If you're new here, this blog will give you the tools to become financially independent in 5 years. Here is how I did it and here is how I currently do it. The method is robust and replicable (no need to win the lottery, start a blogging business, or win at real estate), but not easy; much in the same way that a diet results in weight loss but is hard to follow persistently unless you set your mind to it. The key is to save 75%+ of your net income and invest it in income producing assets (bonds and dividend stocks). There is a "21 day" step-by-step plan for how to get to 75% in the left side bar. I try not to be too trite, so if I cover a topic, you will probably not see it again for a very long time, thus you may want to read the older posts here and here. Also, check out my answers to frequently asked questions and while you're at it, don't forget to subscribe to the blog via google or RSS.

Since I started saving, I have had a program—first it was a fortran program, now it is a spreadsheet—calculating how much money I would have each year given projected savings and projected spending amounts. Hopefully this works out in the long term, because 2007-2009 has seen a pretty much stagnant net worth(*) whereas the program projected steady exponential progress.

(*) With the V-bounce, I am 10% richer now than I was in 2007, despite saving furiously in 2007 and 2008.

I use 3% inflation and 8% capital appreciation (about 5% real interest). I think 8% is reasonable as I run a portfolio that is based on partially hedged(*) individual stocks (about 15-20 of them) most of which pays dividends—it is slightly less volatile than an index fund by construction.

(*) I use short ATM options to decrease the beta. It is something you can learn to do comfortably/confidently in about a year of self-study. If you don’t fear corporate bankruptcies or if you like to support the budget deficit or you simply feel traditional, you can do this with bonds too. Synthetically, a long put at the same strike would turn a covered call into a risk-free bond.

According to my model projections, I will be able to buy out DW in 2013.5, at which point I will be good for $360k, which is $180k to back each at a $600/month lifestyle, if she wants to. The reason why this is possible is because I went a “little too far” in my savings goals preferring a “runaway” in my finances. This means that my passive income provides more money than I can practically use and so the rest is reinvested. Ideally, I would like to wait for $400k which would happen in 2014.6 or so, just to preserve the runaway(*). I like positive runaways.

Of course, you could argue that with my part time job (if I still have it at that time), there’s a runaway anyway since I’m not drawing down the portfolio currently, or then. Also, I’m not counting her savings which would move both dates forward. Or a W-shaped “recovery” which would move both dates further out in time.

(*) According to the same projections, I’ll be a USD millionaire in 2024 (age 49), that is, if DW does not retire. At that time, a million bucks will hopefully still buy a lot of beer. I think, maybe, I should start counting my net worth in beers.

Obviously this depends on whether she wants to be a “kept woman” which I think she would not like to be; I certainly would not want to be dependent on my spouse for support(*). If not it would probably take a few more years, but at least the option would be there. Even more obviously, it depends on whether she wants to keep working on regulating the polluters.

(*) It would hurt my fragile male provider ego . It’s bad enough that I’m no longer the supreme earner even though I’m holding my own. Yes, I know, it’s the 21st century, so I should just get over it.