In my last post, I shared MLR family’s annual expenses. I also mentioned that the magic number for financial independence is $63,656 /year. It seems that generating enough passive income to achieve Financial Independence (FI) is going to be a very uphill task. Therefore I have decided to embark on this journey in several phases. In phase 1, I intend on generating enough Passive Income (PI) to be able to pay my monthly bills excluding Housing, Healthcare and Auto loan. My family’s basic expenses are detailed below:
Based on the table above, the Phase 1 target is to generate $11,645 through Passive Income (PI) so that I do not have to rely on my day job for paying my monthly bills for these basic necessities.
In order to meet Phase 1 Financial Independence, I have decided to take an extremely aggressive approach. During this phase, I plan on investing in High Yielding Stocks (Dividend Yield >5%) so that I can set up my Passive Income stream as soon as possible. This approach goes against conventional wisdom as preached by several other financial bloggers but something that I am willing to take a risk with. While taking this risk I absolutely understand that I should be looking at diversification through a minimum variance portfolio but I would like to opt for an approach which is more challenging than just investing in an Index fund and withdrawing at a 4% rate every year. The only restrictions that I am imposing on myself are not to invest more than $25,000 in any individual stock and not to have Passive income more than $2,000 /year from one individual stock. I intend on using these rules for establishing my Passive Income in the later phases as well.
I have a Real estate crowdfunding account with Fundrise and a stock brokerage account with Merrill Edge. The passive income generated in these two accounts and details of my holding is given below
I receive a quarterly passive income of around $167.4 from my investments in Fundrise (@ approx. 5%) and yearly dividend income of $3,216.0 from my three holdings OHI, F and VNQ. My investments are at the target level in OHI and F while I am trying to build up my holding in VNQ to approx. $20-25K as per the rule set at the onset.
I have not provided any details on why I have invested in these specific stocks, but I will be more than happy to give details. Either send me an email or leave ab message and I will reply to that.
Based on my current Passive Income, if I calculate a Financial Independence ratio (Phase I expenses/Passive Income) I am at 33%. This implies that 33% of my expenses in phase I are covered by passive income. This is a metric that I will closely track and give an update to show you how I am progressing.
Let me know what you think of my approach. Any comments are welcome.