5 Year Plan to Financial Freedom

Depsite all the chaos that’s going on in my life currently with the upcoming wedding, china assignment, saving for a home, etc., I have been spending a lot of time recently dwelling on the need for a 5 year plan.

Lets face it -- I’m adrift in the middle of the rat race and I don't have an escape plan. I'll admit I have been making good progress over the past 1.5 years - quickly closing in on 20% of my "financially free" net worth goal. However, my life is changing and I can now easily see myself and my fiancée making all the typical decisions middle class people in America make - buying a McMansion, having 1 parent stay home to raise kids, allowing our standard of living to creep upward, maybe even buying a vacation home, and at times spending maybe more than we should.

In a short period of time we will be making these decisions and I already know deep down we are going to want the best of both worlds and in the end it means we are going to be sacrificing some of our progress to financial freedom.

This puts pressure on me to finds new ways to accelerate/maintain our progress. If Im not going to be able to keep our expenses below average there is only one thing to do -- I have to find ways to increase our income. I can no longer rely on simply frugal living and my career to reach our financial goals at least not for the next couple of years. At this point I think being frugal can only play a part in reaching our aggressive financial goals. We need something more to keep the pace.

I am starting to think I have to add more dimensions to our family financial structure. Right now we have my job income, 2 rental properties, some web site income, dividends, and interest. Somehow I need to expand or create additional streams of income to maintain my annual savings. In short I'm thinking I need a five year plan that’s going to show me how I'm getting out of the rat race in the next 5 years.

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Comments (11)

You seem to be a very savvy investor with an incredibly ambitious plan for financial security. Have you thought about adding a philanthropic component to your personal financial plan? There is tremendous satisfaction in giving back. Could you afford gifting a small percentage of your earnings to those who are trying to get on the path to economic independence? Your donations -- your philanthropy is tax deductible! You could support a low-income woman at www.liveworkthrive.org or other organizations and help them break through the barriers they face on their own journey to self-sufficiency through work.

Posted by Anonymous | August 13, 2007 4:20 PM

I do give regular donations to several charities including JDRF and our church. This has been discussed before on the blog in terms of trying to manage my charitable giving. I will be the 1st to admit I/we don't give enough. We do give some to worthwhile causes and we increase that amount every year. Overtime that level of giving will be a larger and larger portion of my expenses.

However, I believe my real contribution will come when I become financially free. Its at this point I want to refocus my life on giving back with my time more than anything. I will then have the ability to dedicate a large portion of my time to worthwhile causes.

Posted by 2million | August 13, 2007 9:25 PM

Hey! you're going too fast and I fear you may be putting yourself under serious pressure right here just because you want to attain financial freedom. I think you should re assess your priorities and check if the things you think you'll need later on in life are the things you and your wife really place importance on, if not, take it easy and learn to enjoy life. Like we say it in my part f the world "he does not have a child will be buried by a child and he who has a child will also be buried by a child" so why the haste.

Posted by January | August 14, 2007 12:16 PM

Best of luck to you. Just remember that the China trip is about your life. It's just as good for you as retirement. I'm thinking of leaving my company in the coming years to go work for a place that will give me travel opportunities so I can work towards retirement, and scout out places I might want to retire.

Posted by Eric | August 14, 2007 1:48 PM

As people are saying, it's just about tradeoffs. You might not make your 5 year plan, and things might take a little longer. But the kids will grow up remembering that mom stayed home with them. (They won't remember the McMansion any more than they would remember any other home, though.)

We, too, are trying to come up with ways of increasing our income stream. So far we haven't found great ways of doing it with little work on our part. =)

Posted by FamilyFinanceBlog | August 15, 2007 5:55 PM

Good luck with your 5-year-plan! I'm a big believer in plans and goals and you've reminded me that I need to articulate them better instead of in the vague manner they're set out in my head.

A couple of suggestions: As others have mentioned, be flexible with your plan b/c having a family is like nothing you can predict (and even the best attempts at birth control aren't perfect!). Also, in setting up your income streams, make as much of it as passive as possible if you plan to be an active dad/husband when your kids are young. This is something I wish I had thought a lot more about before we had kids - my kids have us around a lot and I wouldn't trade that time for anything, but we don't have the time to do any kind of seriously active money-making beyond our day jobs right now.

Best wishes for the move to China also! I look forward to reading about your experiences.

Posted by Chief Family Officer | August 15, 2007 10:55 PM

You've got a great perspective and seem to view money is a means to an end (independence) rather than en end itself.

There's nothing wrong with diversifying your income. In this day and age, having income from a variety of sources is a good thing. It's also a great ideal to lay a strong foundation of education, assets, skills and experiences while you are young, energetic and don't have many lots of other commitments.

Plan as you might though, things happen and 5 years from now, your life will have taken turns you could never imagine. (your trip to China for example)

Remember to live your life as it happens. Dont sacrifice everything for an artificial deadline of 5 years. Keep the big picture in mind, stay on the same page as your fiancee and don't obsess about a timeline. With your initiative it will come.

Posted by Anonymous | August 17, 2007 3:11 PM

how long are u in china for? i would say when u get back, buy more income producing rental properties. if they cash flow now, they will be cash cows once paid off if maintenance is done regularly. how about writing a book for some royalties? how about automating your website/increasing advertising income somehow? if you want to physically work more, you will need to find/build something over the internet so you can do it from any location and reach more people.

Posted by bryan | August 19, 2007 7:12 PM

I wish you luck with your plan.

My fiance and I are on a five year plan which involves paying off debt, paying of the mortgage, learning a different language, and building our wealth.
We intend to trade our McHouse for a McVilla in the Algarve, Portugal and build a new life in the sun.
I would say though that frugal living is a great starting block for anybody's plans!

Posted by nomorespending | August 22, 2007 5:02 AM

Financial Freedom is an illusion it is always just over the hill, no one reaches it until its too late. The fact that you are noticing as you look forward to the life with your soon to be wife things seem to be moving away. That you may need more income streams to meet your goal, that you might have to give up this or that to keep on track to the goal. The funny thing about money is, if you are chasing it then it will be running away. If your smart and responsible, comfortable with who you are and do the things you love Money will find you. Youth ages, you are only given so many heartbeats in your life, don’t waste them. Have fun, enjoy, laugh and love your family all worth more than money. Smiles -Michael

Posted by Anonymous | August 23, 2007 11:37 PM

Thank you for your openness (so uniquely American! I mean it as a praise!) by permitting to get an idea of your financial status and plans. If you would allow my intrusion, I woult thank you your comments on the following:
(1) I see that you have invested much working time in the management and in the actual physical maintainance of your two rented properties. I presume they are situated near the place you have been living. But now you are in China, who is going to do this work? Do you have a close relative who is replacing you? In my experience, a paid manager may consume all the profits and more.
(2) Are your mortgages fixed interest or variable interest? Did the current credit crunch affect you?
(3) Did the current situation in the housing market change your estimate of the worth of your properties?
(4) Isnt the China assignment a distraction? I mean, your main plan seemed to be focussed on building up property (which is highly reasonable) and not making a carreer as an employee.
Please comment, I (and many others) may have similar dilemmas and are interested in your solutions.

Posted by j | August 25, 2007 5:29 AM