My Thoughts On Financial Independence

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Almost there...
Almost there…

I sucked with money. For a long time. I have blown through more money than most people have had pass through their hands in the past decade. Most everyone around me was terrible with money as well, giving me the impression that I was just being normal. But after picking up a Dave Ramsey book, I realized that normal = broke, and I was well on my way to staying broke forever.

I finally learned a few things about how money works, how I should handle it, and how having a budget roadmap for every dollar of my income can change our financial legacy forever. I got extremely passionate about trying to show others the “light”, show them how wasteful and lame it was to just blow money on stuff and not know where their money was going. It became my mission to help people make the most of ALL their hard-earned cash, no matter how much or how little it was.

But something has always been missing from how I approached finances. Everything is short-term. There seems to be this HUGE SURGE OF MOTIVATION to kill off debt or hit some other HUGE goal within the next 2 years, that I never bothered to ask “what’s next?” Personally, we have student loans that need to die, and a mortgage that I want to tackle right after (sort of). When I do budgets for other people, I have them send me a list of goals they want to hit, and I tailor a financial plan for them to hit those goals.

But I never questioned if they were even the right goals.

My Definition Of Financial Independence

Most people agree on what financial independence is, and what it is NOT, but for clarity’s sake, here’s my definition:

Financial independence is having enough money to not have to exchange time for money ever again.

Financial Independence has many factors and rules around how to achieve it, but the definition is always the same. And notice I did NOT say “never have to work again.” That is very intentional. Life involves work. Raising kids is work. Marriage is work. Keeping up with chores and running errands and making sure you manage your money well all involve work.

And I know this may not be popular, but I’m going to say it anyway: WORK IS A GOOD THING! There, I said it. And some people have made it a goal that work does not have to involve monetary compensation, but just the joy of a job well done. Payment comes in the form of family hugs, a thankful neighbor or just enjoying the fruits of your labor (literally) when picking fresh from your garden.

And that’s what financial independence means to me, and why I have started looking closer and closer at how it can materialize as a family goal for our household.

Where I Learned About Financial Independence

Thinking about possibly getting to the point of not having to exchange time for money started first at the end of Dave Ramsey’s Total Money Makeover book. It was a weird metaphor, especially after spending the first 90% of his book talking about getting out of debt. But now that I think about it, it was his version of financial independence. It went something like this (paraphrasing):

“As a kid, do you remember pedaling your single-speed bike up a REALLY big hill? It was a tough climb, and it took a LOT of energy and time to make it to the top. You would ride up it like a switchback, going back and forth up the hill, ever so slowly inching your way toward the goal.

Toward the very end, you could see the top, and though your legs were burning, you kept pushing. As you finally crested the hill, you could see the whole town, you had finally made it! And now comes the best part. Just a few more pushes of the pedals, and then your bike starts to roll down the other side of the hill. Soon, it’s going faster than you could even pedal yourself, so you just let go. With the wind whipping through your hair, you no longer had to push to gain speed, it happened by itself. The joy of riding your bike now required no effort on your part anymore.

That tipping point at the top of the hill is just like your money. You work and work and work, and at some point, your money starts working for you. And soon, your money is making more than you are, and you can let go and just let it do all the work from there forward.”

The metaphor is kinda weird, but the picture is there. Work until your money makes more than you do. That sounded pretty awesome to me.

Then, a few months after I started this blog, I started connecting with other like-minded people who also has a passion for helping others succeed financially. And while searching around for financial blogs, I came across a guy who became financially independent at age 30. Mr. Money Mustache (or MMM) took Dave Ramsey’s advice, injected it with frugal steroids, and he and his wife worked only 9 years before their money made enough to cover their yearly expenses. Here’s a summary post on how to retire ASAP using MMM’s advice.

Financial Independence As A Goal

After ingesting more and more information on how to achieve financial independence, I started to realize that it’s not some far-fetched goal for extreme cheapskates or rich people, but something that can be set as a goal for the average family. The math is simple, as illustrated in this post. But the execution is where most will stumble. It’s where we have stumbled, honestly.

