Whenever I trained for a race, the most important effort was not on race day but the training plan and consistency it took up to race day. My path to FI will be no different, reaching FI is just a small part of the focus. Part of being a strong Financial Citizen is getting myself into financial shape so here are my phases of my FI-athalon:
Swimming Phase
When you are swimming, there is water coming at you from every direction. Your income is split in every direction it can go (giving, living, saving and repaying). You also need to use your full body to keep moving so everything is going to get a workout. Because of that, your income needs to be split fairly evenly (10% giving, 30% living, 30% saving and 30% repaying). This will also help show you what parts of your financial life you need to work on. When swimming you can’t afford to slow down or you could drown.
Step 1 – Find your starting point
- Track and categorize all your spending and saving (giving, living, saving, repaying)
- Find your % allocations for your cashflow and your net worth portfolio
Step 2 – Plot the distance to the other side
- Run a debt snowball calculator based on your current allocation
- Run revise your debt snowball calculator based on 30% allocation
Step 3 – Dive in and start swimming
- Monthly or Quarterly keep track of your pace (check previous months/quarters allocation and make adjustments as necessary)
Key considerations when in swimming phase:
- Find your rhythm and pace – find what works for you and stick with it. If you start off too fast you can risk burning out and quitting, but if you start too slow you and you won’t build enough momentum to keep from sinking.
- Stay focused on your lane – it is hard to swim in a straight line while focusing on the lane next to you. Don’t worry about how ahead or behind you may feel in comparison to others, everyone’s race is their own. Make sure you focus on making it successfully to the other side
Cycling Phase
When you are cycling you are equipped with gear that can put you on a fast track. The weight of your debt is gone and you are moving fast in a narrow set of directions. Your income is now (10% giving, 30-45% living, 45-60% saving) this allows you to have some lifestyle adjustments but keep the petal to the metal. When cycling you can speed up and slow down but you can’t completely stop or you will fall off the bike.
Step 1 – Find your starting point
- Track and re-categorize all your spending and saving (giving, living, saving)
- Find your % allocation
- Calculate your monthly/annual expenses
Step 2 – Know and rank your path of preferred asset allocation options (stocks, real estate, business)
- Find your anticipated ROI for the investments you are planning to focus on
Step 3 – Plot the distance to the other side
- Run a savings calculator based on your current allocation
- Revise savings calculator calculator based on 45% allocation
- Calculate your FI # (25x annual expenses)
- (If real estate) Calculate # of properties needed to generate more than currently monthly living/giving expenses
Key considerations when in cycling phase:
- Test out your gears while riding – When you are cycling you have the option to put on the easy gear so you can coast a while to enjoy the scenery or shift into high gear and go at a faster pace.
- Plot your course ahead of time to avoid too much back tracking – While this is a good time to explore and find out what career path/investments/life routines work and don’t not work, remember to take time to learn about your preferred choices before going too fast/far. You don’t want to allocate too much time and resources into something that you realize is not going to work for you because you can lose a lot of momentum each time you turn around.
Running Phase
When you are running, you are in full control, you can choose to go as fast or slow as you want because your living expenses can be covered by your assets or passive income. When your income comes mainly from your assets there is no need to save anymore (10% giving and 90% living). When running choose to start or stop at anytime with no risk of drowning or falling off a bike.
Step 1 – Find your happy point
- Calculate your annual expenses to maintain your ideal lifestyle
- If you are not already there at this point, plot your ideal lifestyle, location day to day living situation
Step 2 – Maintain your purpose
Don’t forget that reaching the finish line is a great achievement, but it is not the main goal. Getting rid of debt or getting to the point where you can retire are milestones that open up more possibilities for you to find out what makes you happy, fulfilled or inspired. You may encounter many people on your journey, some may train with you, some may join you in swimming, biking, or running, some may celebrate with you at the finish line, and some may cheer you on from the sidelines. I hope to have growth, reflection, and memorable experiences along the way. For those getting started, now is the time to get ready! What are your main motivations for/ concerns about starting? For those that are mid race, keep at your pace! What phase are you and how is it going? For those near or at the finish line, congrats! What was the easiest/toughest part for you, and would you do anything different?