The FI Cake – Or How to Make Interim Goals

So after last week’s post regarding not having an interim goal until full financial independence I started thinking a bit more about financial independence (FI) and realized something important: it can be broken up in phases or layers.

The classic example of this is to consider each of your major bills and celebrate as you get enough savings to be financial independent for each bill.  So if your power, water and natural gas bills are $2250 per year in total, when you have saved about $56,250 (I’m using the 4% safe withdrawal rate), then you FI for just those bills.  Yes the separation is purely artificial, but it can be useful to create interim goals on your way to full financial independence.  The term for this, in classic motivational theory, is a success spiral (yes, it is official I read too much 😉 ).

Also after you start stacking up those layers you end up with your FI cake.  So in my case, I have the mortgage paid off which is the base of my FI cake.  Then depending on how I stack those next layers I could break it down bill by bill, yet in some cases those layers are going to be so thin that a 3D printer would have problems laying them down.  Case in point we only spend like $264/year for both cell phones, which would require about $6600 to fill that FI layer.  Since I can save about $4000/month, that level of granularity is getting a bit ridiculous.

So now I have a Goldilocks problem, I don’t want too thin of a mattress (or layer) and the interim goal feels too easy, too thick of a layer and it feels too hard.  Where’s the middle ground?  Well to work that out I started a bit backwards, on our basic spending of $24,000 a year, how much of that can be covered by the profits from our small businesses?  A rough number of that would be $10,000/year, so that leaves $14,000/year to fill in.  So how much savings to I need to roughly generate that level of income…$350,000 (or $14,000/0.04).  Given I’m already around $200,000 saved, that means I need to save another $150,000 which at my current savings rate is just over three years.

Thus in a puff of smoke and some magic words I have a new savings goal: get my investment net worth to $350,000 in three years or Jan 1, 2016.  Is it artificial? Why yes it is. Is it contrived? Of course.  Who care as long as it works for me!

So that folks is the point of your FI cake: motivation.  Make your layers any size you want, add pink or purple icing for all I care.  As long as it works for you…do it.  The point is to turn a huge problem (saving for your retirement) into smaller more near term goals, which you can see the end to and do something about.  Long term goals are a bitch to meet without smaller sub goals (think how many people you know say they want to write a novel, but never do it).

So what is your next FI layer?  Or do you use interim goals?


This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I really like countdown dates. Right now on my phone, I have a countdown app that is keeping track of 4 different topics, anything from the date that a book I’m looking forward to is coming out, to how many days until my cell phone expires, and the longest-running countdown – days to my 45th birthday, and (for now) my proposed retirement date.

For me, these kind of countdowns put a lot of my goals or interests into perspective. Last month a book I’d been waiting for was published (A Memory of Light, the 14th book in a Wheel of Time). The process was sort of like waiting for Christmas when I was younger – I could look at my phone and know that I only had to wait this many days until I could (after a decade) find out how a story ended. My cell phone countdown I employ just so I know for how long Bell owns my soul – those contracts always seem like such a good idea when you’re signing them.

When it comes to retirement, it’s not really so much the days left, it’s more the days I have available to earn enough money to meet the goal I set around 4 or 5 years ago. I can sit in front of a spreadsheet, working out various impacts of changes to income or increases and decreases in interest rates for a while, but when I can see that there’s 4,307 days left (as of today), it does give me some incentive to achieve the goal I’ve set out to do and gives me a tangible number to look at.

On days that I really don’t feel like going to work, my countdown to retirement is somewhat comforting. Thankfully, these days are few and far between, because I find the work I do rewarding and challenging. The days that I don’t feel like going to work are the days that I know I’m going to get frustrated over something out of my control.

Philosophically, the ability to count the days until a book comes out so that I can buy it, or a vacation somewhere with my wife, or any number of inane things I keep track of is more than a little weird. I like it though, I don’t really dwell on it – I just like to know this kind of information.

Am I alone in this kind of behaviour, or are there other people that like to count down to milestones in their lives or events that are coming up? Do you have a countdown on the go to retirement?

What are Weekends for?

Not everyone works “nine-to-five,” but many people work Monday to Friday. After that, they have two glorious days of freedom to rest and recover, before heading back to the grind. On a few fortunate occasions, the  weekend is followed by a holiday Monday, creating a three-day weekend. Of course, you already know what a weekend is, but how do you think of your weekend?

I know that some people use their weekend to catch up on housework and yard work, then use the rest of their time to nap or watch TV or otherwise unwind. Other people are more ambitious, and use weekends to travel, play sports or engage in any other of their hobbies.  Granted, some particularly busy people likely feel they barely have time to keep up with all their responsibilities.

It occurs to me that the end of the workday on Friday is like a mini-retirement from the workweek. After working hard for five days, there are two glorious days in which you are free to do whatever you choose. How you choose to spend your time says much about you, and you’ll likely make similar choices in retirement. Do you want to stay busy, feeling a sense of accomplishment at each project completed? I think many people feel this way about improving their house and yard. Do you want to create memories? Some people see value in spending their time with friends an family, socializing, partying or just being together. Do you want to continue learning? Many people feel that travel allows them to learn about the people and places they visit. There’s no reason that travel needs to be international, and many of us have access to interesting places to visit right near home.

A couple weeks ago, as part of a university course, a professor gave me the assignment of walking for 45 minutes downtown with a camera. We were asked to take 10 photos every 5 minutes (for a total of 90) and come up with some interesting views of urban objects and locations. My wife and I picked our kids up from school, took them for a snack and brought them on the walk. It was an experience that we all really enjoyed, but it was something that I wouldn’t have made time for, if it weren’t assigned. I love to travel and visit urban centres, but downtown Calgary (where we live) seemed too familiar or too close to home to be interesting, until we were actually there.

It seems to me that evenings and weekends can be great practice for retirement. What activities do you really enjoy, and how can you do them on a small scale? What makes you happy, and can you fit that regularly into your week? Once you can answer these questions, it seems fairly certain that you won’t be bored in retirement. Step two, of course, is making sure you have adequate financial resources so that you don’t end up working as a cashier at WalMart and being happy on evenings and weekends into the sunset of life.

What do you do on weekends? How do you make the most of your time away from work?