With this article series you can follow our journey to financial freedom step by step. That way everyone can see how we achieved our goal and all steps, the ups and downs, along the way. In this special article, I discuss our plan to achieve financial freedom. Wish us luck!

The Plan

If you have read my article about the levels of financial freedom you will have a general understanding of how we need to level-up in order to reach financial freedom. Financial Freedom is the state in which you can retire while still being able to achieve your life goals. In my case, that would be starting my own restaurant and giving financial advice. My boyfriend would love to be able to spend more time on his hobby and develop himself in other fields and go back to school again to learn more. If you would like to know more about my reason for pursuing financial freedom, read the article about it.

So now the big question: How are we planning to achieve this goal? You must know that part of this plan was already in motion before I even knew the concept of financial freedom. It’s best to explain it when looking at the numbers!

Finances

So let’s talk numbers. I started on level 0 like everyone else, a child dependent on parents. I you want to know more about the levels, read this article. I received some pocket money from my parents from around 7-8 years old, it wasn’t much and definitely did not get me out of level 0. I had some jobs on the side during school. At some points in time I was able to cover all of my costs but for most of my studies I was never able to pay for all my costs. I relied on government aid, a study loan and my parents. I only reached level 1 after getting a job at the age of 23, right after I finished studying. My job payed well and more than covered my costs of living so I could save and so with the start of my first full time job, I also reached level 2. My boyfriend reached this level the same way at the age of 25. At that point we had both accumulated a significant debt. Its a shame because without it we could have pushed immediately for level 3, debt freedom.

From here our journey becomes a plan. Together, we currently spend about €2.600 a month which is €31.200 a year. Taking the shortcut route to calculate our FIRE number by multiplying this number by 25 it means we need 780.000 euro in order to reach financial independence which is level 7. We also need to pay off our €56.500 study debt which comes on top of that. Taking into account conservative future salary expectations, promotions and yearly investment return (expected average of 3%) we will reach the financial independence goal when I am 38. So in about 15 years. However, this number did not take into account inflation. On average, the inflation in the EU is aimed at 2% by the European Central Bank. That would mean that our number would be €1.100.000 by that time which would take 2 more years to reach.

We also want to strive for more than just financial independence, we want to aim for financial freedom. For us that means being able to travel around, study the things we like to learn and starting a restaurant. That means we want to aim for around €1.4 million in order to fulfill our dreams.

How are we going to save that much money? Via 4 ways. The main source of income will be our jobs, or earned income. With the money we save we will create our second and third source of income: capital gains (stock price increases) and dividend. As stated before, we expect a very conservative 3% return per year.

The 4th way is not necessarily a source of income but more of a reduction of costs. We are going to buy a house. Renting a house is no sustainable way to become financially independent. Renting prices increase yearly while linear mortgages decrease yearly. So in order to live for “free” we need to buy a house. Houses are never truly free as they have taxes and maintenance costs associated to them so we do not consider it an investment in itself.

Risks of failure

In every plan there are risks that can make the plan fail. Our biggest risk is losing our jobs. Earned income is the main source of income for this plan and if we lose our jobs we need to use our savings instead of saving more which means we do not achieve our yearly savings targets. Thankfully our industry is quite robust, even during the corona crisis we did not notice significant issues.

Another risk is that we do not achieve the expected average 3% investment returns. However, this was a conservative estimate. The reason why I say that this is a conservative estimate is because all of our money is in stock index funds. We invest in the S&P 500 and the MSCI World Index. The average return of these index funds for the past 50 years was 9%. After taxes (30% were we live) this means a return of 6,3%. That is twice as much as we estimate. However, we want a plan that succeeds and past investment returns are no guarantee for the future therefore we plan 3%. In the best case scenario, we retire earlier than we had planned.

A much more nasty risk is lifestyle creep. This is the tendency to increase your spending the more you earn. Look at your parents, family and friends. What do they do with their salary raises, bonuses and promotions? Do they save more? Or do they spend it? We are not immune to lifestyle creep either. We use it to outsource tasks and household chores (e.g. grocery shopping) we dread. We also want to live in a bigger house even though we are fully aware a smaller house would be just fine too and would means we would reach financial independence faster. It will become a balancing act.

Of course there are also negligible risks that can have a major impact. Natural disasters, accidents and becoming sick or disabled are all things we cannot plan for but that can derail or plans. Were possible we have insurance but cannot be afraid to live either.

In the end, there is a balance we have to choose for ourselves. We don’t want to give up everything now because you don’t know what will happen tomorrow. We want to still live while working towards financial freedom and to never regret anything if we get an incurable disease at a young age. This is my plan, this is our plan. I will keep you updated along the way!