Written by: Corey Janoff
It is tradition for us to publish a blog post about financial independence the week leading up to Independence Day, so we wanted to offer a guide on how to become financially independent this year.
There are numerous ways to becoming financially independent. Similar to biking across the country, you have a lot of routes you can choose from. Would you like to get there fast (FIRE – Financial Independence, Retire Early)? Would you prefer slow and steady? Do you want to save a lot early and coast your way to the finish line? No wrong answer. To each their own.
Regardless of the path you embark on to become financially independent, there are a few principles you must adhere to get there.
How to Be Financially Independent
Being financially Independent can mean different things to different people. The first step to becoming financially independent is to define the financially independent meaning to you. What does financial independence mean to you?
For me personally, I would like to be at a level where I can choose to work as much or as little as I desire. I enjoy my job; I enjoy teaching people how to become financially independent and seeing them realize those dreams. It’s gratifying. I don’t know if I will ever completely retire. While it can be stressful and exhausting at times, it’s not like I’m out digging ditches in the hot sun every day.
However, I want to be at a level one day where I no longer need to earn income and could stop working if I so choose. The sooner, the better, but maybe sometime in my 50’s or early 60’s at the latest.
I also believe if I can gradually work less each year, that will give me more longevity and passion to keep working and helping my clients achieve their goals.
How can I accomplish this to become financially independent in the desired timeline? It’s pretty simple, actually. Save a lot.
There isn’t a secret sauce for how to be financially independent. It’s very straightforward. Live below your means and invest sufficiently for your future.
I encourage people to invest at least 20% of their gross income for retirement. If you’re trying to figure out how to become financially independent, start there. Saving more will only get you there faster.
If you save 20% of your income, it means your living on 80%. If you save 30% of your income, you’re living on 70%. Living on less + saving more = how to be financially independent sooner.
Develop a Financial Independence Plan
When I first started in this career at 22 years of age, I developed a mental plan in my head for how to become financially independent, and so far, I have stuck with it.
My plan was to work my butt off in my 20’s and build up a solid base of clients so I could support a family in my 30’s, should I get married and have kids. Along the way, I start investing at least 20% of my income for retirement. Mission accomplished. We got married and had our first kid a month before I turned 30.
In my 30’s I would ease off the gas pedal so I could be present for my family. I’m halfway through my 30’s and feel like I’ve struck a good balance between working and being around on evenings and weekends. I’m also able to take more time off here and there to be with the family, especially during summer. So far, so good.
The goal for my 40’s will be to never miss a soccer game. If I need to leave work at 2:00 pm to get home and take a kid to a 4:00 pm game, it’s feasible. If I need to leave on a Thursday and block off Monday to go to a weekend tournament out of town in the summer, I’m there.
Hopefully, the income will continue to grow along the way so I can save more and more each year towards becoming financially independent so that I can be financially independent sometime in my 50’s.
When I’m 50, my youngest will be headed off to college if all goes according to plan. So it would be nice to have enough saved up in their 529 college savings accounts to pay for their schooling.
Depending on how much I have saved up for retirement, I can hopefully choose how much I want to work. I may be working a few days a week and continuing to save so I can ideally be fully financially independent by 60.
If things have gone well, I may only need to work 1-2 days a week, not save any more, and simply let the nest egg continue to compound (growth isn’t guaranteed, of course) until it’s at a level where I could choose to stop working if desired.
The nice thing about being a financial advisor is if things go well, I can bring on junior associates to handle many of the day-to-day tasks, responding to straightforward emails, etc., allowing me to scale back considerably. However, I can still be present for client meetings and handle more complex situations.
Life rarely goes perfectly as planned, however, which is why it is important to have a healthy emergency reserve, live below your means, and ideally save more than you need to for your financial goals.
Benefits of Financial Independence
There are some obvious benefits of financial independence. Mental, physical, and emotional. Studies have shown long working hours are a killer, so the sooner you can slow down, the better.
If you become financially independent, you have the power to say “no” to a lot of things. For example, someone at work asks you to join a committee. No thanks.
A colleague left, and your employer asks you to take on some of their responsibilities. Nope. Go find someone else who needs the money.
Having the ability to work less allows you to exercise more and get more sleep—all good things.
Becoming financially independent can potentially enable you to enjoy work more. You’re no longer doing it for the money. You can structure your job duties, so you’re only doing the things you want to do. If they don’t let you do that, you can simply wave goodbye and find a job that will let you work on your own terms.
Another benefit of financial independence is spending more time with your partner, kids, and friends. We’re social animals and having strong relationships is a key to happiness and longevity.
I could go on, but I’m sure you can think of other benefits of financial independence beyond the monetary ones.
3 Steps to Financial Independence
I can summarize how to be financially independent pretty concisely with 3 steps to financial independence.
Earn money Spend less than you earn Invest the difference I prefer to flip items two and three, so it looks like this: Earn money, invest towards your financial independence plan, spend the difference. If you spend your money first, you will find it challenging to invest adequately to achieve your financial goals. As a result, it will be difficult to become financially independent in the desired timeframe. On the other hand, if you prioritize investing in your financial independence plan first, becoming financially independent is much more achievable before spending money.
Obviously, it’s easier said than done, but that’s how to become financially independent.