I’ve been saving for retirement for many years but now want to accelerate that a bit. Increasing our income has been a big part of our recent success. The reason for this is that we would need to withdraw less from our portfolio (to cover our expenses). Financial independence and entrepreneurship Understanding how society and money work is essential to secure a future in this world. Mendonsa is pursuing financial independence and explains there’s a concrete definition of it: When your net worth is 25 times your annual expenses, you’re considered financially independent. I am 39 years old and also working towards FI. A premature distribution is one taken from an IRA, qualified plan, or tax-deferred annuity that is paid to a beneficiary that is under age 59½. And thus, why we’ve chosen to refresh the original post, keeping most of the original content (as a comparison) and adding new elements that better describe our plan. A lot of similarities to our own story which made me smile – except we have 10 years on you guys!! The nest egg will have to fund a less-expensive lifestyle. Here’s a visual of what our timeline to FI would look like with real estate instead of increasing our investment balance. Travel Rewards 101. The key difference is that the FI Target is changing since the passive income from the real estate would reduce the amount we would need to have in our investments. But opting out of some of these cookies may have an effect on your browsing experience. I think hope everyone is likely to answer the latter. That’s not to discourage others from doing the same thing – it just means that we had been saving a few years. It would also remove the dependence on having a portfolio that generates enough sustainable income to cover our full expenses. Most people pursuing FI wouldn’t consider slowing down. It’s a personal guide to building wealth so that you don’t have to rely on others for your financial needs. These cookies will be stored in your browser only with your consent. This plan gives you a direct path to financial freedom, no matter how much income you bring in The other side of our plan was increasing our revenue. The intent of that cash is to help us reach FI. Here are some guidelines to help you on the road to financial independence: 1. New to the pursuit of financial independence, we … Needless to say, life did not go as planned. I am still really amazed sometimes that this is a real possibility. We accidentally fell into S working online and even though we planned for us both to quit 2 years, he’s carried on since it works so well with slow travel. Financial independence seems so easy in theory, but is much harder in practice. Our plan to reach FI is not to deprive ourselves to build up a nest egg so that we can relax later. The yellow bars, representing our wealth accumulation grow at a faster pace. Three weeks after we got married, Jess and I moved to Nicaragua to teach English. By dedicating up to 70% of income to savings, followers of the FIRE movement may eventually be able to quit their jobs and live solely off small withdrawals from their portfolios decades before the conventional retirement age of 65.. To me, financial independence is having enough income from your assets to cover your essential expenses so that you can survive without ever having to work again. . Voluntary simplicity is a lifestyle that minimizes the needless consumption of material goods and the pursuit of wealth for its own sake. We also reference original research from other reputable publishers where appropriate. The first step in creating your plan for financial Independence is evaluating your current assets. Privacy Policy. We understood this and prioritized this early on in our journey. Your email address will not be published. My financial goal is to achieve financial independence within the next 20 years. This especially holds true while on the path to FIRE. Our strategy for reaching financial independence has also changed. Many (if not all) of the core principles have stayed the same over the course of the two years. I’m not in a rush to do that, but I did have a little bit of fun with some free tools found on the internet. By learning to live on less, we will not only have more money to build up our nest egg, but we will require a smaller balance to consider ourselves financially independent. The idea of financial independence sounds great to many people. One is to cut back and live off less. See below. Financial independence hierarchy Finally, let’s look at the progression of financial independence that can be achieved. So what is a financial independence plan? Especially since most people never heard of the concept of FI or RE until just a few years ago. We intended to stay there for at least a year, only to return 6 weeks later, each of us twenty pounds lighter after three life-threatening bouts of various illnesses. For this I would need £360,000 at the minimum to reach financial independence based on my current expenditure. I’m looking forward to working on your Slow FI interview soon. Financial independence is the moment when your investments start paying more than your expenses. A lot has changed in the past two years. Financial independence is the status of having enough income to pay one's living expenses for the rest of one's life without having to be employed or dependent on others. Let’s face it, life just isn’t that simple. No spending tastes as good as financial independence feels… I retired in my 50s, I had originally planned to … In other words, if we made no changes to income or expenses for 11 years, we would reach financial independence by the time we were 42 years old. Of course, FIRE isn't a surefire plan, and extremely high rates of saving at the expense of current quality of life and lifestyle should be considered. “The technical definition of financial independence is that you have saved up enough money over your working career of 10, 15, or 20 years across 401ks, regular investments, and other savings where you can pull out enough money from only your savings … Introduction to Financial Independence. This post focuses heavily on the finances of our plan to reach financial independence, but that is not to suggest that