Financial independence planning in 2023 – The Ultimate Early Retirement Checklists
Bankeronwheels.com is dedicated to helping you become Financially Independent.
Some of our readers are also part, or interested in, the Financial Independence, Retire Early Movement (also known as “FIRE”).
As part of Bankeronwheels.com Lifestyle series, Kathrin shared how she discovered FIRE.
Today, she shows how she implemented her plan through checklists.
How can you use her experience at the beginning of 2023 to reinvent yourself?
KEY TAKEAWAYS
- Kathrin found that making a long-term plan to break down the goal and keep herself on track works very well.
- Our first checklist will help you to get started. We also created the 3L checklists to help you organise your life.
- The first ‘L’ is Living Life. How do you plan around life essentials while reducing unnecessary costs?
- The second ‘L’ is Loving Life. It’s usually the mismanaged L. It’s not only about the destination but also the journey and values that define you today.
- The third ‘L’ is Later Life. How to invest wisely for Early Retirement.
Here is the full analysis
If you’ve recently discovered FIRE, you might be amazed by the possibilities open to you. Not having to work for the rest of your life feels freeing and wonderful. But achieving FI doesn’t happen in a year or two. Almost everyone has to spend at least a decade working towards this massive goal. I found that making a long-term plan to break down the goal and keep myself on track works very well.
The Destination - Starting Out
My Starting Point
Consider what you would like to achieve in the next ten or twenty years and who you want to spend your time with.
Is there an issue or problem you deeply care about and would like to help solve? What FI is for you? Some people want to retire in their 30s, while others simply want to work part-time and reduce their stress levels. Before you start, figure out what your ideal life looks like day-to-day. Think about health. By living a healthy life now, you can reduce your healthcare costs in the future and make sure your FIRE life is as enjoyable as you imagined it to be.
Kick-off Checklist
- List - Two to five goals to reach in the next 10–20 years
- Plan - How Can Financial Independence help reach Those goals?
- Imagine - YOUR DAY-TO-DAY. What is the aim (full retirement, reduced hours)?
- Summarise - What is your current net worth?
- Project - What is your target net worth?
- Calculate - Given age, saving rate, timeframe and asset allocation, is the goal realistic?
- Account for - How can you stay healthy on your journey?
Kathrin's Experience
When I first found FI, I created a 10-year plan that included four aspects:
- Listed and Planned: Start working on one of my top post-FI goals, which is writing. The aim was to publish at least one piece of writing by the age of 30 and eventually write a book. I have already achieved both of these goals and am now polishing my novel.
- Imagined my Day-to-Day. Accumulate enough money to be able to reduce my working hours to 1–2 days a week to pursue other activities.
- Projected My Net Worth – I set a target date for each 100k saved. I’m currently at around 59% of my lean FI target, which I want to reach in six years’ time. Right on track! I save at least 50% of my post-FI income. As a self-employed person, I have a different income each month. Fortunately, work has been very busy in the past two years, so my savings rate has been 60-65%.
- Accounted For Health: Exercise regularly to stay healthy. I have an electric bike, so I cycle everywhere. I also hike and do Pilates every week.
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- Get Rich, Slowly but Surely – We designed Equity ETF selection frameworks and then picked the best funds in each category, so you don’t have to.
- Become a Passive Investing Ninja – Have no mercy for Financial Institutions. Cut TERs, Taxes, FX Fees and Invisible Costs.
- Licence to Yield – Which Bond ETFs for your goals? How do prices change? Should you hedge currencies?
- Don’t get fooled by Wall Street – ESG Ratings are not designed to protect the planet. Adjusted for risk, ESG ETFs will also inevitably underperform. So how can you invest Sustainably?
The Journey - Organising Your Life Around 3L's
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Most coaching participants come from the EU or the UK.
But we have consistent demand from all around the world. We provided coaching sessions to individual investors stretching from Argentina to New Zealand, or Guatemala to Japan.
A significant part of our clients are professionals in the Tech sector, Lawyers or Doctors that want to avoid costly mistakes when investing.
