Achieving financial freedom is the ultimate goal in personal finance land. Once you achieve financial freedom you can do anything you want, whenever you want. You can also say anything you want without fear of getting fired.
In 2009, when I launched Financial Samurai, I helped kickstart the modern-day FIRE movement of retiring early and living a different path. I was a struggling banker who disliked my job and wanted out. Three years later in 2012, I made it happen and left. Today, the movement has taken on a life of its own.
To be absolutely free, you need to develop multiple income streams so that when the inevitable change happens, you'll be covered. I've been trying to build a good amount of passive income since I first graduated college in 1999. Back then, I had to get into the office by 5:30 am and stay until & 7 pm. I knew I couldn't last in the finance industry for decades.
To achieve financial freedom, I first recommend you start with the end in mind. What makes you happy? What do you want to do with your life? From these questions, now you can derive how much money you honestly think will allow you to be happy and free.
Finding Financial Freedom By Answering Key Questions
Once you've dug deep to answer these two important questions about financial freedom, you can then start building your income goals.
What makes me happy?
Family, friends, experiences, travel, freedom to say and do what I want, sports, relationships, the online community, hot tubbing with drinks, food and enough money to not have to worry. Good old nostalgia really makes me happy too.
There's also a happiness conundrum that plagues many of us. Even though you could have it all, you might not still be fully happy. Part of the reason has to do with being able to constantly do something fulfilling.
What makes me unhappy?
Racists, bigots, haters, lying politicians, bad bosses, cronyism, inequality, people who say one thing and do another, thieves, and zealots who impose their will on others. I knew that if achieved financial independence I wouldn't have to associate with these types of people any longer.
What do I want to do with my life?
I want to spend my life doing purposeful work that helps others achieve financial freedom as well. There is nothing professionally more gratifying to me than seeing some get their financial lives in order. Thank you comments and e-mails has kept my motivation to write alive since 2009.
Writing on Financial Samurai all these years has given me tremendous fulfillment and purpose. Financial Samurai is my ikigai, as the Japanese call it. It is my reason for being.
I plan to continue writing until my kids are old enough to understand what they want. In fact, I've branched out from writing online and publishing ebooks to writing a traditionally publishing a book.
How much money do I need to achieve what makes me happy?
In order to be happy, I used to need anywhere from $8,000 – $15,000 a month after taxes for just me and my wife. Now that we have two young children to care for in 2024+, we likely need between $25,000 – $30,000 a month to feel comfortable financially. We will be living our remaining years in San Francisco or Honolulu, two of the most expensive cities in America.
Thanks to inflation, I've calculated that a family of four needs to earn about $300,000 a year to live a middle class lifestyle in a big city. Therefore, my goal is to consistently generate around $300,000 a year in passive-to-semi-passive income to take care of my family.
With $25,000 a month, I can afford private grade school tuition for two if necessary. Our family can go travel for 8-10 weeks a year no problem. I could also get huge and eat whatever I want. $300,000 provides a good lifestyle practically anywhere in the world.
I suggest you think about an after-tax monthly income number you'd like to achieve as well. Once you've got that number in mind, strategically plan on how to get there.
For now, it's time to open up the kimono and see what can be produced after over a decade of saving and investing. This is a long post, so make sure you go to the bathroom first!
Constructing The Financial Freedom Portfolio
The first step to financial freedom is to save aggressively. If the amount of money you're saving each month doesn't hurt, you're not saving enough!
I've been saving 50%-75% of my after tax income every year since 2009. Even after retiring in 2012, I continue to save at least 50% of my retirement and online income out of habit.
I try not to be a miser and have done my best to try and spend money on things I enjoy e.g. vacations, food, a home, and tennis.
Where I did “sacrifice” was not buying higher-end new cars (all but one were second hand and under $20K) and going on less exotic vacations. Amanpulo I'm coming for you eventually!
Below is the composition of my financial freedom portfolio in 2012, the year I left work behind for good. I share some thoughts at the time on what I was doing to help you make better decisions today. I'll then share my latest 2021 passive income portfolio.
