Monthly Financial Update – September 1, 2018: Fixing My Big Mistake

The Monthly Financial Update gives our readers an inside look at the allocation and performance of our personal portfolio. At the beginning of each month, we share a snapshot of our investments and highlight their performance over the previous month. In addition, we compute our progress towards achieving our retirement number.

I posted the very first Monthly Financial Update article on January 1, 2018. Since then, I’ve posted a new update summarizing our current financial picture each and every month. In these posts, I analyze the preceding month’s performance, break down how our investments are being allocated, and show the progress we've made toward achieving our financial goals.

While thinking about what to put in the monthly update for September 1^st, I had an epiphany. I realized that I'd been analyzing our financial progress all wrong. Specifically, the amount of money I chose as a savings goal is not the value I should have selected. Instead of using our total yearly expenses to calculate the amount it would take to achieve financial independence via the 4% rule (i.e. 25 x expenses), I selected a number that would allow us to spend about 1.25x our current expenses each year (i.e. 25 x expenses x 1.25). At the time this seemed like a good idea. Saving a higher amount would allow us to increase spending in retirement and enjoy things we had gone without while still working. We'd also have a large buffer of additional funds to rely on during any market downturns that might arise early in our retirement. These are perfectly valid reasons to save more money, however, I think it was a mistake to artificially increase our retirement number.

What I realized is that, for me, the main goal of reviewing our finances is to determine how close we are to reaching financial independence. I want to know the moment when the investments we've made grow large enough to sustain our lifestyle. I want to have the peace of mind to know that even if I was laid off from my job tomorrow, we could keep living at the standard that we are used to. Having a little extra definitely wouldn’t hurt, but the extra is just icing.

So how do I fix this mistake?  Simple, I’ve decided to shift our savings goal to an amount that is more in line with what it would actually take to maintain the lifestyle that we currently live (a pretty good lifestyle if you ask me). When you look at the progress chart below you may notice that the percentages have all increased from what they were last month. Now you know why. We are closer to financial independence than we suspected!

Oh, by the way, we had a rocking month of growth! The stock market has begun to hit all-time highs once again. Time is certainly on our side!

Results:
3.35% month-over-month growth
48.9% of retirement number saved

Check out our performance in the table below.