And what is the deal with financial independence?
Financial independence, or FI, happens when you have enough cash and other assets to not need to work to earn any additional money to support yourself. Typically, people who have reached FI are aided by their assets generating passive income for them (hello, dividends). To learn more about the nuts and bolts of investing, I highly recommend reading JL Collins’ book The Simple Path to Wealth. JL Collins gives in depth information on managing your finances, including investing. My one sentence overview is sock away as much money as you can in 401ks (or equivalent) and low fee index funds, then leave your money alone until you’ve reached FI.
Financial independence is about giving yourself options, it can open a lot of doors for you. Maybe you want to retire early, or maybe you want to negotiate a part time schedule or the ability to work from home. You can leverage the fact that you’re no longer dependent on your salary in negotiations. You have the flexibility to be able to take time off to care for a sick family member, or become a stay at home parent. Basically you can do whatever you (reasonably) want to do.The caveat here is that you need to stick to your planned withdrawal rates, and ideally have the flexibility to decrease that rate in years that the market takes a downturn. The nitty gritty details on figuring out how much money you need, and what a safe withdrawal rate is, can also be found in JL Collins’ book The Simple Path to Wealth. Seriously, I can’t stress it enough, READ IT!
This is where frugality comes into play. Being frugal has a two pronged impact in your quest to reach FI. Frugality reduces the amount of money you need to sustain your lifestyle, while simultaneously allowing you to save and invest all that extra cash you’re no longer spending. It’s a killer combination, and one that is going to snowball your wealth.
I think there is a negative perception out there about being frugal. People expect it to involve eating ramen all the time, and going into full hermit mode to avoid spending any money. That’s not my style of frugality! Yes, it is a challenge to find a spending level that is comfortable and sustainable for your family. Even if you’re single, you have to figure out how frugal you can be long term. I firmly believe that in order to form a frugal lifestyle that is sustainable, you need to understand what your priorities are, and continuing to spend reasonably on those priorities. Once you’re honest with yourself about what those priorities are, you can start cutting out other things that just aren’t as important to you. You’ll stop buying things you don’t need, and stop doing things you didn’t really want to do in the first place. This is going to give you more money, more time, and less stress. You’ll have back your life, simply frugal.
We’re still figuring out when we might reach financial independence. Here’s what I do know though. I want to be able to run any time of day the motivation strikes me. I want to spend September days canning and preserving for the coming year, not just trying to squeeze in as much as I can on the weekends. I want to have time to learn more about brewing, and brew whatever day of the week I see fit to. Maybe even get a part time job at a local brewery to really see what a brewery is all about. I want to do yoga. I want to learn how to make yogurt, and make our own bread. I want to go for long walks at the local arboretum. I want to spend more time with our family, and less time with computers. I want to read, I want to bike, I want to travel. I want to snowshoe, and I want to bake Christmas cookies with my mom. I want to make my own soap, and enjoy my morning cup of coffee at home instead of during a commute. While not all of these things are free, many of them are and are simple joys. They are attainable, if only I had the time and energy. And nothing steals more of my time and energy than work. While work will be necessary for many years to come, I am learning to find peace in knowing that we are working towards a goal of financial independence, even though that goal isn’t set in stone yet.
We will get there.