Financial Freedom Portfolio When I Retired In 2012
Here was the portfolio that helped me achieve financial freedom at 34 in 2012. I accumulated a net worth of about $3 million that produced about $80,000 a year in passive income.
CD Interest Income
~$2,800/month. My CD interest income can almost fulfill my lower end of my target income range if I were a single guy. This is income that will keep coming automatically for another 5-6 years and I don't have to do anything except renew come expiration.
Back in 2012, the CD interest rate was between 3.75% – 4% versus my primary mortgage at under 3%. This negative spread was wonderful. Ben Bernanke allowed homeowners to live for free.
Online Interest Income
I had about $25,000 in a high yielding online interest income account at 2%. Although that's only $500 a year in interest, that's still 100X better than the national 0.1% average money markets provided.
It's easy to withdraw and deposit money in an online savings account like CIT Bank. Don't let your liquid cash sit in a bank that pays you nothing!
Stock Dividend Income
I generated about $1,200/month in stock dividend income. I should have invested more in stocks, but I was already leverage to the stock market through my career.
Companies have been cutting their dividends aggressively since 2008 to preserve cash. Only now in 2012 are we seeing signs of companies raising their dividends eg Wal-Mart and American Express.
To be clear, my dividend income all comes from active investments. None of my dividend income comes from my 401K because they can't be touched until 59.5.
Rental Property Income
~$1,500-$3,500/month after expenses e.g. net operating income. The range in income property has to do with a vacation rental which swings huge during the summer and winter months, and fades during the months of May, October, and November.
I'm basically averaging about $2,500/month per year total. The income is very reliable, since everything is well maintained. One of my rentals was bought 10 years ago, and the rent is over 4X the mortgage interest now. The mortgage can be paid off, but the rate is only 3.125%, and the interest is an expense deduction so I'd rather have the liquidity.
Once the rental property mortgages get paid off, then rental income will increase further. Thanks to amortization and operating expenses, the taxes I have to pay on my rental income is next to nothing. I plan to start paying taxes on my rental income after I retire and get into a lower income tax bracket.
If you haven't refinanced your mortgage recently, check the latest rates with Credible. Credible is my favorite lending marketplace where qualified lenders compete for your business. It's free to get a real quote.
P2P Lending
I've been investing with Prosper since 11/2012 and have earned a consistent 7-8% return each year.As my CD interest income declines as they come due in 207, I plan to invest more and more of my 4% yielding CDs in P2P lending.My goal is to create an additional $500-$1,000 in income through social lending.
Various Passive Income Sources Reviewed 2012
The total passive income generated in 2012 for financial freedom was $6,500. The blue sky column is achievable if it's a bull market and all my rental property mortgages are paid off in about 5 years.
After 30% tax, my base case passive income is around $4,550 a month. The irony is, if I didn't work for a living, my after tax income would probably be over $5,000 a month due to a lower effective tax rate of 20%!
Another solution is to just move to one of the seven no income tax states upon retirement. Base after tax income will therefore rise to about $5,500/month and $8,800/month for blue sky. California's 10% income tax is a killer! $4,550 is not bad, but still far short of my goal of generating up to $15,000 a month in after tax income.
At the rate I'm going, I'll have to probably work another 10 years, so screw that! Instead, I've been cultivating other income streams that will allow me to work 2-4 hours a day on my own terms.
Savings As A Buffer To Passive Income
In 2012, I saved up 17 years of living expenses. The 17 years of savings excludes the use of all passive income. In other words, I could just live off my passive income and never touch my savings if I really started being more frugal.
I'm sure I could cut expenses such as my credit card bill, and sell my primary residence and downsize to make my savings last forever. However, that's too disruptive and decreases the quality of my life, which is the wrong direction. The plan is to stay conservative, not touch savings, and build passive income to survive.
Remember, the thesis of “How To Retire Early And Never Have To Work Again” is that all one has to do is save 55%+ of their after tax income for 18 years from ages 22-40, and s/he will have 20 years of living expenses covered to not have to work until government assistance kicks in.