We also coach 25-30 year old young professionals that want to maximise assets for early retirement. We also have a large group of entrepreneurs that e.g. receive large lump sums after selling their company and want to invest it in financial markets. We speak to Crypto millionaires that want to reduce their risks.
Finally, some of our coaching clients are in their 40s or 50s and want to set up customised, income-producing portfolios or create Bond ladders for their retirement.
Most of the coached investors are in the 25–60 year old range.
Yes, some of our coaching clients have shared reviews on Google.
Some considerations are included below. For more details, consult your regulator’s website.
A financial coach is:
- Trained but not regulated
- Skilled at reviewing your overall financial situation and goals
- Able to help you develop a financial plan to achieve those goals
- Happy to discuss the pros and cons of various financial products but can’t recommend a specific one for you
- Comfortable working with anyone, whatever their situation
- Going to charge for their time
A financial adviser is:
- Regulated and authorised by the regulator to recommend specific products to clients or is independent and able to offer ‘whole of market’ solutions
- Often, going to charge an annual management fee, typically 1-2% of their client’s assets with initial fees on top.
We are proud to say that our coaching service has empowered a number of clients to reconsider their financial advisers’ offerings. From our clients’ feedback, in a number of cases, clients were overcharged, and offered unsuitable products, often due to conflicts of interest. However, this is not a rule. The best choice between a financial coach and adviser depends on an individual’s unique circumstances, including their financial literacy, time availability, comfort with managing their finances, and complexity of their financial situation.
Beginners often ask us:
- How do I reach my goals – What investments do I need to take into consideration for e.g. Taking a Sabbatical, buying a House or saving for Early Retirement?
- When should I invest – I fear that investing a lump sum in this market may have a negative impact on my returns. How can timing of buying ETFs affect my performance?
- How do I Invest – What are the pro and cons of investing with a Bank? Why should I diversify brokers?
- What should I consider investing in – What are some risks of portfolio diversifiers like Gold or Crypto?
- Avoiding Extra Costs – I have shortlisted a few ETFs, can you help me to compare them before I decide which one to buy?
- Benchmarking – What are educated investors doing in a similar situation to mine?
We are flexible. For example, answering some of these questions could help you avoid very costly mistakes:
- Challenging My Portfolio – Here is my portfolio – what am I missing? What could derail my strategy?
- Accelerating My Understanding – What are inflation linked Bonds? How are they different to Nominal Bond ETFs? What makes them outperform? Why do some investors add small cap value stocks to their portfolios? I want to exclude Tobacco companies from my portfolio – what are my options? What is Factor Investing?
- Simplifying Portfolio Maintenance – How can I diversify my investments? What is historically highly correlated so that I can consider removing it to keep my portfolio simple? How do I perform rebalancing? Does frequency matter?
- Reducing Risks – I want to understand the risks of investments – what are the different measures and how does it impact me? What are the risks of different types of brokerage accounts?
- Understanding the Impact of Recent Events – How do recent events impact my portfolio? What can I do to protect my savings from shocks?
- Investing Goals – I am investing for a specific goal e.g. Early Retirement, what is the research saying about e.g. the amount I need to have accumulated, how much can I withdraw annually? What are some calculators available and how to run them? What are the assumptions/shortcomings of these models?
- Comparing Equivalent ETFs – I have certain constraints in my tax-wrapper and can only select certain funds (e.g. I live in France and limited to specific synthetic ETFs). Which ETF characteristics should I pay attention to?
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We Help You Avoid Costly Investing Mistakes.
Sometimes individual sessions are very helpful to get past your investing concerns. Our readers asked us to create coaching sessions. And we’re proud to say, that some of them even ditched their Financial Advisors, after experiencing the value we provide.
Most coaching participants come from the EU or the UK.
But we have consistent demand from all around the world. We provided coaching sessions to individual investors stretching from Argentina to New Zealand, or Guatemala to Japan.
A significant part of our clients are professionals in the Tech sector, Lawyers or Doctors that want to avoid costly mistakes when investing.
We also coach 25-30 year old young professionals that want to maximise assets for early retirement. We also have a large group of entrepreneurs that e.g. receive large lump sums after selling their company and want to invest it in financial markets. We speak to Crypto millionaires that want to reduce their risks.
