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Declare Your Financial Independence Day


Declare Your Financial Independence Day!Ahh… I love Independence Day! This is my favorite holiday of the year, by far. Mrs. RB40 and our son love Christmas, but 4th of July is way better. The weather is awesome and I could putter around the house all weekend. It’s the perfect holiday. I guess I just don’t have the same attachment to Christmas like most people. Christmas feels so commercialized now. It’s all about spending money and it’s bound to be cold and wet. I can’t BBQ in that kind of weather! This year, we’re not going anywhere because our house is still a mess. We moved earlier this year and we are still trying to organize everything. Anyway, we’ll enjoy Independence Day as usual. I love it.

Life is good in the summer and it’s easy to take freedom for granted sometimes. I am very grateful that we live in a country where we’re free to do almost anything we want (within reason). The US has its share of problems, but they are relatively minor compared to many places in the world. Most of us have the opportunity to build a very comfortable life here.

Unfortunately, the comfortable life is an illusion for almost all of us. Americans work more than ever before, but we are not any happier. We’re slaves to the consumerist culture. Our livelihood is dependent on the job, the boss, the fickle economy, and whichever way the wind blows. That’s not real freedom. However, there is a way out. It’s called financial independence. Once you get there, you will have way more personal freedom. So, why don’t join me and declare your Financial Independence Day?

Declare your Financial Independence Day

What does it mean to declare your Financial Independence Day? It means you’ll try to achieve financial independence.

Financial independence (FI) is a concept many aspire to, but only a few achieve. FI is difficult because it can only be achieved with deliberation and perseverance. It is a simple idea, but the execution can take years. Here are the 3 essential steps to financial independence (more in-depth article through this link).

  1. Track your finance – Most people have no idea what they spend their paychecks on. Money flows through their hands like water. The first step toward financial independence is to figure out how to cut back on unnecessary expenses. This can be done by tracking your spending carefully and getting rid of the expenses that don’t add happiness to your life.  The goal is to spend less than you make. As long as you can achieve this consistently, your finances will keep improving.
  2. Save and invest as much as you can – The next step is to save and invest as much as you can. You need to take step 1 to the next level. You need to spend a lot less than you make. This will determine how fast you can reach FI. If you save 10% of your income, it will take 50 years to achieve FI, i.e., a lifetime. You can reach FI in a much more reasonable timeframe if you can save 50% of your gross income.
  3. Keep at it – Financial independence is a long game. You need to keep saving and investing consistently. Eventually, your passive income will exceed your expense. That’s financial independence. There are other ways to define financial independence, but this is the safest. You will never run out of money if your passive income covers your cost of living. It’s best to build in a little margin, of course. Your expenses will inevitably increase over time.

Our Financial Independence Journey

Now, I want to share where we are on our FI journey. Our main goal is to generate enough passive income to exceed our expenses by 2020. Mrs. RB40 plans to retire then and it would be ideal if our passive income can cover our expenses. Today, we support our lifestyle with the combination of Mrs. RB40’s job, passive income, and my online income. Once she retires, then her income will disappear. Also, online income is volatile. It can range from $30,000 to $80,000 per year. I can’t count on it when the next recession hits. Passive income should be more stable than my online income, but we’ll have to see how it goes.

Coincidentally, July 4th is the halfway mark of the calendar year. It’s a great time to take stock and see if we’re on track. I do this by checking our FI ratio* which I update every month in the monthly passive income report.

FI ratio = passive income / expense

Once our FI ratio consistently tops 100%, we’d be set financially for the rest of our lives. Here is how we generate our passive income. I update our passive income page every month now so check it out if you’re curious.

Passive Income Report

passive income

Our passive income did very well over the past few years.

  • 2017 was the first year our passive income exceeded our spending. It was great.
  • 2018 was a high expense year for us. We spent more than usual on travel and we also got a new HVAC. Fortunately, our passive income was also really good. We were really close at 99%.
  • 2019 looks good so far. We moved and our housing expense decreased. That helped a lot. Our passive income decreased due to our property consolidation. However, our FI ratio should be good this year.

Let’s go through each line item in detail.

  • Real Estate Crowdfunding – Our passive income is doing okay in this category. I plan to invest more in RE crowdfunding when we have excess cash. You can read more detail at my real estate crowdfunding page.
  • Rentals – We’re consolidating down to just one rental unit this year. The other units are on the market. I need to go out of town more often now and I can’t be a landlord.
  • Dividend Income – Our dividend income target is $12,000/year. We’re on track here.
  • Interest–This is the interest from our banking accounts.
  • Retirement Accounts– Our retirement accounts are all invested in low cost Vanguard index funds. We are a bit behind here because most of the dividend will be paid out in Q4.