This is a very conservative assumption since most people will work from ages 40-60 after retirement, and will have various side income streams. Plenty of folks will also find a partner to pitch in and share the expenses.
I'm not including my 401K savings/investments as part of passive income. I treat all government tax deferred programs as write-offs since the Evil Empire can easily take all our money away to fund their egregious spending.
The 401K and IRA, if you are so fortunate to not get discriminated by the government to contribute, should be a buffer against your savings. Max out your 401K and shoot to save at least 20% of your after tax income a month. Here's how much I believe everyone should have in their 401Ks at different ages.
Active Income Streams As A Buffer To Savings And Passive Income
When I was deciding to retire in 2012, I also thought a lot about potential active income streams just in case things didn't work out. Before you achieve financial freedom and leave your job, you must also account for all your active income opportunities.
My active income streams in retirement included:
Tennis Teacher
I can teach tennis for about $40 – $60 / hour. In fact, I've often toyed with starting my own tennis instruction website and supplement my passive income with 80 hours of teaching a month ($3,200).
I've also fantasized about being a tennis instructor at the Four Seasons Resort in Bora Bora. Teaching tennis on occasion is nice spending money, but something I do more to have fun, exercise, and meet cool people. Tennis lessons at private clubs are around $80-100 an hour, so in a way, I feel like I'm doing a public service.
I also ended up becoming an assistant high school coach for three years. It only paid $1,100 a month, but we ended up winning back-to-back Northern California Sectional Titles. Before I arrived, the school had never won even one NCS title! That was quite a fulfilling experience that went beyond money.
Trading Portfolio
I have a trading portfolio which I like to play around with on Fidelity to keep me engaged with the markets. Investing is in my blood, and I've been doing so for the past 15 years when Ameritrade and Charles Schwab first went online.
There were some major successes and epic failures in the beginning. Nowadays, I'm more conservative, but I can still easily lose money as I can make money.
The reason why I don't talk about specific growth stocks too much and investment strategies is because I don't want you crazy kids to follow everything I do and sue me for giving you bad stock advice.
Instead, I highlight my market predictions and give you some overarching thoughts as to why I am buying and selling the markets.
Online Income
I can always better monetize Financial Samurai if I really focused on more business partnerships. When I left work in 2012, Financial Samurai was generating around $2,000 a month or so. It was a nice amount of supplemental income for retirement with the potential to grow.
In 2023, Financial Samurai now generates enough income to provide for my family of four in San Francisco. However, the income is anything but passive. This post, for example, has taken over 20 hours to write!
If you enjoy writing, creating, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog in 15 minutes like mine. Everybody should at least brand themselves online.
Why should LinkedIn, Facebook,or Medium own your name when someone searches for you? Own you and parlay your platform into consulting gigs and new work opportunities at the very lease.You never know where the journey will take you. Hard work is worth it because it takes no skill.
Personal Consulting(no longer)
I launched Financial Samurai ConsultingServices. The main service is offering personal finance consulting, career advice, severance negotiation, and resume analysis.After writing over 2,200 personal finance articles, and reaching financial independence myself, I believe there is demand for financial consultation.
In fact, there's actually too much demand. I've limited my consulting to just one client a month. I don't want to raise prices further as it's already relatively high.
Financial Tech Consulting
In January, 2014, I began consulting for a digital wealth management firm called Personal Capital (now Empower) based here in San Francisco and Redwood City.
I love how they are disrupting the traditional wealth management industry with their free, DIY financial dashboard where everybody can management their net worth, track their expenses, and examine their investment portfolios for excessive fees. I highly recommend signing upfor their free financial toolsto manage yourwealth.
They've got a great portfolio fee analyzer that highlighted I was paying $1,700 a year in fees I had no idea I was paying. Their Retirement Planner is also the best i've seen given it uses your real expenses and income you've linked up to calculate how your financial life will be in the future. I've been helping build their content and brand online 25 hours a week. It's been a blast learning about the Silicon Valley world.