Finally, some of our coaching clients are in their 40s or 50s and want to set up customised, income-producing portfolios or create Bond ladders for their retirement.
Most of the coached investors are in the 25–60 year old range.
Yes, some of our coaching clients have shared reviews on Google.
Some considerations are included below. For more details, consult your regulator’s website.
A financial coach is:
- Trained but not regulated
- Skilled at reviewing your overall financial situation and goals
- Able to help you develop a financial plan to achieve those goals
- Happy to discuss the pros and cons of various financial products but can’t recommend a specific one for you
- Comfortable working with anyone, whatever their situation
- Going to charge for their time
A financial adviser is:
- Regulated and authorised by the regulator to recommend specific products to clients or is independent and able to offer ‘whole of market’ solutions
- Often, going to charge an annual management fee, typically 1-2% of their client’s assets with initial fees on top.
We are proud to say that our coaching service has empowered a number of clients to reconsider their financial advisers’ offerings. From our clients’ feedback, in a number of cases, clients were overcharged, and offered unsuitable products, often due to conflicts of interest. However, this is not a rule. The best choice between a financial coach and adviser depends on an individual’s unique circumstances, including their financial literacy, time availability, comfort with managing their finances, and complexity of their financial situation.
Beginners often ask us:
- How do I reach my goals – What investments do I need to take into consideration for e.g. Taking a Sabbatical, buying a House or saving for Early Retirement?
- When should I invest – I fear that investing a lump sum in this market may have a negative impact on my returns. How can timing of buying ETFs affect my performance?
- How do I Invest – What are the pro and cons of investing with a Bank? Why should I diversify brokers?
- What should I consider investing in – What are some risks of portfolio diversifiers like Gold or Crypto?
- Avoiding Extra Costs – I have shortlisted a few ETFs, can you help me to compare them before I decide which one to buy?
- Benchmarking – What are educated investors doing in a similar situation to mine?
We are flexible. For example, answering some of these questions could help you avoid very costly mistakes:
- Challenging My Portfolio – Here is my portfolio – what am I missing? What could derail my strategy?
- Accelerating My Understanding – What are inflation linked Bonds? How are they different to Nominal Bond ETFs? What makes them outperform? Why do some investors add small cap value stocks to their portfolios? I want to exclude Tobacco companies from my portfolio – what are my options? What is Factor Investing?
- Simplifying Portfolio Maintenance – How can I diversify my investments? What is historically highly correlated so that I can consider removing it to keep my portfolio simple? How do I perform rebalancing? Does frequency matter?
- Reducing Risks – I want to understand the risks of investments – what are the different measures and how does it impact me? What are the risks of different types of brokerage accounts?
- Understanding the Impact of Recent Events – How do recent events impact my portfolio? What can I do to protect my savings from shocks?
- Investing Goals – I am investing for a specific goal e.g. Early Retirement, what is the research saying about e.g. the amount I need to have accumulated, how much can I withdraw annually? What are some calculators available and how to run them? What are the assumptions/shortcomings of these models?
- Comparing Equivalent ETFs – I have certain constraints in my tax-wrapper and can only select certain funds (e.g. I live in France and limited to specific synthetic ETFs). Which ETF characteristics should I pay attention to?
1. Living Life
The first ‘L’ is all about life essentials. Keep your basic living expenses low, while enjoying your life. Pay off your debt as quickly as possible, reduce your expenses where you can, and only splurge on “nice to have” budget items when you’re already hitting your savings targets.
Living Life Checklist
- Housing - mortgage/rent and bills
- Food - Supplies and Flexible (Restaurants)
- Health - insurance, regular medications
- Transportation - car loan, fuel or public transport
- Family - Children education, Parental support
- Subscriptions - magazines, music or movies
- Any other debts
Kathrin's Experience
Personally, I haven’t needed a budget since starting my FI journey. The goal of freedom is so important to me that I automatically only spend on things that bring real value to my life. I have made several adjustments to increase my savings rate.
