Financial independence became part of me during a time when I was searching for meaning in my life.
A relationship had ended and pushed me into a deep state of reflection (a nice way to put “trying to work through emotional turmoil”).
It was during this time in the pit of despair that it dawned on me—I was aimlessly coasting through life. I had no direction and no idea who I was or what I valued.
I was living the life I thought I should be living, controlled by outside expectations instead of my own. And this wasn’t just in relationships.
I went to college, got a respectable job and started earning a decent paycheck. My life revolved around my job. It dictated when I got up, when I could make my doctor’s appointments, how fast I had to eat my lunch, etc. This is what I thought life was all about.
Never once did I take the time to sit back and think about if this was actually the way I wanted to live my life.
So I started thinking about how I could flip the script and start living a life that I designed for myself. And then the light went on.
Or more like a FIRE started.
I recalled reading about a movement called FIRE (Financial Independence, Retire Early) where people were shortening their working life by simply reducing their expenses and increasing their savings. What??
This is where my relationship with my money, and myself, really started to change. The idea of FIRE, along with my desire to finally live a life where I was in control, lit a torch in me. And I was bound and determined to figure out how I could make FIRE my reality.
The more I read about FIRE, I started to realize it’s not just about retiring early. The magic actually happens in the first part—financial independence. And it’s in financial independence that I found a way to live a life of my own choosing.
So for the past three years, I’ve been learning a lot about how to achieve financial independence and have set out on a path to hopefully achieve it some day.
This post is the first one in my series documenting my journey. It’s been an adventure so far and I look forward to sharing my story and the learnings along the way.
What is this Financial Independence?
Someone is considered to be financially independent when they no longer have to work because the income from their investments can cover all of their living expenses.
These investments can come in the form of money in the stock market, real estate or a business that does not require any hands-on work.
In my financial independence journey, I choose to focus on investments in the stock market. I was already contributing to my employer sponsored 401k and an individual Roth IRA, so I was comfortable with how the stock market worked.
I learned through reading numerous articles and books that I would have to save and invest enough money so that the earnings would be enough to support all of my living expenses.
Yikes! It seemed like a daunting task at first.
To do this, I would have to increase the amount I was investing. And, of course, the more I invested, the quicker the timeline to financial independence.
Pretty obvious. But when I actually saw the numbers, I realized this was truly something that is possible—it wasn’t an impossible task!
For example, I was currently saving about 15% of my income after taxes in retirement accounts. This savings rate would have set myself up great for a traditional retirement in 30 years.
But what would happen if I increased this savings?
I plugged some numbers into an online early retirement calculator and the numbers below popped out.
Holy crap! If I figured out a way to spend less money, I could reach financial independence well before traditional retirement age. The math made sense to me so I was bound and determined to figure out how to increase that savings.
Why I’m working towards Financial Independence
I did the math and got excited about this new challenge. But why was I really willing to forego some of my spending to pursue this endeavor?
Originally, I wanted to pursue financial independence so that I could say goodbye to full-time employment in order to spend my days traveling around the world or relaxing in my hammock.
But as I’ve continued down this path, I’ve realized that’s not really my goal.
My actual goal is to increase my financial stability while having the freedom to choose how I want to spend my life energy.
I can’t see the future, so I have no idea what life is going to throw at me. I could lose my desire to work full-time or I may need more flexibility in my work schedule to spend more time with aging parents. Being financially independent will allow me to make these choices without stressing about how I’m going to continue to pay the bills.
This is because working towards financial independence is decreasing the amount of active income I’m reliant on—income that I have to spend time and energy earning.
When my lifestyle consumed every one of my hard-earned dollars, I had no other option than to keep working to pay the bills.
But as I trim expenses and save that money instead, I start to reduce the amount of money that I need to live. And at the same time, I am creating another source of income that can provide me with the freedom to pursue alternatives to working full time. Alternatives like part-time work, a career break, an entirely new career that may not pay the same or time off to learn a new skill.
It’s ridiculously exciting and completely life changing.
I never dreamed I could manage my money in a way that would allow me to reduce the financial stress of the punches that life throws at me while simultaneously opening up alternative paths for how I want to live my life.
I thought my only option was to go to college, pick a career and then work for the next 40 years. I thought this is just what life was. Financial independence is like saying FU to the norm and creating your own path! And I love it!