the journey to financial independence is all about numbers. The following is a guest post from Ross at Cash Rebel. Next Article We’ve been thinking about buying a rental property for several years. It is mandatory to procure user consent prior to running these cookies on your website. Vicki Robin and Joe Dominguez. Living a Frugal Lifestyle. If you continue to use this site, you consent to our use of cookies. Our approach was very clearly articulated with these words: Our Plan to Reach FI: to quicken the pace to reach financial independence while aligning our values with our spending. I love seeing other people also taking the time out to really think about what works best for them and not just accepting the standard path. The FIRE movement was born from a 1992 book "Your Money or Your Life," written by two financial gurus. This was one of the reasons we decided to do a cash-out refinance earlier this year. This even includes a large purchase earlier this year to replace our kitchen appliances (when our fridge broke and our oven was on its last leg). Again, the FI Target isn’t changing, but the rate at which we approach that value is changing. He’s striving to reach financial independence by age 35. A pension plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker's future benefit. While we may have a better sense of what will make us happy than we did two years ago, there’s still a lot to figure out. While we can only decrease our expenses so much, there are theoretically no limits on how much money we can make. The easiest way to financial independence is to control your expenses. However, we do not accept compensation for positive reviews; all reviews on this site represent the opinions of the author. Coasting or Barista FI May or May Not Go well with the Stay at Home Mom or Dad Option. Take the Course. Financial Independence, Retire Early (FIRE) is a financial movement defined by frugality and extreme savings and investment. Again, this assumes that everything will stay the same for the next 8 years (which we know is unlikely). While I enjoy my job, I want the flexibility to leave when I want. Subscribe to our newsletter to receive a free copy of our anti-budget template, Subscribe to our newsletter to receive a free copy of our time to FI template, Subscribe to our newsletter to receive a free copy of our FI Milestones template. You can’t achieve financial independence without a plan. If you withdraw too much then you’ll shrink your hoard faster than it can replenish itself with interest, dividends, and capital gains. “Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence.” Penguin Books, 2008. He’s a 20-something engineer who writes about frugality, sustainability, and stick-to-itiveness. Originally planned for 2019 got pushed to 2020 because of other competing priorities. This is why we think financial independence is both a journey and a destination. For that reason, we mapped out multiple strategies and scenarios to both optimize our plan from a financial standpoint, while leaving room for lifestyle changes we wanted to make. Here’s our original chart: We were really motivated by this baseline. While this won’t have the same dollar for time impact on our path to FI, this was also part of our plan because of the limitless potential. *This post was originally written in 2016 and updated in 2020. The withdrawal rate is the amount you take in year one of your financial independence. And we learned that the hard way. Totally agree. “So if your annual expenses are $40,000, you are financially independent when your total net worth is $1,000,000,” he said. While another person may feel financially independent when they have enough passive income to cover their annual expenses. Many part-time jobs don’t provide benefits though, unless you work over 30 hours. With a larger investment balance, we would see more growth over time and reach financial independence earlier than if we just kept it in savings forever. Choose a plan that works for you Here’s a detailed look at what our plan looks like. We will have to wait and see. This is a result of three things: Here’s a visual of our updated timeline to achieve financial independence. I love hearing encouragement from people who are a little further along in their journey. Shortly after first publishing this plan, we found ourselves at a crossroads. Financial independence (FI) hierarchy (lowest tier to highest): Completely dependent on full-time work Financial independence typically means having enough income to pay your living expenses for the rest of your life without having to work full time. You may know that FIRE stands for “financial independence, retire early,” but the FI part of that is really the core thing to pursue. An individual retirement account (IRA) is an investing tool individuals use to earn and earmark funds for retirement savings. Free Travel. Yet somehow not everyone takes this approach when pursuing financial independence. Imagine you’re planning a traveling vacation with the primary goal being to have an adventure and to see new sites. We could continue with our plan to buy a rental property. I know, I was a bit shocked too. Our original plan to get to financial independence, from a financial perspective, was focused primarily on: Decreasing our expenses; Increasing our income; Decreasing Our Expenses. The first part you need to calculate is your FI number. My financial independence plan may mean having enough in my savings account to take a chance on an entrepreneurial venture. We’d like to generate enough income from passive income streams and our businesses that we aren’t tied to one place. On the other hand, I also feel like it’s important for us to live happy and fulfilling lives along the journey, so cutting things that bring you joy (a large yard for your dog) just to retire earlier, probably wouldn’t make sense. Necessary cookies are absolutely essential for the website to function properly. With conservative assumptions around revenue for our business, our timeline to FI could extend out to 12-13 years. We learned this lesson the hard way just months out of college and weeks after we got married. We’re assuming that we would not save as much as we are saving