Revisiting our financial plan

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A lot has changed since we launched our blog three years ago. Come to think of it, a lot has changed since a pandemic was declared just over three months ago. We’d just hopped off a flight, returning from a short business trip to New York City when we heard the news and have been in a constant state of caution ever since.

Did we contract COVID-19 and not know it? Should we buy a refrigerator and shelving for our garage to store food and supplies? Would we invest all the proceeds from selling our last rental property or do we hoard cash and toilet paper? Who knows? We even bought a portable bidet because things were looking a little dicey for a while. For the record, that bidet is now sitting in our garage on our shiny new Ikea shelving alongside our stockpile of professional grade sanitizer, disposable masks and latex gloves. The point is, there’s definitely been a lot to consider recently and it has been a bit overwhelming.

Luckily, we both have the time and capacity to focus on our lives and to make sure the plan we’re working is still relevant given this new normal. To name a few, we’ve had to re-evaluate childcare for our son, our wellness/routines, our approach to meal planning and how we’d both be productive while working from home. But above all else, we’ve had to re-visit our financial plan and to be honest, we’re still not done.

Now that we’re both full time entrepreneurs, we’ve had to think about our plan to earn income, invest and plan for our retirement a little differently. Our original plan was to continue working our jobs, keep living on less than half our income and invest at a high rate until we hit our financial independence number [min. $1.3 million]. Our wealth and income would be partially attributed to our two rental properties and we’d slowly chip away at building newer sources of income. But if you’ve been following us for the last year or so, then you know that plan has been completely abandoned. In short…

we fell out of love with real estate and deeply in love with digital entrepreneurship Click To Tweet

Writing, content creation and other ways of earning money on the internet have not only been more interesting to us, they’ve been more flexible and lucrative than the income earned from our old real estate portfolio. Also, compared to our old jobs, digital entrepreneurship has been more fulfilling. The work we do now leaves us feeling…appreciated. We’re motivated by the inspirational emails we get from people and the work itself forces us to use parts of our brain we didn’t get a chance to when we were in the traditional workforce. In a way, you could say…

instead of hoping to find a dream job, we just created one. Click To Tweet

But that doesn’t mean it’s been easy or that we haven’t experienced bumps in the road. Working this closely together, as a married couple with a child and a growing business has stretched our time, creativity, patience and skill sets.

We’re writing a book about money during a pandemic, a recession and a social uprising all while coping with aging parents who are experiencing health challenges [non coronavirus related] on both sides of our family. But through it all, our journey to self-employment has been one of the greatest learning experiences of our life together and we’re deeply grateful for the lessons its taught us.

So in case you were wondering, here are a few of the biggest decisions we’ve made since revisiting our financial plan in recent months.

Holding onto cash

If ever there was a king of money clichés, it’s cash is king. It doesn’t matter if you’re talking about personal finance, corporate finance or under-the-table deal-making; cash is always deemed critical to keep on hand. As relatively highly compensated employees without a child, we held onto about three months of living expenses in cash in a savings account. Now, as self-employed parents, we’ve chosen to take that a step further by adding an additional 6 month”cash runway” in checking to pay bills and draw down from. Basically, even our safety net has a safety net.

This extra padding gives us the comfort we need in knowing all our bills are paid and that we have added layers to fall back on, if needed. It also gives us a bit more confidence in the approach to our business so that we can be more selective in how we choose to earn income.

Tweaking our investment strategy

When we worked traditional jobs, we both made sure to participate in our employer sponsored 401(k) plan. Luckily, that employer also offered index funds, our preferred type of mutual fund . As entrepreneurs, our preference for index funds hasn’t changed and neither has our aggressive allocation strategy (approx. 90% stock and 10% bonds). What has changed is the frequency in which we choose to invest. Since we don’t receive paychecks like we used to, there’s no automatic contribution on a bi-weekly basis. Instead, we review our cash holdings, estimate our tax liability, payment distribution and corresponding retirement contribution on a quarterly basis.

For example, we put a cool $19,000 into the market in early March of this year into a self-employed 401(k) account. This approach is known as dollar-cost averaging and is aimed at minimizing volatility by spreading investments out over a period of time rather than dumping a sizable lump sum all at once. We’ll look to invest again at the ends of each quarter throughout the year.

Like an employee sponsored plan, self-employed 401(k)s allow investors to set aside money for retirement, offer a tax deduction in the year of the contribution and tax deferrals as the money grows. But what makes these accounts really special is the ability to contribute even more tax-deferred dollars in the form of a profit contribution. This added benefit allows us to stash up to $57,000 tax-deferred per person in 2020.

Keeping the same health insurance

Without a doubt, health insurance has been one of the most difficult adjustments for our family to make in recent months. We were spoiled rotten with our former employer health plan and though it was still expensive, we don’t pay nearly as much as we do now. For comparable coverage, we estimate we’re spending 7 times out of pocket to pay for health insurance to cover both of us and our son.

We decided to stick with the same health coverage and provider primarily to avoid making any further big shifts in our life. The pandemic forced us to re-evaluate pretty much everything so wherever we had an opportunity to keep things the same, we were willing to do it. However, depending on how well things go in the future, we’ll likely re-evaluate to find more affordable options.

Diversifying our income sources

A few years ago, we had two primary income sources: our jobs and rental income. Now, having learned from others in our online entrepreneurial circles, we have significantly more. Our income sources now look like this.

Perhaps the best part about this new approach is when we do well, we reap the full benefit. Along those lines, if one of these sources slows down or dries up entirely, we have other lanes we can swim in to replace that income. In our past lives, we didn’t have this degree of flexibility and our income was largely capped.

There was only so much we could reasonably raise rent or expect to receive from our employer. Now, our income potential is unlimited. Click To Tweet

We aim to deepen each of these sources going forward and will continue to explore other opportunities that are in line with our skill sets, values and mission. It’s a big shift from our traditional 9-5 days but if the first half of 2020 is any indication, it will all pay off. And when it does, we’ll have hit our FIRE number right when we said we would (2021)…if not sooner.

JK