I no longer commute by train or bus, but I ride my bike instead. The one-off expense related to purchasing a new GoCycle is offset within two years when compared to an annual London travel card. Over five years, I can save at least £4,000. This is especially true since London transport fares increase by 3-5% each year.
My diet has also changed. I used to eat out for lunch almost every weekday while teaching in London. But as soon as I discovered what a detrimental effect this has on my finances, I switched to bringing my own lunch. On average, I save £25 a week that way. If I invest this amount of money for 30 years, I end up with almost £122,000 in my account (assuming 7% annual growth). Other benefits are that I now eat healthier foods and enjoy rare restaurant meals much more than I used to.
2. Loving Life
The second ‘L’ is about something that’s often missing in the pursuit of Early Retirement – Loving Your Present Life. It’s not only about the destination. It’s about the journey. It’s important to build up friendship circles, hobbies, and positive habits now. You shouldn’t save money on a couple of activities that define you and your values.
LOVING Life Checklist
- Prioritise - List hobbies that define you (Including Travel)
- Allocate - sufficient Time & Budget FOR it
- Be Flexible - Can a hobby be a side hustle / part-time job during Retirement?
- Contribute to society - Financial and physical support
Kathrin's Experience
Personally, I have:
- Prioritized – Done creative writing for at least two hours a week for the past year. Now, I have had stories accepted in Woman’s Weekly and the American Green Prints Magazine.
- Learned – Used Duolingo to learn Spanish every day for two years. Now, I can communicate in a new language.
- Allocated – Done 10-15 minute workouts around 4-5 days a week in addition to cycling, walking, and gardening. These mini sessions have helped me maintain my ideal weight and keep my muscles strong.
- Contributed – I have taken the pledge to give 1% of my income to effective charities. Once I am FI, I will increase this considerably because extreme poverty is an issue I feel strongly about.
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3. LATER Life
The third ‘L’ is about your Early Retirement. Educate yourself, think about asset allocation and investment-related cost and tax savings.
LATER Life Checklist
- Evaluate - your finance knowledge gaps
- List - resources (books/blogs) allocate time to reading
- Research Tax - Advantaged Accounts
- Research Brokers - and Investment Accounts that are safe & cheap
- Forecast - Your Saving Rate and asset allocation
- Account for - an Emergency fund (6-12 month expenses)
Kathrin's Experience
I first started investing in October 2018, after several months of reading financial blogs. Here were some of my first steps:
- Emergency Fund – Since I already had an emergency fund that covered my fixed expenses for six months, I was ready to invest in riskier assets.
- Brokers – My chosen provider only charges a dealing commission, not an ongoing fee. This is ideal for a long-term investor.
- Tax Shelters (UK-specific) – I made sure I wouldn’t pay too much in tax by coming up with an order of investment. At the start of the tax year, I fill up my LISA, a UK account for young savers (£4,000 annual limit). The government tops this up by £1,000. Next, I fill up my regular tax-advantaged account, the ISA. Once maxed out, I put the rest into a self-invested personal pension. If I wanted to retire at a traditional age, I might prioritise the SIPP for its tax advantages, but I limit my contributions because it won’t be accessible until my late 50s.
- Asset Allocation – In the first few months, I bought two funds: the Legal & General Tech Index and Vanguard’s Small Cap Index. In hindsight, this was a risky move because I had no way of knowing whether small-cap and tech stocks would do well in the market.
It took me several years to figure out how to optimize my portfolio and reduce my risk as much as possible. However, I’m glad I started the way I did because it was a fascinating learning curve.
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Beyond 2023 - Keep it Relevant
As time goes by, your plan will change. People in their 20s don’t have the same needs and goals as those in their 40s. That’s why it’s important to revisit the plan every year and make the necessary changes.
For example, I’ve already reached two of my biggest goals, publishing a story in a magazine and writing a book. This means that I now have to come up with new challenges for my post-FIRE life.
I’ve also met my partner, whom I can imagine spending the rest of my life with. We are going to buy a property together, so my asset allocation has changed. I am saving more money in cash and investing less than before, so I’ll be ready to contribute to the down payment.
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