Now that I’ve been investing for 15 years, I find myself asking all of the time – when will I be able to stop? We’re having a family and expenses definitely are rising slightly each year. We keep investing into the stock market and climbing towards financial freedom.
This article focuses on the topic of knowing when to stop investing and truly start living.
15 years of investing
15 years ago I set out on a mission to reach financial freedom. 15 years ago I set a goal to be retired young. I wanted better for my life and future family.
Here we are, 15 years later, still investing. What happened?
Life.
Life changes. You get married, you have kid(s), you change careers, you change location, you change what’s needed for others.
There’s no question, if I was not married or with a family, there’s a chance I’d be financially free now. BUT I pursued my family goals and passions, getting married and having a family. Now, I want them and everyone in my family to bear the fruit from investing – granted it’s taking longer.
These are thoughts on “paper”, so I have to apologize for the possible randomness.
Over the last 3-4 years I’ve also had the pedal down, investing more than I ever have in my life, making every dollar count, while also saving for a soon to be bigger house, as my 1,400 square foot house isn’t cutting it anymore.
The passive income from dividend income has essentially more than doubled in those years, and I’ve never wanted to be financially free moreso now than ever. For my son. For my wife. For my mom. For many others. Prove the naysayers wrong, all of them.
But if I have been investing for so long and my passive income is growing at a fast clip – why don’t I just stop and start living?
Why I haven’t stopped investing
The unknowns. I’m being honest. So many unknowns when it comes to “hanging it up” like MJ or Kobe. I am sure LeBron feels it.
The unknown of when we will find the right house to move into, with record high inflation, higher than recent history interest rates and sky rocketing real estate prices.
The unknown of health. What adventures we want to go on and accomplish, our family’s health and desires, so many items.
The unknown with what we can’t control. The tax code on dividend income, will the stock market continue to average 7%-10% each year or will other asset classes rise up and shun it all away?
There’s also fun to investing. It’s fun knowing that you can be so disciplined, so consistent with earning, saving, investing, repeat. Seeing the numbers rise up, day in, day out, week in, week out, month in, month out, year in and year out.
The last obvious reason – we haven’t gotten to our goal, yet. We haven’t hit that cross over point – based on the above. The house being the big thing. We haven’t seen the dividend income cross over the expected monthly expenses yet. Therefore, I still continue to invest.
When to stop investing and start living
The obvious answer here is the cross over point. The cross over point when passive income exceeds monthly expenses.
I then go and run investment calculators and returns, the numbers will and should be staggering in 10, 15, 25 and even 50 years out. However, so much pressure to get there – NOW.
When will I stop investing? In the short-term – if life takes a few different turns where any income needs to be re-allocated to other important areas of life. Until that occurs, I’m not stopping.
In the medium term – I’d like to take my foot off the gas with the 401k. Something about putting so much in for years and years, that – without conversions and ladders – could be locked up until 59.5 years of age is concerning.
In the long term – I can envision any excess income over expenses from being financially free to be invested into family members futures, non profits, and the place where I live with experiences we want to have. THAT will be the primary investing I will be doing in the long-term. Anything extra will surely go back into the investment portfolio.
If you haven’t noticed, no timelines were given above. Given I’m still in my md-30’s gives me hope that only a few years left of the short-term and I’ll be entering that mid-term soon.
conclusion
After all of those thoughts, statements, desires and passions here I am keying on this keyboard, putting it on paper. I had a goal at 20 years of age to reach financial freedom at an early age.
I can guaran-damn-tee that is going to happen. That goal and desire has NEVER changed.
And for that…
I’m not stopping investing.
-Lanny
As someone who has over saved, I would tell you that it is OK to take your foot off of the gas and live a little. We are now in a situation where we will never be able to spend our money on ourselves and will end up giving a lot of it away to family and charities. We are fine with that and will get some joy out of helping others. But what it has taught us is that we stayed in our careers too long and should have retired way sooner. And if we didn’t want to retire sooner, then we could have begun to save less and live it up a little more.
But you are now in the investing wheel and it is hard to get out, I know. So since you seem it enjoy the saving and investing game, keep it up and adjust your goals to match. I think that building generational wealth is a noble endeavor. Set your son up for life now, but also get him into the investing mindset so that he doesn’t lose it all in his lifetime.
My advice is that once you achieve “critical mass” then quit saving so much. Your pot will continue to grow and you can now begin to use your salary for other things in life – great experiences like nice vacations and more nights out with friends and family. After a while you’ll see that your portfolio will reach your desired number all on its own and then you can quit and live without the salary.