Simple changes I made to make Financial Independence possible
I started an Emergency Fund
This girl never had an emergency fund! I figured nothing would ever happen and I would just steal from my retirement accounts if shit ever hit the fan. Probably not the best plan for my hard earned money.
After jumping on the financial independence bandwagon, I realized that one of the things that could derail my progress towards financial independence was emergencies that were bound and determined to pop up.
So I hunkered down and spent the first part of 2019 throwing all extra money towards an emergency fund. It’s now full and waiting for the next emergency so I don’t have to worry about pulling any money from a retirement account.
I slowly increased my savings rate
Savings rate is all about how much you can save versus how much income you are bringing in.
I define my savings rate as the % of income after taxes that is committed to saving for financial independence.
A note on savings rate: In the personal finance community, you will find several different ways to calculate your savings rate. The important thing is to pick the method that makes the most sense to you and use that to track your progress.
For me, I’m all about making small, gradual changes in life verses going balls to the wall immediately. This helps me slowly adapt my lifestyle to the change, making it feel a little less shocking to the system.
So naturally, this is how I’ve approached my savings rate—slowly but surely. As the years go by, I’m gradually increasing my savings. And as a result, I’m forcing myself to find more ways to cut expenses.
For 2019, I’m on track for a >40% savings rate. It’s helped that Mr. Taco and I now share a few expenses, but it’s honestly starting to get harder and harder to find ways to cut back. But that’s not going to stop be from trying to come up with more creative ways to trim expenses while still enjoying my life now.
I decreased my expenses
To adapt to my new savings rate each year, I had to reduce my expenses as I wasn’t interested in increasing my income. The key to reducing my expenses was learning how to spend money intentionally. When I spent money only on the things that I truly needed and would fully appreciate, my expenses naturally went down.
Here are a few things that I did:
- Started travel hacking using credit cards so that I could still travel to fun places
- Refrained from buying a new phone when my 2-year contract was up
- Planned for and bought a new to me car without taking out a loan by using a sinking fund
- Cooked at home more
- Reduced my daily work commute by 64 miles
- Stopped buying clothes just because—now I buy a few nice things each year to refresh the wardrobe and then wear the shit out of them
- Enacted the one TV streaming subscription at a time rule–I don’t need Netflix, Showtime and HBO all at the same time–so when a new show is released on Showtime, I suspend my Netflix account until I’m done with the series
- Started cleaning the yoga studio once a week after class for free unlimited yoga
- Borrowed books from the library instead of buying them
All of these things added up quickly and I was able to cut my annual expenses by over $18,000 from 2015 to 2018. As a result, I have been able to reduce my timeline to financial independence by about 16 years from when I started this journey in 2016.
And the best thing about it: I’ve been able to do while still enjoying my life.
Struggles along the way
I suck at being patient!
Unless you come into a shit ton of money suddenly, it’s going to take time to build up that nest egg enough to provide you with enough passive income to support your living expenses. Argh!
But I want that flexibility now!!!
One of the hardest things for me has been to make sure that I’m enjoying the journey. I want so badly to be at that finish line that I tend to forget about the amazing things I can do with my life at this very moment.
It’s hard not to feel like I could be saving even more
I never wanted to live an ultra-frugal life, so it was important to me to find a balance between saving for financial independence and living my life now.
And even though I feel like I found this balance, at times I still feel like I should be saving more.
Every day I see examples of people becoming financially independent at much younger ages than I will, and it’s hard not to compare myself to them. Why can they do it and I can’t?
It’s in these moments that I need to remind myself of how working towards financial independence is not just about the finale. It’s about creating a financially secure life along the way and a life full of things that you truly value.
I got this and YOU COULD too
If you haven’t played around with some online calculators to see how increasing your savings could affect your financial future, then I challenge you to take a moment to do so. The moment I saw the numbers is when I realized it wasn’t such an impossible task.
Financial independence is a win win situation for me as long as I continue to balance living now with saving for my future. The last thing I want to do is live a miserable life right now to be financially independent quicker.
My journey to financial independence has turned out to be my way to align my money with my priorities. The concept may not be possible or of interest for everyone, but the idea of reducing your expenses and saving more is never a bad idea when it comes to personal finance. Even the smallest changes can affect your financial future and stability.
Go on, run some numbers, and get after it.