Michelle and I have had more and more discussions on what it would look like to have an over-arching goal of becoming financially independent. In discussing our goal, I have realize a few things about myself:

  1. I don’t want to quit working for money once we become financially independent.
  2. I don’t want to ever “retire” in the traditional Americanized sense of the word and be a lazy schlub (you know, live on the golf course and recline in front of a TV all day).
  3. We need a lot less than I ever thought to safely live off 4% of our savings.
  4. The most motivating part of the goal is the ability to spend as much time as I want with my family.
  5. As much as I enjoy our home and everything about it, it probably wasn’t the wisest financial decision.
  6. As much as we tell everyone that my wife is the spender of the family, that is NOT true.

We have started to loosely map out what it would look like for us to work toward this long-term goal. As with all goals, the best way to achieve them is to start at the end and reverse engineer them. So here’s how we set specific goals and milestones to work toward financial independence.

Four Steps To Financial Independence

  1. Put together a projected “F.I. budget” of our predicted future monthly expenses. This would NOT include a mortgage, because we want to KILL that sooner.
  2. Based on the annual expenses, figure out how much we would need to live on 4% of our total savings (Hint: multiply annual expenses by 25).
  3. Based on that total number, use a handy-dandy investing calculator to see how long it would take to get there based on our monthly savings amount.
  4. Adjust savings rate as necessary to get desired result.

Making The Necessary Changes

I think that last step above is the BIGGEST hurdle for most to overcome. Whatever your current financial situation, there are a MILLION reasons why you are only able to save the amount you do RIGHT NOW. Whether it’s that you mortgage is too big, or your income is too small, you feel that you are financially tapped each month, so how in the world could you increase your savings rate?

I’m in the same boat currently. For us, we know that our mortgage is one of that biggest reasons for that. Our long-term plan includes adjusting it down (which may include moving), and paying it off early, as well as increasing our income strategically over the next decade or so. The rest of our budget is pretty rock solid, and we are bare minimum for most every category, including free travel, not paying for clothing, and avoiding new cars. But our budget has been a work in progress for 5 years, and over the years we have continued to cut the crap out of our budget to direct our money toward the important things in life.

It’s not easy, but the only way to increase your savings rate is to either make more money, or cut out unnecessary expenses. And the only way you are going to make those changes is having your goals at the front of your mind as you review your spending and decide what is truly important to you. The goal of financial independence can be the foundation and long-term plan for you to start making those changes today.

Staying The Course

The only way Michelle and I stay the course on this thing for the next decade or two is keeping in mind the reason to pursue financial independence. Freedom to spend our time however we like.

We don’t hit this goal if our dreams are too small, and we will NOT make it if we succumb to the consumerism mentality that says more stuff = more happiness.

We WILL hit this goal if I put a BIG picture of my family on my desk at work. This goal will BECOME A REAILTY if we stay passionate for life.

If you want to make this a reality for yourself, you need to truly define what is important to you. Then you need to delete anything from your financial life that opposes that. Simple as that. And to continue to stay the course long term, you will need to filter all incoming noise that says you need more STUFF to fulfill your life.

It won’t be easy, and sometimes it feels like sacrifice. But in reality, that is FREEDOM!

Comments: What are your thoughts on the goal of financial independence? Have you considered what it would take to get there? I recommend trying my four steps above to see where you land, and what adjustments you can make to make it happen sooner.

Jacob Wade

Jacob Wade

Jacob Wade has been a nationally-recognized personal finance expert for the past decade. He has written professionally for The Balance, The Spruce, LendingTree, Investing Answers, and other widely-followed sites.ย 
Heโ€™s also been a featured expert on CBS News, MSN Money, Forbes, Nasdaq, Yahoo! Finance, Go Banking Rates, and AOL Finance.

In 2018, Jacob quit his job and his family decided to sell everything (including their home) to take off on an adventure. They traveled the country in an RV for nearly 3 years, visiting over 38 states, 20+ national parks and eventually settling in the sunshine state!

