How To Become Financially Independent in 2022
A Definitive Guide
Introduction on How to Start Investing Way back 2017
Part 1 in a series that will cover starting a brokerage account, handling taxes, and how to withdraw your dividends to live. Sign up for my virtual VIP limited enrollment workshops or video courses where we work through your money issues and questions step by step via zoom.
I want to help women ultimately have the money they need to be invested in living off the dividends. So no matter what happens, tornado, divorce, pandemic, they are secure.
This is my journey to FIRE. Financial independence Retire Early is the concept of changing your life goals to be financially free. You save and invest until your nest egg reaches 25 times your necessary annual expenses. You then withdraw 4% annually to live off and enjoy your life. More about this later.
How it started in 2017
In 2017 years ago, I had about $5,000 in cash savings, $125,000 in retirement savings, and a substantial 5-bedroom house that was sucking me dry. It was a very depressing time in my life. I was in the middle of a divorce and sharing my children with my ex-husband. It was hard on everybody. Since our children mainly were with me, I was on the hook for a massive $2,400 mortgage. Ouch! I was depressed about dismantling my family but was hopeful that we all would be okay. God would not leave me. Out of all I had been through growing up as a child, I had still achieved a Ph.D. and had a “good job.” But I was very uncomfortable with such little cash. If I had lost my “good job,” my children and I would be out on the street.
How is it going
As a 41-year-old black woman, I FIRE'd! I am financially independent and have reached the ability to retire early. Working is now an option for me. For the first time in my life, I choose to work. My financial independence is not visible to anyone because I don't drive a Ferrari, own an airplane, and live in a mansion in the suburbs. Instead, I drive a 2007 SUV (I am ready for a new car! I mostly fly economy class, and I own a townhouse in a modest neighborhood. I am sharing what I did to make my FIRE dream come true.
Development of Financial Independence, Retire Early Mindset
Development of Grit
My mom had me when she was just 17 years old. I grew up with very little and bounced around from family member to family member. That taught me always to make sure I could take care of myself. So even though my parents didn’t go to college (mom dropped out and dad went into Marines), I was intrigued when I learned about a Black college tour in high school. I did everything I could to raise money from different family members to go on the tour, which changed my entire life.
After years of living what I thought was the American dream (family, degrees, job, house, car, etc.), after my divorce in spring 2017, I found the strength to pursue FIRE. I reconfigured my budget and doubled down on saving an emergency fund. I had no excuses. I took complete control of my finances because it was just me making the financial decisions. I had always lived by a budget, but now I didn’t have to compromise on it. I also knew I wanted to retire early. I don’t want to work forever.
Getting serious about money
I got to work. I cut a lot of spending, reduced some expenses, and immediately did two things without thinking about it.
1) maxed out my workplace 403(b) retirement account
2) I started saving 30% of my take-home pay.
Maxing out workplace 403(b) account was smart
It drastically reduced my taxes. A 403(b) is just like a 401(k) and the money is taken out and transferred to a stock investment account BEFORE TAXES are taken out. It’s as if you made less money but in actuality it’s in an investment account growing about 6% a year, depending on investment allocations. A 403(b) and 401(k) differ simply based on the type of organization you work for. In 2017, the yearly max that an individual could contribute was $18,000 for the year or $1,500 a month. Since I knew I wanted to be financially independent, I knew I had to start taking advantage of that growth.
Entrepreneurs! You have not been forgotten! You have a sweet deal if you are an LLC or Limited Partnership. You can contribute to a Self-Employed 401k or a Solo 401k and contribute up to $56,000 per year. This money is protected from taxes!
Start saving 30% of take-home pay.
I started saving to build up an emergency fund. To me, $25,000 sounded like a good amount to have in cash in case I lost my job. I could live for 6 months on that.
4 Things to do to Become Financially Independent, Retire Early
Finding passion and making life simple
I started following my passions and started The Achiever Academy, a 501(c)3 nonprofit organization. I poured into girls and young women with all I had, and it gave me a lot of joy.
Time to make significant cuts. SOLD!
By February, I realized my expenses were still too much. $350 electric bills, $225 a month lawn care bills, and that ENORMOUS $2,410 a month mortgage. It makes me sick just thinking about it. Now that I was a little more mentally healthy, I was ready to sell the money pit! I hired an agent, and she did a phenomenal job staging the home and getting it ready to sell. It was listed on a Thursday night and under contract mid-day Friday.
I made a decent profit off of the house to the tune of about $35,000 max, but I had no idea what to do with it. That afternoon, I called my financial planner at the time – the man who handled my rollover retirement accounts when I left a job. He suggested I send it to him (of course), and he would invest it in three Wesley funds offered by Vanguard. Just by accident, I asked him how he gets paid. I had never asked him that before! He replied that he gets 1% of what I have invested each year. Then each of the funds he invests my money in has fees to the tune of about .50%. He gave me the fund names, and I asked if those funds would help me retire in the next 10 years. He said yes if you start sending in more money each month to start a brokerage account. I told him I would start the wire transfer on Monday.
Learn Financial Independence, Retire Early (FIRE)
But by Monday, I had learned about a movement called Financial Independence Retire Early. I read several blogs, including Mr. Money Mustache and Millennial Revolution, from start to finish, and a complete book on early retirement, The Simple Path to Wealth. My mind was blown!
The most important thing that I learned was that when you save 25 times your living expenses, you can live off that nest egg successfully for at least the next 30 years, and if you only withdraw about 4%, you can very likely live off of it forever and never run out. And more often than not, you will die with more money in the nest egg than you started with. Mind blown!
Fired my Financial Planner
I called my financial planner on Monday afternoon and told him I was no longer going to wire him my money. Furthermore, I would be transferring all of my money out of his firm and into accounts at Vanguard and I would be managing my financial investments from now on. Now how do you think he took to that? His exact words were “you’ll be back”. I felt so disrespected. “I do have a Ph.D.!” I told him. We ended the call, and I was on a mission to become financially independent by 45 years old. Oh, and I moved into a small two-bedroom apartment and I could not have been happier!
CONCLUSION
Fast forward to December 2021. This year I quit my full-time tenured position and am enjoying life. I enjoy hosting The Wealthy AchieveHer show and podcast and facilitating group wealth coaching once a quarter. I'm still doing what I was called to do, teaching, just on my terms. I don't have to work these days, and that security means everything to me. There is no substitute for the security financial freedom provides.
Lastly, I found love again. Life is good!
I am thankful you are here to learn and hope you find value here. I am not a financial advisor. I am sharing how I became financially independent in hopes that the information is useful to you in your journey. Also, consult your tax accountant and do your own follow-up research :) If you purchase on my Amazon Store links or other affiliate links, you are supporting me and this free information with no additional cost to you. Thank you!
