My 8-Year Plan To Reach Financial Independence

October 03, 2022

Financial Independence sounds crazy… until you do it. Here’s my plan to achieve FI in 8 years.

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Today we’ll be taking a deep dive into my 8 year plan to become financially independent.

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My 8 Year Plan To Reach Financial Independence

A Little About Me

My name is Dr. Dividend and I am a 23 year old investor. I have developed a plan that I intend to follow as closely as I can for the next 8 years to reach financial independence and become work-optional.

A few things before we start:

  • I am not a financial advisor

  • My investing goals are different than yours

  • My risk tolerance is different than yours

  • I have no control of the markets & things may not go exactly to plan

  • I will max out my Roth IRA every year

  • Covered call projections may increase or decrease in the future, they are just my estimates

I am an Elementary Special Education Teacher during the day and do not make a lot of money. I do however live very frugally and invest any money I have that doesn’t go to living expenses or is spent on dates with my beautiful girlfriend. I will organize this issue by what I plan to do by the end of each year and every year for my purposes ends in the last week of August (same time the kiddos go back to school).

I hope you enjoy and realize that while financial independence may not happen overnight, it can happen with a solid plan and by having the willingness to stick to that plan.

Year 1: End of Summer 2023

By the end of summer 2023, I expect to own at least 100 shares of SPY, an ETF that tracks the S&P 500. Why do I care so much about SPY? I want SPY to be my core holding as it gives me an anchor to the market average and provides me with diversification over 500 holdings. With the strong SPY foundation, I’d like to reserve some room for individual stock picking, but not as much room as I’ve allotted for it now. I’ve been able to outperform the market with individual stock picking thus far, but the chances of sustaining that over 20+ years are slim to none. Just take a look at how the Top 10 holdings from 2000 have changed from then to now:

The next reason I want 100+ shares of SPY is to have the ability to sell covered calls 3x per week. If you don’t know what a covered call is, I suggest you check out my thread on them here. Covered calls will be the backbone of my financial freedom plan. I already have 26 shares of SPY and intend to accumulate enough to push me over the 100 shares mark by the end of summer 2023. By selling Delta .20 covered calls on SPY three times per week, I expect to net ~$12,000 on a 48 week basis. I intend to sell covered calls for 48 weeks rather than 52 because I do not want to sell on volatile ex-dividend weeks.

You may be wondering about the tax implications of covered calls. While they are taxed as Short Term Capital Gains, a married person (which I intend to be) can make up to $83,550 from covered calls and be taxed at only 12%. Check out this table for more:

Year 2: End of Summer 2024

By the end of summer 2024 I intend to collect ~$12,000 from SPY covered calls. I will use the $12,000 and an additional $25,000 saved from my salary to buy the following:

  • 95 shares of GOOG (expected cost of $9k-$10k)

  • 70 shares of SBUX (expected cost of $6k-$7k)

  • 100 shares of IWM (expected cost of $17k-$18k)

  • 80 shares of MO (expected cost of $3k-$3.5k)

  • 90 shares of CNQ (expected cost of $2.5k-$3.5k)

I will then own 100+ shares of each of the above names and be able to sell covered calls weekly. I particularly like IWM as an investment because I’d get some much needed small cap diversification without having to spend too much time deep diving on risky small cap companies. IWM offers dividends and the ability to sell covered calls 3x/wk.

Year 3: End of Summer 2025

I expect to have ~$25,200 coming in from covered calls by the end of summer 2025. Here’s how it shakes out:

  • SPY CC ~ $12k

  • GOOG CC ~ $2.8k

  • SBUX CC ~ $1.8k

  • IWM CC ~ $7.5k

  • MO CC ~ $.5k

  • CNQ CC ~ $.6k

  • Total CC ~ $25.2k

I plan to reinvest this $25,200 into 90 shares of HD or MSFT which I expect to add another $6.7k. I will also be saving $30,000 for my first home purchase.

Year 4: End of Summer 2026

Covered call income now totals ~$32,000 annually. I will save another $30,000 from my salary in addition to the $30,000 I saved last year, bringing my total cash on hand to $92,000. This $92k will serve as the down payment for my first home.

I’d like to live abroad in a lower cost of living country where I can pay off my mortgage early, live for relatively cheap, and devote more of my time to spending time with my family. The goal is to spend less than $300,000 and buy a property with a detached house.

Year 5: End of Summer 2027

If we assume covered calls are paying the same as last year, I have another $34,000 on hand. I’d like to turn my main house into a short term rental for a year and in the market I’m looking to buy, I can expect to charge a nightly cost of $200. Assuming the average short term rental occupancy of 42%/yr, I can expect $30,000 from the short term rental. I’d also like to save another $30,000 from my salary. Here’s what this looks like in the context of my mortgage:

$300k house price

— $92k down payment

— $34k covered call income

— $30k from the short term rental

— $30k saved from 2026-27 salary

_______________

$114,000 left to pay on mortgage.

