In the second half of 2023, I significantly impacted our passive income, causing our household to technically lose its financial independence. Prior to this, we had been financially independent since 2012, when I left my banking job.
My goal now is to regain financial independence by December 31, 2027. To achieve this, I need to restore the ~$150,000 in passive income we lost by selling stocks and bonds to buy our new home. This will bring our passive income back to ~$380,000, allowing us to avoid needing to work.
Starting in September 2024, our expenses will increase to approximately $280,000 a year after taxes as our daughter attends an independent Mandarin immersion school. Consequently, with an assumed 20% effective tax rate, we require at least $350,000 a year in gross passive income for financial independence.
Although the challenge of regaining financial independence while raising two kids in an expensive city is daunting, I’m excited for the journey. It’s similar to the excitement you feel when making plans before going on a great vacation.
The Journey Back To Financial Independence: Stage One
The first step towards regaining financial independence is to feel financially secure again. Fundamentally, feeling rich is important given it transcends all levels of wealth. There are people who make millions a year who feel constrained, and people who make $50,000 a year and have more than enough.
I violated my 30/30/3 home-buying rule by not maintaining a 10% liquid cash buffer after purchase. As a result, we felt financially insecure for six months. It was a mentally taxing time with heightened anxiety and stress.
However, partially thanks to a surprise real estate capital distribution in early 2024, we were able to pay our hefty property tax bills and meet a flood of unexpected capital calls.
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