Financial independence is a goal that many people have in life. Traditionally, reaching financial independence meant working until you reached 65 and could live out your golden years on your nest egg, accumulated through decades of careful saving and budgeting.
I’m not sure if I ever want to fully stop working. I find work to be good for my mental health, keeping problem solving skills sharp, and helping to keep those creative juices flowing.
I do, however, like the idea of generating enough passive income to help cover my expenses for life. To reach this point, you need some idea of your expenses. Here’s some of my expenses, minus rent, food, and car insurance are listed here:
| Cell Phone | $105 |
| Spotify | $10 |
| Netflix | $15 |
| Adobe | $20 |
| Crunchyroll | $10 |
| Total | $160 |
In order to have the majority of my discretionary spending covered, I will need to generate at least $160 every month. Currently, I’m covered! At least for these expenses.
This number skyrockets once you add in essential spending, like monthly food costs, utilities, rent, car insurance, gas, etc. However, I find breaking down discretionary spending first to be a good step to reaching the next goal. It helps to build motivation to continue saving and investing. Growth investors may get the big capital gain numbers (and from my brief trading experiences, it is fun), but I get to relax knowing that I can binge watch Netflix essentially for free, forever. On that note, I do not currently use my dividends to pay for my monthly bills.
Which brings me to my next topic! Debt refinancing. If you’ve been following my net worth updates, you may have noticed that in the first few months, I was spreading out my payments evenly across all my debts.
After doing some research online, I changed my debt payment structure to what’s known as a debt avalanche. Using this method, the minimum payment is made to each source, while any remaining repayment funds go to the debt with the highest interest rate. This method is ideal for saving on interest costs.
An alternative to the debt avalanche is the debt snowball. In this method, minimum payments are made to each source, while any remaining repayment funds go to the debt with the smallest balance. Once the smallest balance is paid off, these funds are added to the next smallest debt.
The avalanche will result in lower payments over time, whereas the snowball is an easier method. If you’d like more information, I recommend checking out Investopedia, which you can find on my Resources page.