Starting in 2024, I plan to do more part-time consulting given my daughter will be attending school full-time. After 10 years of early retirement, and five years of being a SAHD, I decided to give up on early retirement to help fill the void.
Bonus Income To Help Achieve Financial Freedom
Rich Spouse
One of the secrets to early retirement is having a working spouse. This is sometimes called “WiFi” or Wife Financial Independence. You can do jack doo doo and claim to the world how you retired early, so long as your spouse continues to work and provides you with goodies and healthcare. It's no joke that many people make it a mission to look for a wealthy spouse.
Private Equity
I've currently got one private company investment totaling close to six figures. I've written it off to zero because so rarely do these private equity companies exit for a nice profit. However, the company has been around for 6 years and survived the financial crisis. Hence, perhaps there is a chance I will not only get my money back, but also get a solid internal rate of return down the road.
I've also invested heavily in venture capital. I want to find promising private growth companies that could turn into the next Google or Apple. With artificial intelligence booming, I particularly like to invest in venture capital funds investing in AI.
Check out theInnovation Fund, which invests in the following five sectors:
- Artificial Intelligence & MachineLearning
- Modern DataInfrastructure
- Development Operations(DevOps)
- Financial Technology(FinTech)
- Real Estate & Property Technology(PropTech)
Roughly 35% of the Innovation Fund is invested inartificial intelligence In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much.
Private Real Estate
During the financial vomiting period of 2008-2009, I invested $50,000 into a distressed global real estate fund which was buying property at 15-30 cents on the dollar. The fund was a private offering to a certain group of accredited investors. The fund is up about 120% in three years and spits out a reasonable 4-7% dividend yield.
Once the fund is liquidated in several years, I calculate a roughly 25% IRR. Looking back, of course I wish I had invested more. It's just hard to drop dimes when things are blowing up left and right.
Today, I've invested $954,000 in real estate crowdfunding. It is a more efficient and easier way to invest in real estate across the country. With mass migration trends towards lower cost areas of the country due to technology and the coronavirus, I want to invest in this long-term trend.
My favorite platforms are Fundrise for non-accredited investors and CrowdStreet for accredited investors. Fundrise offers diversified funds where you can dollar-cost average into. CrowdStreet mainly offers individual deals where you can build your own select real estate portfolio. Both are free to sign up and explore.
The Federal Reserve
Post pandemic, the Federal Reserve has helped accelerate the path to financial independence. First, the Fed cut rates to near zero and boosted our real estate, stocks, and other investments. Then starting in 2022, the Fed aggressively increased rates. As a result, everyone can now earn a risk-free 5%+ in money market funds and Treasury bonds.
It's much easier generating more passive income thanks to the Fed. However, the key is for the Fed to start cutting before a bad recession wipes out a lot of gains in the stock market and real estate market.
Primary House Rental
I've been wondering whether I should sell my house or rent out my house due to the social media craze which has formed in the SF Bay Area. If I decide to rent out my house and downgrade to a normal 2/2 apartment, I would probably generate an additional $3,000-$4,000 in monthly income after paying rent for my new place.
Rents have gone bonkers, especially for single family homes in good areas in San Francisco. The problem is, I love the house and the location. Life is about living in the moment, and I don't want to live in a crappy rental just to save or make more money.
The latest as of 2024 is that I rented out my primary residence of 10 years for $8,300 a month for several years, sold it for $2,740,000 in mid-2017 and bought houses in Golden Gate Heights, San Francisco in 2014, 2019, and 2020.
Buying panoramic ocean view properties in San Francisco is one of my top investment buys for the next 30 years. Two of these houses are now rented. The reality is, the best duration to hold real estate is for as long as possible.
Severance Negotiation Book income
Since retirement, I've released several updated editions of my ebook How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. It's recently updated and now over 200 pages long with new case studies, resources, and more.
The book helps employees profitably quit their jobs by providing a framework to negotiate a healthy severance package. I managed to negotiate roughly six years worth of living expenses after engineering my layoff in 2012. Never quit, always get laid off!