You can sign up with PeerStreet through this link if you’re interested in real estate crowdfunding. My experience with PeerStreet has been good so far, but your mileage may vary. You can browse their projects and see if real estate crowdfunding is something you’d like to try.

FI Ratio

What about the FI ratio? How are we doing so far?

FI ratio = passive income / expense

2019 FI ratio = $23,614 / $20,356 = 116%

Our FI ratio is surprisingly good this year. This is due to our lower than usual spending. We’re being very frugal this year because our condos are on the market. We also haven’t travel yet. Our expense will be higher in the 2nd half of 2019 due to traveling. However, I’m optimistic that our FI ratio will continue to be above 100%.

Somewhat passive income

I don’t count my online income as passive income because I work about 15-25 hours per week. Working part-time after retirement is a really good thing, though. You have something to do and bring in a little active income and a reason to get out of bed. Online income is a big part of my early retirement strategy. You don’t have to stop working completely after you retire. Ignore anyone that says you have to stop working completely to enjoy retirement. That’s ridiculous.

This year, Retire by 40 isn’t doing as well as in 2018. In the first half, our revenue was $23,218. That’s not bad, just not as good as last year. Our affiliate income decreased tremendously in 2019. One of our top affiliate went out of business and that loss was a big hit. Our other affiliates are also not converting as well as in previous years. That’s the problem with online income. It’s not stable and you never know how it’s going to be next year. We are still doing relatively well so I can’t complain. My online income is high enough to cover our expense. It’s great to have some redundancy in case there is some problem with our passive income.


Let’s take a quick look at our FI ratio over the last few years.

  • 2015: 54% ($28,415/$53,037)
  • 2016: 71% ($38,222/$54,000)
  • 2017: 109% ($53,664/$49,131)
  • 2018: 99% ($56,918/$56,638)
  • YTD 2019: 116% ($20,356/$23,614)

Here are our targets for future years.

  • 2019: target 100%
  • 2020: target 105%
  • 2021+: target 110%

The FI ratio looks good for the coming years. Our expense dropped significantly from moving to our duplex. The passive income will be lower too, but I think the numbers will work out favorably. Next year will be a pivotal year for us. Mrs. RB40 plans to retire in 2020. Our passive income + my online income should give us a comfortable margin. I’m sure we’ll make it work somehow.

Okay, what are you waiting for? Declare your Financial Independence day and GO FOR IT! Financial independence will take a long time so the earlier you start the earlier you’ll get there. Don’t wait too long!

Do you keep track of your passive income vs expense? The ratio should improve every year if you hope to reach Financial Independence.

If you plan to track your passive income, consider signing up for Personal Capital to help manage your investment accounts. They are very useful and I can get all my passive income data from one site. That’s much easier than logging into every brokerage, banks, and retirement account separately. It’s a great site for DIY investors.

Enjoy the long weekend!

The following two tabs change content below.
Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 99 comments… add one }
  • GYM July 6, 2019, 12:39 am

    Happy Independence Day Long weekend to the RB40 family!

  • Larry from Europe July 5, 2019, 11:49 pm

    Hi Joe,
    I would be interested in hearing your comment on 4% safe withdrawal rate that many FIRE bloggers use. Seems, that you don’t ever have to sell anything with your approach, which is obviously great, but more difficult to achieve.

    • retirebyforty July 7, 2019, 9:35 pm

      Personally, I think the 4% rule is good if you’re a bit older. I’m just more conservative because we have a lot of time left.

      • Larry from Europe July 8, 2019, 2:36 am

        Thanks Joe, I actually found your full article about this topic during the weekend. Sorry, I’m rather new here.

        Your view makes sense. I’m now 38years and just reached the FI when using the 4% rule. However, I’m still working and haven’t made up mind when to stop. I like my job, but I would love to spend more time with my kid and the family. It would be great to generate more buffer, but at the same time, there is limitted amount of time to play with the kid when she’s young, and my mom is not getting any younger…

        • retirebyforty July 8, 2019, 3:43 am

          At that point, I’d try to go part-time if possible.
          You can take a look at our withdrawal strategy here.
          If you put off withdrawal for a few years and work part-time, then the buffer should build itself.
          Good luck!

