A phased approach to achieving financial independence

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:



 

Payments Monthly Yearly PI Level
Water                  110             1,320             1,320
Electricity                    75                 900             2,220
Internet                    40                 480             2,700
Cell                    30                 360             3,060
Home Security                    20                 240             3,300
Gas                    40                 480             3,780
Auto-Insurance                    89             1,073             4,853
Auto-Fuel                  150             1,800             6,653
Auto-Maintenance                    50                 600             7,253
Auto-Tax                    16                 192             7,445
Groceries/Dining Out                  300             3,600          11,045
Lawn Service                    50                 600          11,645

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

Account Ticker Target Shares Shares Div./Share Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Total
Fundrise  –         167.4         167.4         167.4         167.4                669.6
Merrill Edge  OHI 760 760 2.64             501.6         501.6              501.6         501.6            2,006.4
Merrill Edge F 1665 1665 0.60            249.8         249.8         249.8         249.8                999.0
Merrill Edge VNQ 285 60 3.51              52.7            52.7            52.7            52.7                210.6
Merill Edge Total                –             501.6            302.4                –         501.6         302.4                –              501.6         302.4                –         501.6         302.4            3,216.0
Total         167.4             501.6            302.4         167.4         501.6         302.4         167.4              501.6         302.4         167.4         501.6         302.4            3,885.6

 

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.

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2 thoughts on “A phased approach to achieving financial independence

    • Author gravatar

      take it or leave it, but your approach to purchasing stocks with greater than 5% yields isn’t ‘taking a risk’ its just poor investing. The main issue is these stocks historically aren’t the best performers, and so you’re committing to an approach with lower expected returns and taking a less diversified approach. You may like the idea more, but your transaction costs and tax efficiency are going to be worse as well.

      • Author gravatar

        Thanks a lot for your comment. You are spot on in highlighting that returns might not be optimal if I pursue my current strategy. I will write a follow-up post to talk about why I opted for this strategy.

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