Pn July 19, 2022, I published a traditional book with Penguin Random House called, Buy This, Not That: How to spend your way to wealth and freedom. It became an instant WSJ bestseller and may one day generate royalties.
Total Combined Income Streams For Financial Freedom
With multiple income streams you not only develop financial independence, you also achieve as well! You don't have to worry about pissing anybody off anymore, or feeling guilty about doing things for money you otherwise wouldn't do.
You've gone from being someone who is second guessing everything, to someone who does what feels right. Nobody can ever take away your passive income you've spent years building.
You can now enjoy fake retirement to its fullest now! I’ve recently been reflecting on 10 years of fake retirement and I think it’s been a wonderful experience so far. Partially things to a bull market and the growth of Financial Samurai, I’ve been able to consistently earn over $300,000 a year and passive income for the past three years.
Experiencing Financial Freedom And Eradicating Fear
With multiple income streams you not only develop financial independence, you also achieve mental independence as well! You don't have to worry about pissing anybody off anymore. Nor do you have to feel guilty about doing things for money you otherwise wouldn't do.
You will have enough F-YOU money to say what you want and do as you please!
You've gone from being someone who is second guessing everything, to someone who does what feels right. Nobody can ever take away your passive income you've spent years building.
It takes a damn long time to build a livable passive income stream nowadays thanks to Ben Bernanke's monetary benevolence. As a result, CD interest income is not good enough and my focus will be more towards online income, rental properties and creating a larger dividend portfolio.
Time To Boost All Your Passive And Active Income Streams!
It's important to not co-mingle your funds if you want to build significant multiple income streams. With passive income, you've got to pretend you've got no other income. That way, you stay focused and don't start getting lazy with your mission to achieve freedom.
If you make $100,000 a year at your day job, pretend you make ZERO. This will help you give everything you've got to find other income sources.
If you make $2,000 a month from your online properties, ignore it completely. This way, you can really develop your day job income, rental income, dividend income, interest income and so forth. Compartmentalize!
You must compare apples to apples eg not passive income to online income. Everyday I wake up, I pretend I have next to nothing in my bank accounts, trading accounts, 401K, and Paypal. As a result, I'm super motivated and find the journey incredibly rewarding and fun.
I recommend all of you to start saving aggressively. Build a CD ladder. Invest in rental properties so your kids don't hate that you didn't 30 years from now. Look into dividend yielding stocks. Work harder at your job. Leverage your skills to teach others. Finally, start a small business.
You've got to do your due diligence and pounce on investments you like with focus. Build buffer after buffer of income streams.
I can promise you that if you do all these things, in 10-15 years, you'll be set for life. And if you can't figure it out and need guidance, let me know!
Achieving Financial Freedom With A Family Is Hard
Here's my latest passive income streams for 2024. My main move was diversifying into real estate crowdfunding as I was overly concentrated in SF property. Ultimately, I'd like to generate between $350,000+ in passive income to live the life we want.
Given both my wife and I want to be stay at home parents, I am very focused on saving and investing as much money as possible to generate passive income. Unfortunately or fortunately, in 4Q2023, we bought a true forever home. As a result, our estimated passive income will decline by ~$150,000 to $230,000.
Given our expenses are over $265,000 a year, we are technically no longer financially independent. Given the gap, I plan to do some part-time consulting. My hope is that by 2039, I will once again be financially independent.
I had a great 12 years of financial freedom. But I figure, once my kids go to school full-time starting in September 2024, it's best to start working again. I expect college to cost $750,000 in 2036, when my son is ready to go!
Recommendations For Achieving Financial Freedom
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In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use theirRetirement Planning calculatorthat pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely check to see how your finances are shaping up as it's free.
I've been using Empower since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Achieve Financial Freedom Through Real Estate
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. The -32% decline in March 2020 was the latest example. However, real estate held steady and appreciated in value then.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
Take a look at my two favorite real estate crowdfunding platforms that are free to sign up and explore:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and manages over $3.3 billion for 500,000+ investors. You can easily dollar-cost average into Fundrise funds with just a $10 minimum.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $954,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