          • Larry from Europe July 8, 2019, 6:56 am

            Thanks for the link Joe. I think that I’ll continue working still a year or so, to accumulate some buffer. After that I’ll take a long break and concentrate on stuff that I don’t have time to do now. I probably will work later in my life, because work can be fun, but I hope I won’t need to do that for the money. Now is the crunch time to accumulate the buffer.

  • Mac July 5, 2019, 2:18 am

    I am up at 165% so far this year but it has been a result of super strong investment growth (I had some crypto that rocketed and market has been strong so far). If using a 7% average return then I think by Jan 2020 I will be at 100% of expenses, but before I retire I would like to be at 200% (which would enable a safe withdrawal rate of 3.5% (half the 7% of my assumed market return). Once I get above 100% on a consistent basis I would call that inevitable FI rather than FI (as it means no matter what job I have I will be on my way to FI)

  • Jim July 4, 2019, 10:43 am

    Heres a good joke
    RB40: I am spending a lot of money on my kids vacation
    RB40 friend: How much?
    RB40: Four dollars and 2 cents

    ha ha ha

  • [email protected] July 28, 2018, 4:10 am

    We opted to do our Financial Independence in stages based on geography. We live in an expensive city (New York) so Financial Independence here is a much higher bar than elsewhere. We also have rental investments in Florida and moving there would make Financial Independence a lower bar. Finally we have rental investments in Costa Rica and moving internationally is a significantly lower bar. The rentals provide passive income for now but also provide an alternative to hit Financial Independence sooner. When our youngest goes to college in a year, we will be less location-dependent and can choose one of the other locations if we wanted to go full-on FIRE. Independence is about having options, so it’s helpful to look at what changing your location can do to your options — if you live in a high-cost city like we do, relocating is a game changer.

  • Edwin Ruhiu July 20, 2018, 3:44 am

    very good piece

  • FIRECracker July 13, 2018, 1:05 pm

    Interesting. Even though you’re saying your FI ratio is lower than expected, there is always the discrepancy of expenses being pushed to the first half the year (ie. iceland trip)…it could even out as your expense drop during the 2nd half. That’s why I don’t freak out too much if I happen to go over my budget in one month from travelling to a more expensive place–I know it’ll even out when I go to Eastern Europe later on to balance it out. So you could still meet your target at the end of the year.

    Thanks for being so transparent and happy belated Independence Day!

  • Dan K July 11, 2018, 6:40 am

    I’ve just started tracking my passive income and now that my wife is thinking of retiring early, we are tracking our expenses. Let’s see how that goes!

  • Abigail @ipickuppennies July 10, 2018, 10:10 am

    That’s still some pretty fantastic passive income, so I hope you’re proud even if this year’s is less than ideal.

  • Sarah July 9, 2018, 8:37 pm

    It’s funny that you and some others are saying the P2P lending is not working. I’ve been with Lending Club since 2011 and am enjoying a steady 6-7% return. I did find at the beginning that I was losing money. I think it was because I didn’t have enough in my account so that if a loan was charged off, I wasn’t making enough interest to make up for the charge off. I have my IRA in LendingClub and we have a taxable account with them.

    The first time someone defaulted, I felt like they stole my money. Now that I’m earning lots more in interest than losing in defaults, I ignore them!

    • retirebyforty July 9, 2018, 10:58 pm

      Thanks for your input. I’m getting 6.5% and that’s not bad. The problem is that it will get a lot worse once the economy turns south. Also, once you stop reinvesting, the ROI drops. I just think real estate crowdfunding is a better deal. We’ll see how it turns out in 4-5 years.

  • Sharon @ The Real Money Boss July 9, 2018, 5:33 pm

    I’ve been following your blog for awhile, and I’m so glad to see that you are predicting the rest of your 2018 to go well, especially now that your rental has been occupied!

    I too invested in P2P Lending. I am pulling out all of my returns on a regular basis. P2P lending did not turn out to be for me either. It was so disappointing to see accounts continue to default. Are there any other alternative investments like P2P lending that you plan on trying?

  • Mr. Groovy July 9, 2018, 5:01 pm

    Oh, man, I got a tremendous CMLT reading this post. Happy Independence Day, my friend. I said goodbye to the tyranny of mandatory toil almost two years ago and I can honestly say that retirement is every bit as awesome as I thought it was going to be. Enjoy your freedom and your summer, Joe. Cheers.

    • retirebyforty July 9, 2018, 8:09 pm

      I love early retirement too. It’s everything I expected and more. Have a great summer.