37 thoughts on “My Thoughts On Financial Independence”

  1. We are constantly going back to our budget and seeing where our money goes. Paying off the mortgage is a high priority and that will happen inside the next 6 months. The plan is to pretend that we still have a mortgage and pay the same payments into savings and investments. We have a plan but I am not willing to retire super early, I think retiring when you want to freedom enough. Things change in life so early retirement could well happen, if the circumstances require it. I think financial independence is something that will release you from the daily grind and give you the opportunity of choice. The choice to retire, the choice of having a job or not, the choices you want to make not the choices that are made for you.

  2. I think financial independence is a great goal to have, and it seems like you’ve thought a lot about how to make it happen. While I would like to achieve financial independence eventually, I’m no where near settled down enough. I have no clue what my expenses are going to look like in two years. For now I’m focusing on killing off my student loans and saving for retirement. The advantage to not being settled is making sure I don’t buy too much house. I can make sure the big things in life don’t get in the way of making it to the top.

    • Yeah, it’s hard to know what the future WILL look like, but you can take what you WANT it to look like and reverse engineer it from there. But having goals like debt freedom and building a healthy savings WILL move you in the right direction, of that I’m sure ๐Ÿ™‚

  3. We don’t have a real plan for financial independance. In fact we don’t have any concrete goal… But savings can’t hurt, so we save & save ๐Ÿ™‚
    The main point of being financially comfortable (a handful of steps before being independant) is not to stress for whatever the life throw at you (read unexpected expenses).
    And it allow to have a job we love even if it’s not giving a top pay

  4. Awesome Jacob, I think you’ve done a great job of thinking through the entire process. You’re a little ahead of me on the debt-elimination path, but I’m sure WAY ahead of me on the road to FI. But everyone’s situation is different, so I’m not discouraged!

    • Thanks! It’s been swirling around my head for a while, just had to dump it out on paper. We still have a little way to go as far as debt elimination goes, but it’s been a long time coming. You’ll get there soon enough.

  5. Well written post and thought out post. I’m not sure I really want to retire that much earlier than most. That is probably because I kind of like my job and my wife LOVES hers. Of course we are still on the path to FI because as you said it is about not having to exchange time for money. Right now we still want to. Will that change 10-15 years down the road? Maybe, maybe not. I just know I want to be able what my dad did and never miss a major moment in my kid’s life (the man missed one baseball game in my entire playing career, pee-wee to high school and that is because of a weather delayed flight).

    • I LOVE that goal. My main motivation for looking at F.I. is to never miss out on kid’s events and to be with my family as much as possible! And you are evidence that it really does impact our kids in a profound way.

  6. We don’t have an estimated date. Who knows. I say I want to exit the road earlier than most but I can’t imagine sitting at home all day. That’s just awful and detrimental to your mental and physical health. We are just saving and chugging along at life, trying to avoid inflation. I think this is where we are at right now.

    • I agree. I also think anyone who has the get up and go to achieve financial independence at a young(er) age than traditional retirement is also highly likely to be the kind of person to not sit around on their butts all day once they get there.

      • I don’t see the appeal to sitting around all day. Even when I’m sick for a few days in bed, I can feel mu muscles getting weak and my motivation weaning….and I hate that feeling. I bet most ER’s make more money after “retiring” than before because of that drive.

  7. Love the post Jacob! “…your money is making more than you are…” That’s the best definition of financial independence I’ve come across and a great goal to shoot for. Just because that happens doesn’t mean you have to quit working…just means you have some options.

  8. Hi Jacob,
    Great post on achieving financial independence for your family. Do you have a timeframe that you would like to achieve by? This year is the first time our net worth increase was greater than our combined annual income. I can’t always count on the markets but I’ll take it. I use benchmarks to measure the progress of our net worth growth. I’ll follow you on your FI road.

  9. Jake,

    Financial Independence for Jon and I means something very similar to what you have described. We would define it as when you get to choose when or if you want to work. We are keeping that goal right in front of us as we make every financial decision, does it get us closer to or push us farther from reaching financial independence. Thanks for the post.