Year 6: End of Summer 2028

Ideally I’m living abroad in the main house at this point. Remember how I said I wanted a property with a detached house? Here’s where that comes in handy. I’d like to turn the small house into a short term rental and live in the main house full time. Assuming $100/night for 42% of the year, I can expect to bring home $15,000 annually. It’d also be nice to have this short term rental on the property because I can easily manage any problems that may arise.

While I’m managing the short term rental I am still collecting around $34,000 from covered calls. I would like to keep any money I make from dividends reinvesting unless it’s absolutely necessary that I use it for an expense. It’s good to know I have them as a safety net though.

By living abroad I’d also have to consider what to do for work. I’d like to transition into a Teacher of English as a Foreign Language (TEFL). I already have the schooling for it and it would be ideal since I’m living abroad and countries around the world are always looking to teach their students English.

One drawback in living abroad is that with lower cost of living comes a lower salary. TEFL teachers take home an average of $19,000 per year but I believe that’ll be enough to cover living expenses. Any extra I don’t spend will be invested & I’ve supplemented this low salary with covered calls from positions I’ve built from years prior.

Here’s what the mortgage looks like now:

$114,000 left to pay on mortgage from last year

— $34,000 in covered calls

— $15,000 from short term rental

_________________________

$65,000 left to pay on mortgage.

Year 7: End of Summer 2029

$65,000 left to pay on mortgage from last year

— $34,000 in covered calls

— $15,000 from short term rental

_________________________

$16,000 left to pay on mortgage, almost there!

Year 8: End of Summer 2030

The mortgage is finally paid off and I am officially FINANCIALLY INDEPENDENT!

I should be cash flowing ~$67,000/year from all my investments, here’s the breakdown:

  • Covered calls = $34,000 (could very well be higher with inflation)

  • Short Term Rental = $15,000

  • Taxable Account Dividends = $11,400 (assumes 2.5% yield)

  • Roth IRA Dividends = $5,800 (assumes 5.5% yield)

Life After Financial Independence

The plan moving forward is to raise a family with this consistent cash flow, be able to travel the world and invest in other ventures. My girlfriend and I actually met in a coffee shop and have dreams of owning and operating our own one day. I’d also like to invest in land and single family rentals in the U.S.

Single family rentals are an overlooked niche in my opinion. If you want the freedom renting gives you, you’re only other option is an apartment. But what if you wanted the feeling of a house? Single family rentals would let you have your privacy, let you move from place to place if your job required, and give your family room to live and play. If you’re someone with a family who wants to move around to where the best jobs are, it’d be a lot easier to do so with single family renting as opposed to buying and selling houses over and over.

Right now I buy shares of single family rentals through Fundrise. It’s the easiest way to get started and with the click of a button and as little as $10, you become a part owner of dozens of single family rental developments. Sign up here and receive a free $10 when you invest your first $10.

During this 8 year process, I’d like to build up my wine portfolio as well. Historically, wine has been uncorrelated with the stock market and has provided a hedge against its volatility. I use Vint to buy shares of collections valued at over $100,000!

Final Thoughts

I’ll reiterate: my goals are not the same as yours, this is just my plan and I’m sticking to it as best as I can. Things can happen that throw me off course but this plan will be the compass that guides me to financial independence. When you talk to someone and say you want to be work optional by the age of 31, they look at you as if you have 10 heads. When you lay out a plan, use conservative estimates, and have discipline & frugality, you can achieve financial independence. Haters will ridicule you now but in a few years when it looks like overnight success, they’ll ask you how you did it.

This plan may actually even be achieved sooner than I’d planned. Covered calls (ideally) should go up and instead of having $34,000 in annual covered call income, I should expect to see more and in turn, pay my future house off sooner. I don’t want to get to ahead of myself, it’s better to underestimate.

These projections were also made without any contributions from my partner. When we factor in her salary, we may reach financial independence sooner than I had planned!

All in all, financial independence is possible and I’m happy I sat down and created this plan to guide me towards it. Remember: a goal without a plan is just a dream, and it’s only a crazy idea until you accomplish it.

I hope I’ve served as some inspiration to become financially independent and I wish you well on your journey!

Memes Of The Week

This about sums up 2022:

The British Pound reached a 1 = 1 exchange rate with the U.S. Dollar so take this Britain:

Lastly, I think I found the place where bullies say they take my mom to:

Thanks for reading, if you liked this issue remember to tell a friend!

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Helpful Resources Are Here!

Don’t forget to check out my website full of awesome free resources to jumpstart your investing! 👇

Here’s my list of the best resources for financial freedom, enjoy!

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