featured image for podcast episodeMapping Out Your FI Number | Households of FI with Corinne

Mapping Out Your FI Number | Households of FI with Corinne
Episode 304

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Posted by Choose FI

Episode Guide

Episode Summary:

The conversation focuses on a financial coaching session where Jonathan Mendonsa works with Corinne to assess her financial goals and current financial situation. They discuss the impact of Corinne's prior discussion with Jillian Johnsrude and how it influenced her actions towards achieving her financial independence. The session uncovers the importance of budgeting based on actual expenses, savings rates, and the gap between income and expenses. They explore the significance of emotional resistance to good habits, community, and individualized financial planning. By evaluating her ideal day and what energizes her, Corinne gains clarity on her aspirations and the balance between work and personal life. The discussion highlights actionable insights for listeners on tracking expenses and making purposeful financial decisions towards financial independence.

Episode Timestamps

ChooseFI Episode 304 Show Notes

Title: Corrine's Financial Journey and Path to Independence

Hosts: Brad Barrett, Corrine

Episode Summary: This episode features a candid discussion with Corrine as she revisits her financial journey with Brad. The key themes include intentionality in financial planning, budgeting evolution, the importance of mentorship, and actionable strategies for achieving financial independence. Corrine shares her experiences since her last conversation with Jillian Johns, focusing on building positive financial habits and understanding income versus expenses.

Key Topics Discussed:

  • Introduction and Episode Background

    • Overview of the episode’s focus on Corrine's financial journey and progress since episode 243.

  • Understanding Financial Independence

    • Discussion on financial independence being about options, not just money.
    • Key Quote: "Financial independence isn't just about money—it's about the freedom to design your life."

  • Corrine's Journey Towards Better Habits

    • Insights into habit formation and accountability through reminders.
    • Emphasis on intentional actions versus drifting through life.

  • Navigating Career Aspirations

    • Importance of understanding personal career goals and balancing work with personal life.
    • Encouragement to define individual desires to align career and life goals.

  • Budgeting and Expense Overview

    • Analysis of Corrine's expenses and income, understanding the importance of a solid budget.
    • Quote: "Know your gap: What you earn - What you spend."

  • Calculating Financial Independence Number

    • Discussing the target figure for financial independence and projection towards achieving it.
    • Corrine’s current trajectory points to a financial independence number just over a million dollars.

  • Conclusion and Key Takeaways

    • Recap of the financial concepts shared and encouragement for listeners to establish their own financial plans.

Actionable Takeaways:

  • Set financial goals based on personal desires and aspirations. [Timestamp: 00:09:10]
  • Utilize reminders to enhance financial habits and accountability. [Timestamp: 00:06:05]
  • Understand your budget and adjust accordingly to maintain financial goals. [Timestamp: 00:42:10]

Speaker Highlights:

  • Brad Barrett: Co-host guiding listeners through personal finance strategies.
  • Corrine: Guest sharing her journey toward financial goals, emphasizing real experiences and growth.

Frequently Asked Questions:

  • What is financial independence?

    • Financial independence means having enough income to cover your living expenses without actively working. [Timestamp: 00:03:00]

  • How can I improve my budgeting skills?

    • Track income and expenses and set realistic budgets based on financial goals. [Timestamp: 00:13:20]

  • What role do mentors play in career growth?

    • Mentors provide support and guidance to help navigate career paths. [Timestamp: 00:18:00]

Key Quotes:

  • "Define what you truly want before embarking on your financial journey." [Timestamp: 00:03:48]
  • "We are creatures of habit, but we can change our habits for better outcomes." [Timestamp: 00:06:05]

Episode Mentions:

Discussion Questions:

  • What strategies can effectively build strong financial habits? [Timestamp: 00:06:05]
  • How do you prioritize your financial goals? [Timestamp: 00:09:10]
  • What steps can you take to understand your monthly expenses better? [Timestamp: 00:39:20]

Podcast Description:

Join Brad Barrett and Corrine as they explore financial independence through practical strategies and personal experiences, focusing on budgeting, investment, and career growth.

For more episodes or to join the community, visit ChooseFI.com.