  • Xrayvsn July 9, 2018, 11:45 am

    I’ve been concentrating most of my investing money now in entities that hopefully will give the best bang for buck in terms of passive income (channeling all of it the past year into private real estate syndication).

    I share your philosophy that the goal is to get passive income > annual expenses and then you are essentially set for life without ever having to burn up principal/capital. I find it also lets me be a little more aggressive in my investing market portfolio for my age (I’m keeping around 75% in equities) as I have a good income floor from my current passive income sources.

    • retirebyforty July 9, 2018, 8:08 pm

      Good luck with private RE syndication. That sounds good. Hopefully, the timing is right. Portland seems to be near the top now. It is starting to slow down.

  • Revanche @ A Gai Shan Life July 9, 2018, 9:53 am

    Our truly passive income (dividends from individual stocks and index funds in our brokerages) still stinks but I’m focusing on investing our money in the right places this year to set us up for good income in the next several years. Not entirely sure I know what I’m doing all the time with that but I have to try! 😉

    • retirebyforty July 9, 2018, 8:06 pm

      Good luck! We’re trying to increase our passive income too. It’s a long road, but it’ll be worth it when we get there.

  • Helen July 9, 2018, 8:32 am

    Hi Joe, Financial Independence (FI) means freedom. People won’t have to work for money anymore. But they can choose to work for passion or something they care about. You described very well about the steps to FI: tracking the finances, save and invest consistently.

    • retirebyforty July 9, 2018, 8:05 pm

      Thanks! Work feels so different when it is on your term. Everyone should have an opportunity to try it.

  • SUSAN BRUNI July 9, 2018, 8:31 am

    We are early retired and have a zero drawdown from our IRAs due to having enough in passive income. The “problem” is that we have to be careful not to have too much, as we need to stay under the Obamacare line at 4 times the poverty level. You too will have these “problems” soon.

    I really have to read more about the real estate crowdfunding. Owning two rentals of our own does not seem passive when the phone call comes out of the blue and you have to jump. You know!

    • retirebyforty July 9, 2018, 8:04 pm

      Real estate crowdfunding is much easier than being a landlord. It probably won’t be as profitable, but who knows.
      I’m not looking forward to dealing with the too much income problem. We’ll figure it out when we get there. Maybe I’ll have to convert the business to S corp.

  • Anil July 6, 2017, 3:35 pm

    Nice post Joe! One question I have is regarding managing the ad on your page. I see you have a lot more now then few months ago. But they don’t seem to clutter so far. Is it a standard template or it’s something you have full control over how to display, how many and where? And who decides what ads to show up? I see lot of other websites, especially the news outlets that show these ads and at some point they just take over the whole site. That drives the readers away. How are you controlling all this? I hope you keep it clean.

    • retirebyforty July 7, 2017, 7:05 am

      I changed the ad layout early this year. I’m working with AdThrive and they help set it up. I can change the number of ads and that kind of thing. This is already a bit too much advertising for me. I wouldn’t add anymore. I may remove the top banner at some point. It takes up a lot of space and Google doesn’t like top banner ads.

  • Supermoneywoman July 6, 2017, 12:54 pm

    I’m a History teacher….and my daughter was born on 4th July.
    Great post.
    Do you think there will be extra expense with older/more children?

    • retirebyforty July 6, 2017, 1:21 pm

      I feel like daycare was the big expense for a lot of families. Once that’s done, the expense will down for a while. Yes, there are sports and other activities, but they are still cheaper than childcare. Our grocery expense will increase once our kid eat more, though.

  • Duncan's Dividends July 5, 2017, 1:06 pm

    Happy belated Independence Day! 94% is a fantastic number and even if you dip ten percent, you’ll more than make up for it with the blog and your wife’s work. Keep up the inspirational story and the photo of junior is fantastic! Looks like you guys had a lot of fun over the holiday.

  • mARK July 5, 2017, 9:38 am

    God forbids but would you be able to retire in 2020 even if you would divorce from Mrs RB40 ?

    • retirebyforty July 5, 2017, 2:37 pm

      I’m not sure if I’m reading this right, but it sounds like you’re asking what happens if we get a divorce. Hopefully, that doesn’t happen, but it would be much easier for me as a single guy. I could live cheaply and travel a lot more. I don’t know about Mrs. RB40, but I’m sure she can figure something out.

