There is nothing preventing us from retiring early except ourselves. We have all the tools to live a fulfilling life without working a day job.
So what prevents 97% of the population from riding off into the sunset before age 50? The answer lies in our need for more information and action.
Welcome back to the Happy Cash Flow Retirement series (Part 1, Part 2, Part 6, Part 7, Part 8), which is my longest-running series. It is also one of my favorites because my knowledge and experience increase with each article.
My wife and I will become financially independent by the end of 2023 (so in ten months). We received "the information" four years ago and took massive action to secure our Happy Cash Flow Retirement. And guess what? You can do the same.
The two parts of financial independence. There are two distinct segments to becoming financially independent. They both require you to live far below your means for a season.
The first segment is working and living below your means. The second part is not working and living below your means.
These steps don't sound fun, but understanding the path is the only way to execute your Happy Cash Flow Retirement plan. Let's dive into the two segments.
Working and living below your means. Wealth is having excess income versus expenses. During the working phase, you should create a savings rate of over 50%.
Therefore, if you earn $10,000/month, you should live on $5,000/month. Living like this serves two purposes: it helps you save more money and lowers your financial independence number.
As you live on $5,000/month, your $10,000 salary will continue to increase. Part of the HCFR system is building multiple streams of passive income.
For example, you will direct a large portion of your savings allocation to dividends (hopefully via income investing).
As you add $2,000 to $3,000 to your dividend portfolio, it will continue producing more income. Even better, those dividends will serve to build your portfolio concurrently.
Therefore, not only are you adding money, but your money adds money. This is the power of compounding at its finest.
Don't get carried away. You will see massive numbers as you add rental income, dividends, and business revenue to your portfolio—along with your employment cash flow.
You may have started with $10,000/month in revenue, but that can easily increase to $15,000/month just from dividends and a side hustle or renting rooms.
However, the goal isn't to have big numbers and continue to work. The purpose of the HCFR system is to stop working and focus on what you want.
This mindset leads directly into phase two of your financial independence journey, not working and living below your means.
Time for phase two. You worked your way up to a large amount of earned and passive income; now it's time to remove the earned income.
This is where I stand currently. I earn roughly $180,000 at my day job. I love seeing these massive numbers every month, but I do not love going to work for 10 hours a day.
It is time to remove my day job from the equation; we will become financially independent but have to return to living below my means.
Luckily, I have been following my own advice. Let's take a look at my various sources of passive income as I move into phase two.
Military retirement and disability. I aim to receive roughly $7,000/month from my military service. My family can live comfortably on $5,000/month, including my mortgage ($1,800), bills ($1,500), car note ($500), and food and extras ($1,200).
Again, this won't be the most comfortable lifestyle, but it will be nice to know that my military pension can cover our lifestyle and still provide $1,000/month towards savings and investments.
Room rentals. The number one way for the average middle-class family to become wealthy is by renting rooms—the math is extraordinary.
My wife and I are renting one room currently. We want to ensure a smooth transition to financial independence; therefore, we will add another roommate over the coming months.
This will give us a total of $2,000/month in clean passive income. This money will allow us to continue to save and invest at a high level.
Again, we will start our Happy Cash Flow Retirement by living below our means, but things will improve quickly. Adding $2,000/month to our dividend portfolios will make them compound amazingly fast.
Rental income. My wife and I own two rental homes. We are cash flow positive on both, which provides us with $450 and $200 a month, respectively. We can add an additional $650 to our income investing portfolios.
We can also use this money towards our children's savings and investing accounts. Remember, we must continue to provide a financial future for our kids—it's one of our top priorities.
Dividend portfolio. Ah, my favorite part. Dividend investing changed my life and helped me understand how rich people live.
Currently, our dividend portfolio pays around $1,500/month. I hope to get that to $1,800 before transitioning from the military.
That is a massive amount of money that we can reinvest every month. Of course, my wife and I take a small percentage of our dividend in cash via our dividend debit cards.
Royalties and Automated business. My books and website are growing very slowly because I don't have enough time to build them.
However, that will all change as I step into retirement. I aim to earn $500/month from these creative ventures by the end of the year.
From there, I can continue to focus and grow these at a much faster pace once I have time. My wife will also pursue her creativity via knitting.
Passive income extras. My wife is also considering going to beauty school. The GI BILL will pay her $1,700/month on top of her tuition—money we can add to our passive income tally.
Conclusion. Adding everything together, with the GI BILL, the total comes to $13,350. This is much less than when I earned $180,000 and my wife $50,000 in the workforce.
But, the important part is that we will not be working. It all comes down to living on $5,000/month. As our dividends and royalties grow, we can slowly increase our lifestyle.
In about five years of financial freedom, we will live much better than our working days. We worked, sacrificed, and earned the privilege to be happy without being employed.
That is the purpose of the Happy Cash Flow Retirement System—to allow you to build your own passive income retirement. Yes, your 401K is a great tool, but do you want to retire at age 66?
You can start building your HCFR system by budgeting, saving, and investing. I promise you can buy your freedom much sooner than you think. It all comes down to living below your means while growing your passive income. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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