Financial Independence

Why I Pursue Financial Independence

The idea of “financial independence” (FI) and “retiring early” (FIRE) have become incredibly popular in recent years. This post will introduce you to these concepts and the general ways people pursue them. I also share my own journey and reasons I believe in the FI movement. By the end of this post, I hope you feel inspired to take the next step in achieving financial independence!

What Is Financial Independence?

Simply put, you are financially independent if you have enough money to support your lifestyle in perpetuity. While that might sound like a pipe dream, I assure you it’s not! There are hundreds of stories from average-paid people achieving financial independence and “retiring early” decades before typical retirement age. They had student debt, made poor financial choices, and didn’t make a lot of money. But they all managed to optimize their lifestyles to become financially free.

So how do you know if you’re financially independent? The general rule of thumb is to have 25 times your yearly expenses saved – click here to see why. Essentially, if you have 25x your annual expenses saved and you withdraw up to 4% of your total portfolio every year, it *should* last forever. I’m not an economist or statistician, so if you’re rolling your eyes please do click on the link – it’s pretty fascinating!

And here’s one more quick calculation based on that assumption: for every $100 you eliminate from your monthly expenses, that’s $30,000 less that you need to save for retirement. How? Well, if you spend $100/month on something, that adds up to $1200/year. $1200 x 25 = $30,000. Just think: you’d automatically be $30,000 closer to retirement (roughly speaking – this is just a rule of thumb!) if you “found” $100 in your monthly budget to completely eliminate.

A note on “retiring early”: much of the financial independence movement is associated with the idea of “FIRE”, or “financial independence / retire early.” This concept acknowledges that many people assume they will stop working once they achieve FI – hence the “retire early” part. Interestingly, many people decide to continue working after reaching FI, the only different being that they work on what they love and not what they have to do.

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The Different Paths to FI

Despite that rule of thumb, there are countless ways to get to financial independence! And the right amount for you may be different than the right amount for me. Here are a two popular schools of thought around FI:

Lean FI: These are people shooting for a relatively lower “financial independence number” (the amount they need to achieve FI), usually around $1 million. This would equal $40K/year in living expenses ($40K x 25 = $1M).
Others believe you are “lean FI” if you have enough to cover all essential expenses (e.g. housing, groceries, transportation) but nothing else. For example: if your essential expenses were $15,000/year, then your lean FI number is $375,000.

Fat FI: On the other end of the spectrum, there are people who have higher living expenses and therefore have a higher FI number. They might also be people who would prefer to save more before they claim financial independence.
Very roughly speaking, Fat FI people project spending $100,000/year or more in retirement, and would need to have $2.5 million or more in their portfolios before they are financially independent.

Incidentally, I’d categorize myself as a Fat FI follower. Our predicted yearly expenses are probably closer to $80,000/year, but I’d want to save 30-35x our annual expenses before “retiring.” The Physician on FIRE posted a great defense of this stance. For me, it comes down to this: if I’m not generating a regular income, I want to make really darn sure that I have enough money to both do all the fun things while still having enough to cover all the unexpected costs of life (medical, home, etc.).

The Different Paces to FI

There is also great diversity in how quickly people pursue FI. Some people are dead set on accumulating wealth as fast as possible, and usually focus on maximizing their savings rate (click here to see what ours is). You will often hear about people saving 75% of their income (or more) and achieving financial independence within 5 years.

Then there are others – who, I’d argue, are the majority of the financial independence community – that have more modest savings rates and longer timelines to financial independence. Many assume that it’s because these people have “no choice” and would save more if they could, but that’s not always the case. May I introduce to you, Slow FI – my favorite concept!

Slow FI: When someone utilizes the incremental financial freedom they gain along the journey to financial independence to live happier and healthier lives, do better work, and build strong relationships. 

The Fioneers

As I explain more below, financial freedom is meant to help you be, well, free! The pressure of “having” to save and potentially sideline friendships or once-in-a-lifetime experiences for the sake of being frugal seems draconian to me. The conscious decision to intentionally spend your money, paired with optimizing the rest of your finances, is the pace that makes the most sense to me.

Whatever path and pace you choose is great – the most important thing is to get started!

Why I’m Pursuing It

So why does the financial independence movement appeal to me personally? Not to sound Freudian, but it probably comes down to my childhood. I never wanted for anything growing up in my upper-middle class bubble, but there were occasional glimpses into how our finances were sometimes shakier than they appeared. This disconnect between reality versus perception bothered me, even though the rocky moments always ended up smoothing out.

As my brother and I grew older, my parents became more open about their finances, the mistakes they made, and how my brother and I should learn from them. And I gotta say, we’re both doing pretty well so far. We’re not millionaires (yet!), but we’re fiscally responsible and geek out over things like balancing our retirement portfolio allocations. I think much of our success is also rooted in a deep desire to stay true to ourselves and honor the advantages we’ve been given – financially and otherwise.

So for me, the core of my “why” is to have a life built on both integrity and intention. I want the life I’m living to honestly reflect my financial reality. And I want the choices my husband and I make with our money to reflect our values, goals, and interests. So I guess you could say, it’s responsibility mixed with fun – much like Slow FI! And if/when we retire early, I want our time to be spent giving back to the community, traveling internationally, and spending lots of time with family and friends.

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The Takeaway

The beauty of financial independence is that you can’t pursue it successfully without being incredibly honest with yourself about who you are and how you interact with money. On top of that, the only way to achieve FI is to continually make intentional decisions that set you up for success.

So, what about you? If FI or FIRE is something you’re interested in, there are a wealth of blogs and podcasts out there for just about any conceivable lifestyle and stage of finances. I’d recommend Choose FI, Afford Anything, Journey to Launch, and The Fioneers. Over the coming weeks, I’ll also be taking a deeper dive into the tenets of financial independence and how to apply them to your own life.

If you’re ready to dive in, check out these posts:

Why I Pursue Financial Independence