and have been tracking how much of my essential expenses would be covered by the projected passive income I can receive from investments. Progress since 2013 is shown below. My current expenses coverage and average savings rates are also shown and will be updated monthly based on my latest calculations. To determine the coverage proportion, I used the 4% Rule which stipulates that a diversified investment portfolio is unlikely to be depleted when a maximum portfolio value of 4% (Safe Withdrawal Rate) is withdrawn per year.
The expenses coverage proportion is the ratio of the Safe Withdrawal Rate to personal expenses. I use this to determine how much Financial Independence (FI) I have achieved. When the coverage proportion reaches 100%, Financial Independence is attained. View my current and previous progress here.
As the chart shows, in 2013 less than 2% of my annual expenses could be covered by withdrawing 4% of my portfolio. This figure has steadily risen to over 20% in January 2017 and 34% in 2018. As of January 2019 the rate has slowed a little due to some market volatity but this can be overcome by maintaining a high savings rate. Progress seems slow at first but if you are patient the gains will become more and more significant. This is the power of compounding investment returns.
To achieve the necessary growth I have applied the knowledge I have gained from various sources such as the writings of Warren Buffett, Bogleheads, Vanguard Investments and the personal finance blog community to develop my investment portfolio. The chart below shows a snapshot of the portfolio asset allocation today. Annual returns for the fund since June 2014 have been roughly 14%. I describe my approach and strategy clearly in a no nonsense quick guide to setting up a financial independence portfolio here.
The portfolio consists of a number of stock market index funds. To view the top 5 companies in each of the funds click below: