Intro to the Financial Independence Movement

Some people have figured out how to game the system. They retire early, often in their 30s and 40s, with enough time, health, and money to enjoy their retired life.

The mechanics are simple:

You have money.
Your money earns money.
Your life costs money.

When your money (#1) earns enough money (#2) to pay for your life (#3), you've hit financial independence and you can retire forever.

Think this is beyond you? People who chase FI would argue that you’re no less capable than them.

The Why

What do you really want in life? Security? Happiness? Purpose? The FI movement promises security and stability and the opportunity to pursue what makes you happy. It's about the freedom of never having to work again.

What would you do if you didn’t have to work? More family time, cook more, get fit, have hobbies? You control your time, allowing you to focus on the things that most fulfill you. Which is not to say you’ll never work (hell, you probably will) - you’ll just pick your work (both type and quantity) without worrying about money.

Even if you keep working, you’ll have the freedom to walk away. You’re now choosing your job. It's much more enjoyable to do something you've chosen to do rather than something you're forced to do.

Ultimately financial independence is about autonomy, fulfillment, and freedom. Autonomy to live how you want. Fulfillment from doing the things that matter to you. Freedom to do you.

“Paul, I plan to keep working. What’s the big deal?”

Okay. Another reason: when people reduce the cost of their life by focusing on the things that truly matter to them, they find that they live much happier, more fulfilled lives in the process. This is essentially minimalism applied to your life instead of your things.

Let’s not undersell the confidence and security that comes from having a bank account that goes steadily up. There's a reason people call a large war chest "FU Money" - because it provides freedom unlimited of course.

The Mechanics

FI’s mechanics are built on two pillars: 1) how much money you have; and 2) how much money your life costs.

How Much Money You have

We live in a consumer culture, so it's no surprise that we focus on how much money you have and the status symbols that prove it (e.g. how big your house is, how nice your car is, what exotic locale you last visited).

You can find resources on how to get more money elsewhere, so I’ll just highlight two things before we move on:

Ironically, these status symbols are often bought on credit. In other words, it's often not actually a symbol of how much money the person has, but how willing they are to go into debt.
Many people earn more through side hustles (something you do to earn money outside a traditional job). Why have a side hustle? Two main reasons:

Extra money. It could create passive income that drastically reduces your FI goal amount.

Extra fulfillment. As the Side Hustle Nation podcast constantly announces, "your 9 to 5 may make you a living, but your 5 to 9 makes you alive."

How Much Your Life Costs

Why Reduce?

This is what drives the FI engine because reducing how much you spend:

Allows you to save more every year, AND
Decreases the total amount you need saved up (since your life costs less).

Using an analogy of a sprinter, you’re not only speeding up, you’re also shortening the race. No surprise, you’ll finish sooner.

And while that’s great (it is), it gets better:

You’ll live a happier, more fulfilled life when you focus on (your) important things.

I’m going to quote chooseFI.com here:

…instead of focusing on buying stuff to make up for my unhappiness, what if I just focused on happiness? What if I made a list of things that actually made me happy?…What we find out over and over again is that the list rarely includes stuff. Stuff is not a necessary prerequisite for happiness.

Before we move on, you should probably pause and think about your list. What 10 things most contribute to your happiness?

And I’ll add - if stuff is on your list, then go for it. But know that buying stuff that is NOT on your list takes away from what IS on your list.

The “Best” Ways to Reduce Costs

I hear you: “Okay sounds great. Now what? Do I only buy no-name ketchup instead of Heinz?” Look, that’s up to you. There are as many different paths to FI as there are people trying to reach it.

There are a few big levers to pull on when reducing how much your life costs:

Live in a smaller space (or house hack (or both)).
Rent, don’t own.
Live closer to work.
Better yet, bike to work.
Own a less expensive car (or, if you’re hardcore, don’t own a car).
Make your own food (including hacking your menu).
Cut the (cable) cord.

Shit Paul, you want me to do all that?!?

All I want is for you to be clear on what fulfills you and focus your money on those things.

Remember that list of things that make you happy? Was freedom on it? Maybe you’ll find it easier to save if you think of it as spending money on your freedom.

“I’m not giving up a thing. I need it all.”

The big argument I hear against FI is usually: I don’t want to have to give up X. My short answer: then don’t. Buy that car. Or that latte. But if you won’t give up anything, then you’re probably giving up your future freedom.

Let me give you an example of spending that doesn’t align with priorities. I have a friend who values success. He grew up poor and now revels in a high paying job. He jet-sets, indulges in luxury, and treats himself so that he feels successful. Presumably he imagines that this is how the rich must live, and so when he lives like this he is what he most wants to be - successful. This man values success, but he’s spending money not on being successful, but on looking successful.

There are other (cheaper and more sustainable) ways to feel successful. What could be more successful than never having to worry about money again?

How Much Money Your Money Makes

The FI movement relies on the 4% rule and investing in low-cost index funds (excellent analysis here):

If you can live off of 4% of the money you have saved, then you can retire now.

Note we now have a finish line for FI. As soon as you have 25 times the amount of your annual expenses, you are officially FI.

So How Long Does it Take?

Interestingly enough, you can predict how long until you hit FI by knowing just your savings rate, as a percentage of your take-home pay.

That’s because your savings rate takes into account both how much money you’re saving and how much money your life costs. A few highlights (original math here):

A savings rate of 65% means you’ll hit FI in a measly 10.5 years.
Saving 30% means it’ll take you 28 years.
Saving (the recommended) 10% means 51 years until retirement (Freedom 71 anyone?).

I want to highlight one last point that MMM makes regarding the “average” American family who takes home $50k and saves 10%:

Simply cutting cable TV and a few lattes would instantly boost their savings to 15%, allowing them to retire 8 years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for???

Last Thoughts

What Does This Mean For You

If you’re anything like most of us, you’re spending money on shit that doesn’t move your happiness/fulfillment dial.

Once again, I’m not recommending a monk-like life of asceticism. I’m recommending only that you’re deliberate and that you don’t just blindly spend money because you’re “supposed to.”

So figure it out, and cut it out.

I recommend making a list of the top 10 things that make you happy. Ask your spouse to do it too and then compare lists. And then, make a plan to actually spend your money where it matters to you.

I’m incredibly passionate about this. I would love to hear about your (existing or future) journey (in the comments below or on FB or IG).