  • SMM July 5, 2017, 6:49 am

    Very nice progress here!
    Passive income exceeds expenses– this would be the ultimate one for me, but I have a long way to go. I’m trying to put more in my before tax accounts to lower income and the the taxes I will have to pay on dividends earned in my after-tax account. The little bit of passive income I’m earning is being reinvested into more dividend stocks/ETFs.

    • retirebyforty July 5, 2017, 9:09 am

      Keep at it! I don’t like paying capital gain tax either. Luckily, we haven’t had to pay much over the last few years because we’re in the lower tax bracket. We might have to pay a bit this year, though..

  • Darren July 4, 2017, 3:23 pm

    Happy Independence Day!

    It looks like you’re on track for a great year. I wish my wife was working, but we have young kids so she stays home. I’d love to be able to achieve financial freedom earlier so we can really do what we want to do.

    I’m like you about P2P. I liked the returns, but I didn’t shelter them in a ROTH IRA so trying to figure out my tax bill on them was confusing. I shut off my auto-invest in both Lending Club and Prosper last year and have been cashing out.

    Thanks for the Realty Share tip. I’ve just signed up, because I would love to get those kind of returns. I own two rentals and might have reached my limit in that area, although I’ll probably end up renting out the home I’m in and move into something smaller in the years ahead–maybe an RV? 😉

    • retirebyforty July 5, 2017, 9:08 am

      Thanks! I hope you had a great Independence Day as well.
      I like RealtyShares much better than P2P lending. It seems much more secure and the ROI is good. The only downside is that you can’t diversify as much. I’ll have to invest more if I want more diversification. Good luck with the RV. Seems to work for some people. 🙂

  • Your First Million July 3, 2017, 9:08 pm

    Success is no accident!

    I think that many people are not as successful as they would like to be because they have not made the conscious DECISION to be so. I love this post because I can’t get this idea out to people enough!

    Decide and commit to become financially free, and one way or another you will find a way to make it happen. If you never make the decision, you will never take action on making it a reality.

    • retirebyforty July 5, 2017, 9:07 am

      Exactly. A lot of people just don’t have long term goals. You can’t move forward if you’re don’t have a destination to shoot for.

  • Karl Steiner July 3, 2017, 3:03 pm

    It’s pure fireworks to see your real life example of how to achieve FI. I am planning on “retiring” at the end of this year, although I’m not particularly fond of that particular term. I like your 100% FI ratio metric, but I don’t think I will achieve that by the end of the year. My main problem is getting the expense side down low enough to be fully supported by passive income alone. We are hoping to get sufficient portfolio growth over the next 30 years of so to make up the difference. As a result, I’ve spent a lot of time calculating different portfolio trajectories etc. The nice thing about your FI 100% approach, if I could do it, is that I would be less at the mercy of the stock market ups and downs. I will check in next 4th of July (if not sooner) to compare your progress with my own. Good luck!

    • retirebyforty July 5, 2017, 9:06 am

      Good luck with your pending semi retirement. I don’t like the term semi retirement. It’s ambiguous. I’ll stick with early retirement. 🙂

  • Dividend Diplomats July 3, 2017, 12:57 pm

    RB 40 –

    Well on your way there! And yes – your dividends will have a massive 2nd half of the year, especially if your funds only pay in December. Further – you’ve been able to manage expenses very well so far in the first 6 months, something that should be noted.

    Also – just a heads up – one minor typo I saw – “Our expense will increase in the 2nd half of 2016. ” I believe you meant 2017, did you want to change that at all? Thought I’d give you a heads up!

    Thanks for sharing RB40 and you just gave a new meaning to Independence day, that’s for damn sure.


    • retirebyforty July 5, 2017, 9:05 am

      Thanks for the heads up. I fixed it. The first 6 months always look better for us because the expense is usually lower. The extra income in Q4 is great, but we really need to work on smoothing out expenses. Oh well..

      • Dividend Diplomats July 5, 2017, 3:50 pm

        Nice and I can see what you mean. What’s funny is how everything, though, is “OK” – I never take time to think about that piece to all of the math numbers and events happening in life. Something I need to get back to. Excited to see what the 2nd half brings! Thanks again RB40.


  • Fromusa July 3, 2017, 11:57 am

    (1) “Currently, only accredited investors can invest at RealtyShares.”

    Uh….do they even do due diligence to verify if you indeed meet those income/net worth ‘requirements’ ?

    (2) The link above for Dividend Portfolio is only for 2015. Do you have a similar summary of the performance for the 2016 portfolio? Or those from previous years?