Our net worth is entirely in our investment accounts (i.e. we have no house). After 5 years without a salary I am seeing that our net worth is still compounding at a 5-year CAGR of 9.93% as of the end of May (and that is after all of our spending using our dividend income). So don’t be so afraid.
Good post Lanny, and between this post and the earlier one on “Milestones” I sense some appropriate soul searching. This is a sign of normal aging and maturity as a spouse and father. I have empathy for your current mindset, because:
1. DGI investor for 21 years
2. Wife and kid(s).
3. Had to move from a “starter” house (I hate that consumerist term, I mean the goal is a “home” and not a structure that varies on J. Powell’s whims:)) to a larger family home.
4. Have had/am adapting to new goals that come with being a dad (lessening possible college debt strain for offsrping), questions of legacy, even issues of end of life care/inheritances/life uncertainties.
5. I had a “firm” set of “single dude” financial goals in my late 20s that were all pre-marriage, kid(s), and aging.
6. Bottom line: In personal finance, the finance part is “easy”/math. The “personal” part is where you get in the weeds.
As such, a few ideas, knowing YMMV and I too am learning as I go while still trying to sleep at night…
1. Life is full of questions, especially about the future. I think when it comes to “living off investments” and the stock mkt (some people want to live off real estate/rental income, fair enough, or royalties, etc), there are basically 2 rough “camps” of people: People who can sleep at night living off of capital gains (with some potential adjustments based on mkt returns- ie, trimming more in bull mkts and avoiding SORR), and people who prefer to live off of dividends. I feel capital gains people are inherently positive, and they believe in the mkts and mainly the US economy. As I think WB has said, the markets reward a positive attitude. I am inherently negative, and I look for snafus. I am not paranoid, but I need a margin of safety, and that is dividends. The Great Recession, and even Covid, have not stopped dividend gains. I write this wordy preamble to illustrate that perhaps you can find ease in a modification of your divy x-over point. Perhaps you aim for a point that 90% of income is used and 10% reinvested. That is a nice buffer to go with inherent, innate company dividend increases. You also could, especially if your future belies some “lump cash” sum items, use the “dividend bucket” where you keep 2-3 years worth of living expenses in safe cash, and then let your divys fill up (hopefully annually if x-over calculations are right) the cash reservoir.
2. We all say it easily but living it is hard (especially looking at NVDA)- DGI is slow money, and needs patience. Patience isn’t 3-5 years, or even 10-20. It is 25+…and it keeps going. It is natural when getting antsy at the “mid life mark” of 15-25 years to question/doubt yourself-but this is when the parabola starts to finally turn vertical. Hang in there. If it is needed psychologically, (happy wife, happy life, although I am not accusing anyone’s spouse of being a spendthrift!) use the occasional splurge/vacation to recharge your dividend mojo. Lose the battle, win the war. Get the house you need, but drive the safe beater car and keep investing in JNJ.
3. Don’t ditch the 401k. Oddly, I know psychologically it seems “useless” because your mental boxes see it as a big zilch to contributing to the x-over point, but the problem with life is that major expenses tend to be lumpy and not regular. For instance, most sources cite 2% of your current home value per year in maintenance. The problem though, is that say for a 500k house, the (inflation ignoring) first 5 years is not 10k,10k,10k,10k, 10k in maintenance. It will be 2k, 1k, 5k(appliances),32k (roof and doors and new insulation), 10k. Again, this is distinct from taxes and insurance. Once it reaches an accessible age, the 401k can be a solid “smoother” for these life happens moments, cause a new roof can blow up many an annual divy expense sheet. If you want to leave an inheritance, you may need the 401k to self insure for LTC, and leave your “dividend machine” intact for your kids.
4. Special caution with natural disasters. Regardless of your climate views, recall that even if you have insurance to cover several disasters…do you have the income to cover the many years of increased subsequent premiums that occur from using that insurance? WItness auto insurance the last 3 years. Witness your auto/umbrella policy if your teenage driver kid paralyzes someone in an auto accident. Witness a flood that is not covered by your homeowner policy. Keep these in mind before you dump the 401k and recall these in your x-over point calculus.
Regardless, you can do it Lanny, because you are undergoing the needed introspection NOW. Watching FWIW many DGI people, I sense that DGI with a family/over 3% mortgage is less suited for the “super-FIRE” retire at 40-45 crew and more for retire the mid-50s crew, which is still a fabulous, “first world” luxury. Internet rumor is dangerous, but last I checked even Mr. Triple M and super fire had sadly went though divorce. Huge financial issue there, and one that we all should aspire to avoid. Life is hard, you have to plan harder, and even then higher powers laugh at man’s plans, so maintain your relationships.