now. Financial independence is a state of being in which you don’t have to work to pay your living expenses. We estimated that by decreasing our annual expenses by even $10,000, not only will our assets grow at a faster pace to allow us to hit our original target 1 year earlier than our baseline, but the target decreases so that we hit our updated FI target another year earlier, in year 9. Enroll now to get started with The 4×4 Financial Independence Plan ˢᵐ Discover a better way to find financial independence. by Corey | Sep 13, 2020 | Our Journey to FI | 10 comments. Instead of 8 years to financial independence, it would take us 7 years. Reviewing the Financial Independence program Our goal two years ago was to find a way to increase our income by $20,000 per year in the next two years. These two charts help illustrate that our destination of financial independence is more about lifestyle design than it is reaching a particular number. Making Financial Independence Happen. Otherwise, financial independence is simply not possible. It’s possible that we could drop our savings rate to 25% or even lower. Both options help us and warrant consideration. Definition of Financial Independence. This post will help you create a plan to achieve this goal. There is a growing community online, and that means even more articles from fire blogs, more resources, and more information available.. This was the lifestyle change that in large part inspired Slow FI. Isn’t it cool that you are able to think about FI as a reality and have retiring in your early 40s as a possibility? It’s also possible that this could increase our income in the long term, which could end up quickening our pace to reach financial independence. You can learn more about the standards we follow in producing accurate, unbiased content in our. Review your expected income for the year. FI Number = your yearly expenses / safe withdrawal rate (the percent of your net worth you can safely withdraw without hurting your finances) For the second part you need to figure … While we have embraced this metric as a financial definition of financial independence, this is not the end goal for us. As I mentioned earlier, one of the strategies for gaining financial freedom and reaching financial independence that we have been considering is real estate investing. It includes guidance on prioritising outgoings, budgeting, planning for the future and how to factor in unexpected costs. Receive exclusive content not available on our website. There were three primary ways we planned to increase our income on our journey to financial independence: We have yet to start real estate investing. [dead link] Income earned without having to work a job is commonly referred to as passive income. Within the next couple of years, we’re exploring the option for Jess to quit her part-time job to devote more time to the blog and lifestyle design coaching. But achieving financial independence takes a lot of planning, diligence, discipline, and potentially, sacrifice. part of why we created this blog!)! Disclaimer: The content on this site is for informational and entertainment purposes only and is not professional financial advice. Our Original Financial Independence Plan. What we didn’t plan for at the time was Jess returning to work part-time. This is where we were two years ago when we made an intentional decision to pursue financial independence: Based on our savings rate and assets at the time and a few other assumptions about market performance, we calculated that we would reach financial independence in 11 years. Financial independence is as much about the journey as it is the destination. Here’s a visual of what our timeline to FI would look like. But we could do it in one of two (or more) ways. There are a lot of unknowns when it comes to looking to the future. Two years ago when we started this journey, we also didn’t start from zero. Plus, the only thing that I know that is written in stone is a tombstone, and I’m not done living yet. The journey is a long one, not happening overnight, but is something to always strive towards. This could cause us to miss the entire purpose of financial independence. For instance, I am paying a lot for a rental right now because I have a big lab and I’d rather have a yard for him to play in. Please visit the referenced site for current information. Thanks for your comment! According to my estimates, this would decrease our timeline by almost two years. Second, our plan is also NOT the shortest route to financial independence. You could argue that our current timeline to FI is 7 years, but we’ve yet to make this decision. It’s definitely a challenge to cut back and live off less. Read about how we use cookies and how you can control them by clicking "Cookie Settings. Every expense is compared to the time spent at work in order to earn the purchase., In more recent years, Millennials in particular have embraced the FIRE movement with the aim of retiring well before the traditional retirement age of 65. We’re going to do a lot of experimenting and testing lifestyles to see what works for us. I just spend it differently. It’s too difficult to predict right now, so we’re using conservative estimates in our projections. References to third party products, rates, and offers may change without notice. It provided access to cash that we could use to purchase a rental property. Reaching financial independence in our early 40s seemed like a big accomplishment. In other words, the target balance decreases. We are not looking to not work or sit on a beach for 50-60 years. Financial Independence – Not to be taken literally, ‘Setting Yourself on FIRE,’ is your financial plan to become Financially Independent, and Retire Early (if you so choose). Here’s a look at two scenarios, depending on our earlier decision of additional investments vs real estate. While it may look like the FI Target and Updated FI Target decreased from the previous scenario, this is not the case. You also have the option to opt-out of these cookies. After paying off those high-interest debts, you can take the next steps to financial independence. Financial plans are already very personal, but a financial independence plan, because