    (3) It’s impressive that you’ve been able to beat VIG the last 2 years. I have been wondering whether I should manage my own portfolio, too …. or just buy BRK.B instead. You could do no wrong with BRK.B. No? 🙂

    • retirebyforty July 3, 2017, 12:22 pm

      1. I’m not sure if they verify. I doubt it,though. I’ve invested in a few things that specified accredited investor. None of them really checked rigorously.
      2. I updated the link. http://retireby40.org/passive-income-2017/
      3. Thanks! You can’t go wrong with BRK.B. VIG is beating me this year. They’ve been doing really well. I have some investments that are not – Target, Mattel, etc….

  • zhao July 3, 2017, 8:47 am

    Hi, Joe, when you count your passive income to calculate the FI ratio, do you count in the principle paydown for your rental as part of it or only the free cash flow is got counted?

    • retirebyforty July 3, 2017, 9:07 am

      I just count the free cash flow. The principle paydown is nice, but doesn’t put cash in our pocket. 🙂

  • Shelby July 3, 2017, 7:21 am

    Great article! I got tired of my job in a big corporation mainly because of the politics and am in search of a different work/life style. I found your blog while surfing online and enjoyed your articles. You provided a lot of information supported by real numbers, which I really like. I like the idea of working part time with flexible hours. I guess semiretirement is the direction I am heading toward.

    • retirebyforty July 3, 2017, 8:36 am

      Good luck! Semiretirement is the way to go. It’s much better than full retirement.

  • [email protected] July 3, 2017, 7:14 am

    Happy independence day to all!

    On rack to declare my financial independence July 4, 2020. Hope to see everyone there.

    • retirebyforty July 3, 2017, 8:35 am

      Good luck! It’s a race between you and Mrs. RB40. 🙂

  • FullTimeFinance July 3, 2017, 5:20 am

    We’re not tracking passive income to expenses yet since I’m not looking to pull the plug anytime soon. But I see the value. A question, is your goal 100 percent or something perhaps higher to cover for potential down periods?

    • retirebyforty July 3, 2017, 8:35 am

      Our goal is 100 percent for a couple of reason.
      1. That’s already really difficult. Mrs. RB40 is starting to feel the itch and she wants to retire soon.
      2. I have online income so we don’t need to depend on 100% passive income.
      As for down periods, we’ll probably just cut back a bit.

  • Ms. Frugal Asian Finance July 3, 2017, 4:28 am

    Happy 4th of July! I’m so happy to see that you had another great month of passive income. Rental repairs can be so unexpected and painful, but I think the pros usually outweigh the cons. I usually freak out if we have home repairs at our house lol.

    Your son looks so so cute and happy!?

    • retirebyforty July 3, 2017, 8:33 am

      Thanks! He was only 2 in that picture. Little kids are so cute and fun.

  • Kevin July 11, 2016, 9:35 am

    Perfect article on Independence on perfect day. My last day at work was 4th of July for my independence. You are spot on about knowing your spending/expenses.

    • retirebyforty July 12, 2016, 10:08 am

      Congratulations! Enjoy your early retirement!

  • CashFlowDiaries July 6, 2016, 11:59 am

    Glad to see your goals are on mark and I hope your siding repairs dont put too much of a dent on that rental income. I feel your pain though on that! I just got word today that one of my rentals needs some unexpected repairs so im kind of bummed out about it but it just comes with the territory on owning rental properties.

    • retirebyforty July 7, 2016, 11:19 am

      The siding repair should be pretty minor. I just need a handyman to caulk and paint. There are a few spots that need repair. We also need to put in 2 new hot water tanks, though…

  • BeSmartRich July 6, 2016, 6:44 am

    We just achieved $200K milestone of our financial independence journey. Started less than 2 years ago and I can already see growth is getting faster and faster. Why wait? right?



    • retirebyforty July 6, 2016, 10:46 am

      Congratulation! That’s a great milestone for just 2 years. Great job.

  • Arrgo July 6, 2016, 5:10 am

    I think having a part time job that you enjoy can be a big part of your FI plan. Making a little extra money (instead of $0) every year can really help with your withdraw rate % ratio. Plus it keeps you active and engaged and usually has at least a few good perks that go with it. Thats my plan. I don’t mind working. I just don’t like having to work 40+ hrs a week plus commute time etc.

    • retirebyforty July 6, 2016, 10:45 am

      Exactly! That’s my plan. Working a little bit is good for your finance and your moral. Lounging around the pool all day is fun for a while, but I get bored easily.