    • Krista, glad to hear you’ve got similar goals. We have been kicking the idea around for a while, and are looking at how our housing situation can make or break those plans. Some big decisions ahead, but we’re pretty excited to see what we can do to get there. Of course, money isn’t the goal, freedom is ๐Ÿ™‚

  10. Good stuff Jake! I have a question for you and maybe its a given but how much sacrifice are you willing to give to achieve financial independence? I know once you have money you need to be smart and make your money work for you but where is the money coming from and how much are you willing to suffer to get it? I know for me smart investing has been elusive and without some of our real estate good fortune we most certainly would not be the position we are currently in right now. No Pain No Gain right? So I am wiling to suffer for my goals and work a little harder then the next guy to get the cash so I can have the financial freedom you talk about. Everybody wants to have an amazing job and financial independence — but not everyone is willing to suffer through 60-hour work weeks, long commutes. People want to be rich without the risk, with the delayed gratification necessary to accumulate wealth. I know you work very hard and its refreshing to see such a motivated young man as you Jake Happy Thanksgiving

    • Joe, thanks so much for stopping by. I know that you have achieved Financial Independence in a few ways, and it’s been great to see you as a model for hard work and playing hard as well! Looking at the path to financial independence, I agree, most just are not willing to work hard enough to make it a priority. And honestly, there are a lot of people whose priorities including putting in the least amount of effort possible and skating by in life. Luckily they also don’t read this blog ๐Ÿ™‚

      Keeping the end goal in mind is the only way to achieve financial independence. If you lose sight of the “why”, then you won’t put in that extra effort to get there. Simple as that. For me, it’s spending more time with my family. Period.

  11. Thanks for a great read. I’ve had the same mentors as you: Ramsey and MMM. I appreciate your vision of financial independence. My husband and I are so focused on debt reduction, we don’t have a clear idea of what we’re aiming for in the long run. I can sum it up with the word “freedom”, but it’s not clear. You are right in saying that a vision helps to motivate the effort needed to achieve it, so I think it’s time for us to define that vision. All the best to you as you work towards the freedom to spend lots of time with your family.

    • Thanks Prudence. I recommend building on that vision for your version of “freedom”, as once you are debt free, you won’t have a target to aim for. Best of luck on your journey as well.

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  13. Great post. “Financial independence is having enough money to not have to exchange time for money ever again.” I LOVE that and could not agree more. That is exactly what we are hoping to do. I love blogging but at this point it is not paying anywhere near what my day job pays! But if we had enough saved and invested where I could safely quit my job, I’d probably still keep blogging because it is so much fun!

    • Writing full time is definitely a version of freedom, one that I know a few friends have achieved and LOVE IT. But it’s definitely not financial independence if it’s required for living ๐Ÿ™‚

  14. I’m no where near achieving financial freedom, but my motivation is the hell of debt servitude that I’m in now.
    Your so right about staying on course – its so easy to revert back to your old patterns of behaviour

  15. You and I have a very similar view of Financial Independence. You put it well when you said that you no longer need to trade time for money. According to your 4% method we would only need $700k. That is a lot less then I initially thought. Should have that by the time I’m 40 ๐Ÿ˜‰

  16. I think we’re closer to $900k adjusted for kids and inflation, but we’ll see if it goes down as our time and needs change. Honestly, I’d love to hit F.I. with kids still in the house, but wouldn’t be horrible if it happened a little later too, because expenses would be MUCH less.

  17. I absolutely love that imagery of pedaling up a steep hill on your bike and finally being able to let go and let your bike do the rest. I would love to be financially independent one day. As far as when, I’m still not sure. I have been rather focused on getting rid of my debt first, then I’ll see about a timeline to become FI.

    • Just remember to keep the big picture in mind while your tackling your debt. It’s easy to be myopic, focusing on just the task ahead and then forgetting WHY you want to be debt free. FI is my motivation.

  18. FI is THE DREAM for me, and one way or another I’m going to make it happen. My fiance and I estimate that if we stick to our plan and continue frugal-izing we will achieve FI and be able to retire in about 15 years (we’re in our early 30s now). Hopefully with salary increases/bonuses/career advancement/other small windfalls over the next 15 years, we may even be able to move that age of retirement closer. When it’s herem I might do nothing, or I might do something. The point, as some other commenters have stated, is to have the choice. And that’s what I want, and I think most people would want, because that’s freedom. I love this topic. Thanks for posting!


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