Unlocking Financial Independence: Strategies for Success

Achieving financial independence is a journey filled with intentional planning, good habits, and prudent financial management. As you set out on this path, it's crucial to understand your goals, track your income and expenses, and adopt strategies that align with your vision of a fulfilling life. Here are actionable insights drawn from discussions with experienced financial coaches and individuals like Corrine, who have navigated their financial journeys successfully.

Understanding Financial Independence

Financial independence isn’t merely about accumulating wealth; it’s about having choices that enhance your life. Defining what financial independence means to you is the first step. Ask yourself, what does your ideal day look like? Reflect on whether it's about traveling, spending time with family, or pursuing passions without monetary concerns. By grounding your financial goals in your personal desires, you can create a more motivating roadmap.

Building Good Financial Habits

Intentionality in Financial Planning

Being mindful of your spending is vital. Start by setting clear financial goals. Define what you want to achieve in both the short and long term. Whether it's saving for a house, funding education, or planning for retirement, having specific targets will guide your budgeting and saving efforts.

The Role of Reminders

Incorporating reminders can be instrumental in establishing new habits. Use your phone to set alerts for budget updates, bill payments, or even personal goals like exercise and meditation. As described in the podcast, a simple timer to prompt short activities can lead to building sustained habits over time.

Budgeting and Understanding Your Numbers

Understanding your income versus expenses is foundational in your journey toward financial independence. Here’s how to approach the budgeting process effectively:

Track Your Income and Expenses

  1. Gather Your Financial Data: Start by collecting your income statements and receipt records for at least three months.
  2. Create a Budget: Define categories for your spending—housing, transportation, groceries, entertainment, savings, etc. Use tools or apps like YNAB (You Need A Budget) to simplify this process.
  3. Analyze Your Spending Patterns: Notice where you can cut back without sacrificing what matters most.

Establishing a Savings Rate

One critical aspect of financial independence is maintaining a healthy savings rate. Aim for saving at least 50% of your income, which can significantly expedite your journey.

Calculate Your Financial Independence Number

Your financial independence number is typically calculated as 25 times your annual expenses. For instance, if your annual living cost is $40,000, aim to save $1,000,000 to generate sufficient passive income for your lifestyle. Here’s a straightforward way to break it down:

  1. Calculate Annual Expenses: Assess your monthly expenditures and multiply by 12.
  2. Multiply by 25: This number helps identify your target net worth for financial independence.

Smart Investing Strategies

Investing wisely is key to building wealth over time. Here are some strategies:

  1. Start Early: The earlier you start investing, the more time your money has to grow through compounding interest.
  2. Utilize Tax-Advantaged Accounts: Max out contributions to accounts like 401(k)s or IRAs to reduce taxable income and grow savings.
  3. Diversify Your Investments: Spread your investment across various assets—stocks, bonds, real estate—to mitigate risks and enhance potential returns.

The Importance of Mentoring

Having a mentor can drastically influence your career and financial growth. Engaging with someone who has successfully navigated their path can provide invaluable insights into making wiser choices more rapidly.

Creating a Balanced Lifestyle

Choose Your Balance

Remember, financial independence is about choices and creating the balance that suits your lifestyle. Reflect on your priorities—are you willing to work longer hours for a prestigious title, or would you prefer more flexibility and leisure time? The key is to make conscious choices that align with your financial goals without compromising your happiness.

Reflect and Adapt

Regularly assess your progress. What adjustments can you make to your budget? Are your spending habits aligning with your goals? Life circumstances change, and so should your financial strategies. Embrace flexibility—revisiting and revising your strategies ensure that you stay on track toward your goals.

Conclusion: Take Action

In your personal journey to financial independence, start today by tracking your income and expenses, setting clear goals, and establishing a budget that aligns with your values. The road to financial independence is not without challenges, but maintaining a proactive mindset and adapting your plan as needed will lead you to the freedom to design the life you desire.

Utilize these strategies and surrounded yourself with a supportive community, like the listeners of ChooseFI, to help navigate your unique financial journey. Remember, financial independence is about more than just the money—it's about creating the life you want.