  • Dividend Growth Investor July 5, 2016, 8:29 am

    That’s great that your family will be FI by 2020!

    I was wondering, once you pay off your home, wouldn’t your expenses be even lower? Do you have a guesstimate when this would happen?

    Good luck in your FI journey Joe!


    • retirebyforty July 5, 2016, 1:26 pm

      Paying down our mortgage isn’t a big priority right now. We’re still a long way off, way after 2020. The interest rate is so low, there is no point paying it off, IMO. Thanks!

  • freebird July 5, 2016, 8:12 am

    One way to make your FI ratio grow quickly is to swing towards high-yield. If you move half of your typical large cap 2% payers into a mix of mREITs and junk bonds where yields now exceed 10%, your FI ratio literally triples! This is something I wouldn’t recommend because my feeling is the risk would be too high, but it shows how unless FI ratio is corrected for sector concentration exposure, the number may be misleading.

    This is one reason why I prefer to use net investment portfolio market value in the numerator and aim for a ratio of 33 years– I’m willing to deplete principal. Like someone with a $5M nest egg mostly in cash plus some growth stocks both yielding nada may have FI ratio = 0, but if his expenses are like yours, I’d say he’s financially set to retire.

    If your passive income covers all of your expenses and the principal matches inflation, and assuming RB40jr is an only child who spends the same as you as an adult, perhaps your nut covers his retirement as well? In which case one may argue he’s also FI.

    • retirebyforty July 5, 2016, 1:25 pm

      You’re right. It’s up to the person to figure out their own investment mix, of course. I aim for around 3% and I agree that 10% isn’t sustainable.
      Net investment portfolio value is good too. We’re at about 35-40x our expense.
      As for RB40Jr, I hope he finds his own way. We will help with college, but not planning to help after that.

  • Jon July 5, 2016, 6:21 am

    Hi Joe, I really enjoyed this article. I have been thinking about my passive income to expense ratio, but never tracked it too closely. Ours, I’m afraid, is very low!

    • retirebyforty July 5, 2016, 7:50 am

      Keep working on it! There are a few ways to quickly increase your FI ratio. The easiest way is to cut your expenses. 🙂

  • Marc July 5, 2016, 5:22 am

    Congrats on your success so far this year! I recently came upon your blog and am now hooked, and even started my own. Before finding the FIRE community, I thought investing was scary and I instead focused all my attention on debt. Next month I’ll be debt free (except for the mortgage) so I’m beginning my romance with the market. Hopefully when I’m 40 (10 years) I’ll have enough passive income to leave the full time lifestyle forever.

    • retirebyforty July 5, 2016, 7:49 am

      Good luck with your blog and investment. It’s great that you got rid of all your debt. That way you’ll start with a clean slate. Keep investing and you’ll get there someday!

  • Jeff Moore July 4, 2016, 3:18 pm

    Hi Joe great article! What method has worked for you best in tracking your expenses for the year? Do you use any special type of financial software program for this or something simpler? Thanks for your thoughts. Jeff

    • retirebyforty July 5, 2016, 7:48 am

      For tracking income and expense, I use my trusty Excel spreadsheet. It gives me time to think when I update it manually.
      Personal Capital is great for tracking our investments, but not that good at tracking cash flow.

  • Teri July 4, 2016, 2:51 pm

    Happy 4th of July! I agree with you, we have our problems and it’s still the only place I would consider living. Congratulations on your Financial Independence!

    I question your returns of P2P lending. I am with Prosper and just waiting to get out. Here is what I receive from them.
    /Users/theresaray/Desktop/Screen Shot 2016-07-04 at 2.45.25 PM.png

    They get 10% of my small percentage and they don’t experience any loss when someone defaults. I earn .21 interest, of that, they take .02 or 10%.

    /Users/theresaray/Desktop/Screen Shot 2016-07-04 at 2.48.35 PM.png
    To date I have lost 57.08% using their numbers.

    Of the 2% return I receive, they get 10% of it. I’m avoiding them like the plague and recommend others do also.

    Hope you enjoy your 4th.


    • retirebyforty July 5, 2016, 7:46 am

      I can’t see your images. My Prospers investment seems to be okay. Our ROI is at about 7.5%. This past month was pretty bad because we had more defaults than usual.

  • Gopi July 4, 2016, 12:58 pm

    Does your expenses include morthages )primary and investment)? 25k seems too low to me

    • retirebyforty July 5, 2016, 7:44 am

      Yes, that includes about $2,200 in housing every month. $25k is 6 months.

