Financial Freedom Plan
Almost two years ago I laid out a plan for the net asset allocation I thought we needed for our financial freedom plan. It was a rough guide for asset allocation that I believe could generate enough income to cover our living expenses when we are financially free.
Overall our assets have grown by close to 50% from ~$750,000 to $1.1 million in those 2 years. Given our progress I wanted to see how our allocation was lining up. The table below compares our plan and current asset allocation:
A couple observations I have after staring at this:
- If we really are planning to walk away from our full time job income with about $2 million in assets then we need to be shifting gears. Our retirement assets (401k, Roth IRAs, etc) are basically fully allocated. Assuming positive returns continue over the long run I should be focusing more of our savings elsewhere. If we are not walking away once we hit $2 million it probably makes sense to continue to maximize retirement contributions due to their tax efficiency.
- Interest/bonds are the biggest gap we have. I even cheated a bit as about $30k is the cash balance of my pension plan so it should really be listed under retirement assets. The low interest rate environment has basically made investing significant amounts of our savings in this space uncompelling for the time being. However prospects of higher interest rates in the future are emerging. For now we are trying to focus on cash growth so that we can invest heavily here when the time is right.
- Cash - I'm disappointed we haven't been able to grow our cash at a faster rate. We have put a lot of focus on growing our cash, but we continue to have opportunities to deploy our cash. Over the past year we paid $30k+ in principal in our primary mortgage so we could refinance to a 3.5% 30yr fixed mortgage. We also had some unexpected major repairs including replacing 2 HVACs systems for $8k (one at our primary residence and one at a rental). We spent a significant amount of our savings transitioning our family to China for my work assignment. I also anticipate replacing my car in the next 24 months.
- Debt Paydown - We have a remaining mortgage balance of $210k on our primary residence, and about $185k in mortgage balances across our rental properties. We will continue to reduce our debt in moderation and would like to be in a position to payoff the majority of it by the time we walk away from any full time job income.
Overall we are in pretty decent position, and I'm excited to see the progress. Our financial freedom plan doesn't seem so far off anymore although we still probably have 7-10yrs to go. Going forward growing our cash position has to be a higher focus for us. The cash will allow us to take advantage of investment opportunities that will come up and handle unexpected events. I'm thinking I may consider ratcheting down our 401k contributions slightly (currently maximized) and redirecting some of those contributions to growing our cash.
Related in Financial Goals:
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