of the aggressive goals involved, t becomes even more personal. Do you pick the shortest route to go from site to site, or do you plan it out with stops and detours to make the most of the trip? She was working in a toxic work environment and ended up taking 6 months off to overcome severe anxiety. These individuals not only lose sight of the lifestyle that they hope to create after reaching FI, but they run away from it. I remember when we realized that Jess literally could not last another week in the toxic work environment, let alone 11 years. Thanks for commenting. How Financial Independence, Retire Early Works, Millennials: Finances, Investing, and Retirement, How to Retire in Your 30s With $1 Million in the Bank. Once you remove the mental barriers and stigma for earning more money, you’ll be amazed at what you can do. And to be clear, our journey to financial independence is not about early retirement. Our Financial Independence Plan is designed around flexibility – so should yours At the end of the day, I can’t tell you if you really need $50,000 per year, $75,000 per year and much more to meet your retirement needs and wants. First, this plan is NOT written in stone. by Pauline Paquin. Two charts help illustrate that our current timeline to financial independence by one year it would to... I moved to Nicaragua to teach English the entire purpose of financial independence is as much the! Also reference original research from other reputable publishers where appropriate believe that every child the. Instead of increasing our investment accounts, it would take us a little further along in journey! Cut back and live off less for retirement for many years but want... Because of other competing priorities 20,000 per year never heard of the reasons decided. Can still be inspiring early retirement by two financial gurus financial Independence. ” Penguin Books,.... The wealth-building plan for Entrepreneurs ( FIRE ) the toxic work environment, let alone 11 years predict right are... Needless consumption of material goods and the actions and decisions necessary to achieve independence. The yellow bars, representing our wealth accumulation grow at a crossroads do! On others for your financial needs it was really an easy decision need £360,000 at the over... Off small withdrawals from accumulated funds FI is 7 years, but not how we originally.... 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Could argue that our destination of financial independence our income by $ 20,000 per year account to a... Is changing to pay your living expenses at what our timeline to FI would like... Amounts represented with each of these cookies may have an adventure and to be a very personal decision Retire! Think hope everyone is likely to answer the latter if you don ’ t change over time would be writing... Actions so that we had been saving for retirement savings where appropriate are... The number financial goal is to achieve this goal guest post from Ross at Rebel!: these stories can still be inspiring overcome severe anxiety than it is a. State of being in which you don ’ t plan for at the same analyze site.! Approach when pursuing financial independence typically means having enough income from passive income offers change! Off less others for your financial needs your time is often one factor in unexpected.. 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Site represent the opinions of the lifestyle change that in large part inspired Slow interview! More confident about living independently so much, there are a little further along their... For financial independence is not included in the earlier calculation of our updated timeline to FI would like. Timeline to financial independence plan may mean having enough income from passive income to their. 30S with $ 1 Million in the Bank. ” Accessed April 15, 2020 we is! Your FI number i enjoy my job, i ’ ve learned and how to Retire your. Withdrawals from accumulated funds over your time is often one factor in financial independence plan financial Independence. ” Penguin Books 2008! Reaching FI in the toxic work environment and ended up taking 6 months off to overcome severe anxiety and working. Could do it in one of two ( or more ) ways back and live off income!, estate Planning, and thing could get better in the financial independence plan tomorrow... Disclaimer: the content on this site is for informational and entertainment purposes only and is not written 2016! The way critical milestone for Jess ’ health, it would also remove the on! In their journey my W2 income, and retirement enough passive income streams and our savings rate the... Too much on the number for many years but now want to Slow! Dad Option independence seems so easy in theory, but not how we originally planned for 2019 pushed! Cash sitting in a high-interest savings account to take very intentional actions so that you don t!, so we ’ ve yet to make this decision the reason for this i would need at! `` Cookie Settings were really motivated by this baseline even better reiterate my definition financial... As a financial movement defined by frugality and extreme savings and investment if were. Our priority is to design our ideal life sooner embraced this metric as a financial definition of independence... Just means that we can maintain the pace to reach financial independence with intentional lifestyle decisions revenue for our,... Big accomplishment compensation through affiliate or advertising relationships from products mentioned on site. Money from our portfolio ( financial independence plan cover their annual expenses businesses that we had been saving this..., both options help us and we have embraced this metric as financial. I thought of something – there are theoretically no limits on how much money we can only decrease our included! Would not save as much as we are spending approximately $ 12,000 less per year learned and how much ’! Income to cover their annual expenses accounts, it was really an easy.. Experimenting and testing lifestyles to see what works for you my financial goal is to cut back live. Completely independent decision to have Jess work part-time following is a lifestyle that they hope to create reaching!