  • Dan July 4, 2016, 11:50 am

    I’m planning on adding a margin of error to my expenses figure say 30-50% for greater wealth building and safety purposes. I also plan on including income from passive business ventures.

    I used to be way more focused on total return investing. But a few years ago I heard of a family friend investing all of his net worth in blue chips during the financial crisis. He’s now pulling in about 40k a year in dividends which enabled him to finance a business venture which is now fairly successful.

    Attempting to make 25% every year can be exhausting, outside of a few crisis years where the bargains are great. The amount of research that goes into that kind of return can be immense. I’m looking forward to having at least a reasonable amount of my money in lazy dividend investments.

    • retirebyforty July 5, 2016, 7:42 am

      Wow, 30-50% is a big margin. Good luck!
      25% ROI every year is amazing. You should start a hedge fund if you can do it consistently.

  • Mr. Tako @ Mr. Tako Escapes July 4, 2016, 11:33 am

    Congrats on a great first half of the year Joe. Congrats on Kindergarten too! You made it!

    It’s interesting that you classified rental income as passive. I might consider it ‘semi-passive’, but I guess for simplicities sake, it was probably easier to just put it in the passive bucket.

    • retirebyforty July 5, 2016, 7:40 am

      Thanks! Rentals aren’t very passive for me, but maybe someday…

  • Justin July 4, 2016, 10:30 am

    We’re golden. 🙂 Income is around $60-65k per year (half passive; half from the blog) and expenses run $25-40k per year.

    Now to figure out how to spend the surplus… 🙂

    • retirebyforty July 5, 2016, 7:37 am

      That’s great! Our income and expense aren’t quite optimized yet. We still have a mortgage and our rentals aren’t yielding very well. Some day…

  • Gopi July 4, 2016, 9:30 am

    Interesting article. I assume all our figures are per year.
    How do you calculate the income from retirement accounts ?

    • retirebyforty July 4, 2016, 9:55 am

      I just look at the statement from my retirement accounts. They are just the yield from our index funds.

  • Leigh July 4, 2016, 8:42 am

    Yup, I do! 2015’s year end was 17% passive income / expenses. My record single month so far this year was 28%, which was pretty exciting at 28 🙂 If I spend the same amount this year, it’ll be up to 22%, then 27% in 2017, 50% in 2018, 58% in 2019, 73% in 2020, 90% in 2021, and 109% in 2022. The next few years should show some fast progress!

    • retirebyforty July 4, 2016, 9:54 am

      28% is great! Keep it up. 50% in 2018? That’s a huge increase. Good luck!

      • Leigh July 4, 2016, 2:12 pm

        Yes, my current forecasting includes paying off the mortgage in 2018, which eliminates about 25% of the expenses, hence the huge jump.

  • [email protected] Turtle July 4, 2016, 8:04 am

    How are you figuring out your passive income from the retirement accounts? Is it from the dividends that are given quarterly?

    You have a lot of different sources of income. Great job! That’s an area I really need to think about.

    • retirebyforty July 4, 2016, 9:53 am

      Yes, the income from the retirement accounts are just the yields. The yields aren’t that great because they are all low cost index funds. The yield is around 2%. Good luck with your investments.

    • David @ VapeHabitat July 23, 2018, 7:20 am

      Me too, Linda. This articles can teach us financial independence, confidence, and ability to enjoy life

  • Kenny July 4, 2016, 4:53 am

    What sources are you looking at for real estate crowdfunding? I’m intrigued by this method.

    • retirebyforty July 4, 2016, 9:52 am

      I was looking at Fundrise, but I read that they went downhill in 2016. So now I will have to do more research.

      • Gopi July 5, 2016, 11:49 am

        An excellent vehicle for investing in Real Estate Crowdfunding is Realty Shares – relatively safe and very good returns


        • Bryan July 10, 2018, 2:55 pm

          I wouldn’t do Realtyshares. Their communication is not what I want at all. The investments I have made so far have worked out but don’t like the communication. Same with Realtymogul. I prefer CrowdStreet and RealCrowd because they put you in touch with the sponsor and there isn’t a middleman.

  • The Green Swan July 4, 2016, 4:20 am

    Hi Joe, happy Independence Day! It’s my favorite holiday as well. I’ll have to start tracking my FI ratio once or twice a year too since I’m starting to get close. Thanks for sharing!

    • retirebyforty July 4, 2016, 9:51 am

      You should! I love tracking progress. It helps me feel like I’m getting somewhere. 🙂

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