financial independence

if you aren’t a personal finance nerd, you may not have heard of or know what the terms ‘financial independence’ and ‘early retirement’ mean. today i will discuss these ideas, along with how they fit into my story and how you can adapt them into your own life.

there is a stigma to talking about money in our culture, and i want to break that because i believe our finances are essential to living happy and healthy lives. i am sharing my experiences with personal finance in the hopes of helping others. please understand that i am speaking from my own personal belief system and set of experiences. i hope to present concepts that are universally applicable, but how these play out in my life may look very different than others. what i’m writing is not gospel, but one example out of many possibilities. take what works for you, and leave the rest!

previous financial literacy posts:

1. let’s start talking about money
2. defining money

most of us have held paying jobs at one point or another. a job is a place where we go for a set amount of time and exchange our time for money. some of us may love our jobs and find fulfillment in them; others may dread going to work and only show up for the paycheck. both experiences are valid, and in both cases the tangible output is the same – money. americans traditionally hold a job from their teenage years through their sixties – a period of roughly 45-50 years. through this time, our job provides us with money to cover our living expenses, and hopefully some extra money that is put away for retirement.

retirement is when an individual has amassed enough money to cover their living expenses for the rest of their lives, and can thus cease going to their job. usually this is accomplished with some combination of the extra money put away from each paycheck (into an investment account), social security (a government sponsored retirement program), and/ or a pension (an employer sponsored retirement program). most of these programs have age restrictions that do not allow the individual to tap into their money until age 62+. these age restrictions, in combination with a low savings rate are what determine most americans to retire in their 60s.

there are other factors that determine most of us to retire in our 60s as well – social/ cultural customs (this is the proper age to retire, as it is when we head into our senior years); consumerism (we spend so much money every year that it usually takes 45-50 years to save enough money to retire); and fear (fear of not having ‘enough’ if we quit our job, fear of being bored without a job, fear of the unknown). despite all of this, i think most americans would stop going to work tomorrow if they felt they were able to retire. isn’t this why we play the lottery and engage in ‘get rich quick’ schemes? we are looking for a cash infusion that will allow us to stop going to our jobs.

early retirement is simply the practice of retiring before the traditional age of mid-60s, sometimes even as early as 30 years old. there is now a worldwide movement of folks with the goal of early retirement who form their own sub-culture or community in the world of personal finance.

early retirement is closely linked to the concept of financial independence. financial independence means one has reached a point where the earnings from their passive income has succeeded their living expenses. usually passive income means investment returns (much like a retirement investment account), but it could also mean income from a rental property, royalties, or advertising revenue from a website. reaching financial independence means that one could quit going to their job because they are generating enough income in other ways to cover their living expenses – you are no longer financially dependent on having a paying job. some folks reach financial independence but choose not to retire early, but in the world of personal finance the terms early retirement and financial independence are usually used hand in hand.

now we come to two questions – philosophical question “why would one want to retire early?” – and the practical question “how does one retire early?”

daydream about what your life could be like if you didn’t have to perform your job for a set amount of hours every week. what would you do with all that free time? does it scare you? does it excite you? what does your job bring to your life that would could do without? what would you miss about your job?

the main reason to retire early is to regain control of your time, and thus your freedom. if one isn’t required to perform a job for a certain amount of time each day, suddenly there is an abundance of free time. we go to our jobs out of the necessity to make money to pay for our living expenses. in early retirement, one already has saved enough money to pay for living expenses, so having a job is no longer an obligation.

i will address the practical question of how to retire early in many more posts, but the technical how is actually quite simple. you can retire early by saving at a very high rate during your job-years (50% of your income and more) or by building passive streams of income as discussed above. the path most take is to save at a high rate, invest these savings, and retire once their savings nest-egg is large enough such that they can cover their living expenses with the investment payouts. the hard part is how does one save 50% or more of their income when most americans save less than 5%? that is the question that is at the heart of the journey, and that i will discuss further in the future.

to conclude, here is my personal experience: i held a job that i enjoyed – i got to be outside and work my community, and sometimes i felt like i was making a positive impact. but i did not enjoy the politics, the early mornings and long nights, the strict schedule of having to be in the office 40+ hours per week, and the minimal vacation (free) time. i also recognized that my job had many indirect effects on my life – after devoting so much time every week to my job, i was left too mentally/ physically exhausted to do the things i wanted to do (exercise, spend time with loved ones, adventure) or to to work towards the life i wanted to live (practice homesteading and self-provisioning, self-education). i also internalized the stress of my job and it negatively affected my health through poor eating choices, not getting enough sleep, and the constant headaches.

my progression from the acceptance that i would have to work until i was in my 60s to the goal of early retirement took place through this series of simple realizations:

1. having a job provides me with the money i need to survive, but at the expense of my time, energy, and health.
2. if i need less money to live on and thus retire one, then i don’t have to have a job for as many years.
3. if i don’t have to have a job until i’m in my 60s, i will salvage great amounts of my time, energy, and health.
4. the reason we as americans have to have a job so many years is because our lives demand a lot of money that is used to buy ‘things’.
5. the less things i have to buy, the less money i need, and the earlier i can stop working.
6. i can either have the ‘things’ i buy with money and work for many years longer – or – i can have less ‘things’ but have my time, energy, and health, which i see as my freedom.

in my case, early retirement was a goal because i wanted my time, energy, and health back. i decided, six years ago, that i would rather live a life that involved less spending and less consuming so that i could have less obligation to paid employment. i’m currently experimenting with what my life looks like without a traditional job, and i have found that i have many more opportunities to travel and be with those i love; to pursue projects that feel authentically good and fulfilling; and to take care of myself by exercising regularly and eating much better.

six years ago my goal was to retire by age 40. six months ago i was saving at a rate that would have allowed me to retire by age 35. but after a couple years of full time employment, i realized that my goal wasn’t necessarily to retire early – it was actually to reach financial independence in a way that felt good to me. making myself suffer through my job, even if just for another 7 years, didn’t feel good to me. i felt (feel) that there are other options out there to achieving my financial goals that don’t involve forcing myself to do something i don’t want to be doing through the rest of my 20s and 30s. thus, i have revised my goal to the following:

living a more fulfilling life by reaching financial independence and practicing self-sufficiency.

i will delve further into what this means to be in upcoming posts. i am trying to commit to one post about personal finance every week, but i’ve been so busy with my business! these posts take a long time to write and involve me re-reading a lot my past writing to synthesize ideas, but i feel proud about the information i’m presenting. pleaaase let me know in the comments if anything does or doesn’t make sense to you, what sort of information would be useful to you, etc etc. thanks so much for reading!

resources

• the shockingly simple math behind early retirement by mr. money mustache
• what early retirement means when you’re too young to retire by early retirement extreme
• financial independence and the mindless consumer zombie narrative by our next life
• how not to pursue financial independence by the mad fientist