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Corinne with Jonathan

What You'll Get Out Of Today's Show

  • Jonathan checks back in with Corinne from the Households of FI series to look at her numbers, goals, and map out a FI plan.
  • Financial independence is not about having the most money. In the pursuit of FI, the math is simple, but the math will change depending on your goals. It's important to start with understanding what you want your ideal day to look like.
  • Following Corinne's last coaching session with Jillian, she learned how to build good habits and strategies to get closer to the goals she wants.
  • One of the strategies she's using is her phone to set reminders for the goals she wants to achieve. The reminders hold her accountable without her having to remember everything.
  • Jonathan pointed out one of the great pieces of advice from the episode with Jillian was her advice to explore the goals you find yourself resisting giving even two minutes to. What is it in your subconscious that is sabotaging your goals?
  • Corinne is on track to become a partner at her firm but that comes with a lot of expectations. In an exercise with Jillian, she was asked to write down what her ideal day would look like. to start, she's been writing down which activities are energizing and which are draining. It has helped her to manufacture her day to be the kind of day that makes her want to get up and go to work in the morning.
  • She discovering that she doesn't have to work as many hours as everyone one else. She can balance it out, earning a little less money while being happier.
  • We can make time to make each week more memorable and enjoyable when we spend less time on meanless activities.
  • When you take what earn and subtract what you spend, what you are left with is the gap. When you live paycheck to paycheck, there is no gap.
  • Corinne earns $120,000 a year as an accountant. She was in a five-year program where she got her Bachelor's and Master's degree that gave her enough requirements to take the CPA exam. Due to a scholarship, she graduated without any student loan debt.
  • A similar recent graduate starting out now would make around $50,000 a year. She was able to double her salary and excel by narrowing her focus and becoming an expert in that space.
  • In her industry, there are clearly defined roles with specific salary ranges. Increasing income requires the desire to progress and take on more responsibility. Becoming a partner wasn't always on her radar, but she liked the idea of having ownership in the business.
  • Corinne hasn't researched the details of the retirement payout for partners at her firm, but there is some form of payout in retirement. Since she is on the trajectory to becoming partner, being able to project the retirement payout will help to calculate her FI number.
  • One of Jonathan's favorite income tax calculators is at Smartasset.com because it will incorporate state and local taxes. Using Corinne's salary, he calculates her federal tax plus FICA and Social Security is $29,227. Since she maxes out her 401K, it reduces her tax to $23,000 and saves her more than $6,000 in income tax. The income she brings home is then $77,445, or around $6,500 per month.
  • Now looking at Corinne's expenses, her mortgage is approximately $1,000 and she spends $500-550 a month on food. She does not have a car payment but between gas and other expenses, it's around $100 a month. Utilities run $400 per month. Additional budget categories include dining out and shopping for $500, charitable giving at $200, housekeeping is $100, and her HOA bill is $150. Though travel is on hold at the moment, she's like to budget $250 a month for vacations. And finally, an additional $200 was included to cover odds and ends.
  • Corinne's total monthly cost-of-living is $3,375. To find out her gap, Jonathan takes her net monthly pay of $6,500 and subtracts her monthly expenses of $3,375 to calculate a gap of $3,125 each month.
  • Jonathan suggests putting the gap to work for her as quickly as possible and sending it to her investment strategy. Before doing this exercise, Corinne had no idea what her gap was and grabbed a random number to move to savings.
  • To start working on a plan for financial independence, Jonathan uses net worth and age. Corrine's 401K balance is about $150K and her taxable account has another $100K making her invested net worth $250,000. She is 32 years old.
  • Using ChooseFI's simple Retirement Projection calculator, Jonathan plugged in Corinne's numbers. Her FI number is $1,012,500.
  • Next, Jonathan uses ChooseFI's Future Value of Investments calculator to project how many years it will take Corinne to reach her FI number through both the growth of her current invested balance and her monthly contributions. Using an 8% rate of return, in 10 years Corinne will have $1.4 million far exceeding her FI number. Sometime between 7 and 8 years is when she will reach financial independence.
  • The exercise is energizing for Corinne who previously thought she would need to eat rice and beans to reach financial independence in 10 years. She was nervous to see the numbers but now finds it motivating. Her next step will be to ensure she's taking that extra money every month and putting it to work for her.
  • Once you've got what you earn, what you spend, identify the gap, and decide what you're going to do with the gap, you've got your FI plan in place.

Resources Mentioned In Today's Conversation

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