Why you should aim for financial independence, even if you don't plan to retire early
Interested in the FIRE movement but not sure about early retirement? Learn about financial independence without focusing on retirement!
Much has been said about early retirement. Even our blog is a testament to that. Just take a look at our retirement tag and you can already access everything that Steve had written about retirement in the past...But what if you don’t want to retire early? Do you still need to worry about financial independence then? I believe you should!
What Is Financial Independence?
Being financially independent is different from simply being able to retire early, after all. In a nutshell, financial independence means that you can enjoy your life as it is without having to worry about money. In fact, it can even help you finally do the job you want without having to worry about earning money at all.
To quote Steve in one of his previous articles:
“Financial Independence is more important than early retirement.”
You don’t have to stop working if you don’t want to—obviously—but what does financial independence look like when you separate it from early retirement?
Why would you want financial independence if you don’t plan to stop working anytime soon? Maybe you’re someone who has been interested in the FIRE movement but finds that not all of the (more extreme) ideas and themes resonate with you. Maybe you feel stressed when it comes to work or employment, but you can’t figure out why. Those aren’t just gut feelings; they’re signs you probably fall into one or more of the following scenarios and that it might be right for you to pursue financial independence in order to…
- Release your passion from the burden of earning money. Focus on what you really want to do and not how much money it will bring.
- Remove the stress of having to worry about bills every single month. Once you’re financially independent, you should have enough money to cover your regular expenses each month and live comfortably even if you don’t work. And speaking of which...
- Free yourself from the shackles of your work and you can go on holiday anytime you want. Ain’t it a real dream? You now have more time to focus, not on work, but on your deep work. According to Cal Newport, the author of the book Deep Work: Rules for Focused Success in a Distracted World, “deep work is a proven path to deep satisfaction”. It is the kind of work you do to affect the physical world. To craft. To learn. To change and create.
And just to be clear, here’s what financial independence is not:
- Having an infinite pool of money. Because you don’t. You’ll probably have enough savings to sustain you for a couple of decades but if you spend it all in one go, then you will find yourself in need again.
- And unless you have multiple investments and passive income sources, you can significantly increase your lifestyle spending.
How to achieve financial independence
With that out of the way, how do you attain financial independence anyway? Here are a few steps:
- Put your eggs in different baskets. Question: do you think that your salary will increase as fast as the inflation rate? Yes? Then you’re in luck. You have it better than a lot of us.
Then here’s another question for you: do you think your job will last forever? Will you always have clients? Is your company built for the long haul? What if it suddenly gets bought one day and you lose your job overnight…what then?
This is the reason why it’s best to invest your money into different “baskets” depending on your risk tolerance. Put some money in stocks, then allocate some for bonds.
Diversification is the key so if one basket gets crushed, you won’t have to worry about being dirt broke.
- Invest with discipline. Don’t just randomly invest your money too. We said diversify, not throw it away. Perform careful research and do not just bite into “get rich quick schemes”. There are a lot of them out there.
Wait until your investment bears fruit as well. There are trust funds, for instance, that need to mature for several years in order for you to get the most out of your plan. It can be worrisome to see the stocks decline and dip from time to time, that’s for sure, but know that it will be able to recover in the long run.
Think with the long-term in mind.
- Increase your income. Here’s a popular misconception: you need to save in order to get rich. Steve has already made this clear in a previous post:
“Saving money has little to do with getting rich”.
Now, don’t freak out. Allow me to explain. Saving money does help, but it is not enough. For instance, you want to save a couple of dollars each day by packing your own lunch to work. That will allow you to save a thousand dollars probably in a year. That’s great...but will it make you rich? No.
You want a solid way to get wealthier? Find a way to increase your income but don’t change your lifestyle. Believe it or not, but this step is actually easier for freelancers. Increasing the price of their services can easily be done by improving their skills and experience, after all.
On the other hand, employed people will find this a little bit more challenging to do. Unless you finally land that promotion you’ve been working hard for this past year, the only way to increase your income is to get a (profitable) side hustle.
- Manage your cash flow. Apart from increasing your income, you have to be able to manage it properly. That is one of the elements to achieve your financial independence. Take control of your cash flow. According to an article published on Inc., failure to do so is one of the leading causes of business failure.
So what is cash flow anyway? In the simplest way possible, it is your regular income and spending. If the money coming in is greater than the money going out then you have a positive cash flow. If there’s more money going out than coming in then you have a negative cash flow and a VERY big problem.
One efficient way of making sure that you always avoid those kinds of issues is to cut down unnecessary expenses. Keep a record of everything that your money is going to each month and see if there’s something there that costs quite a lot but you can actually live without. Lifestyle expenses can eat at our finances without us noticing.
Please keep in mind that we are cutting down only unnecessary costs. This is not about living on a tight budget, it is about having a clear understanding of your income and expenses. Once you have that understanding you will manage your finances in a much better way. Managing your incomes is one of the keys to achieving financial independence.
- Explore real estate options. Here’s the thing, investing in the stock market is certainly a good means of achieving financial independence, but as we’ve mentioned above, it works more efficiently in the long term.
Is there a faster way to grow your income? Two words: real estate. Never underestimate the profit that rent and property resell can bring. You can start with a single property and rent it out.
You don’t even have to start with long-term rent. Home-sharing through websites like Airbnb and VRBO allows you to rent out your space on a short-term basis. In fact, there’s even an option to stay in the property as you rent out a part of its space.
But of course, let’s be real.
The profit is not going to be as much as if you just went ahead and invested in a starter home, but it’s still better than nothing. You can gradually grow your profit and move on to other property investments. What’s more, is that banks LOVE smart real estate investors. They’ll probably even offer a helping hand later on!
There are many options out there for creating streams of income to achieve financial independence, but those five are some of the most solid tips, and none of them involve giving up your morning latte. As simple as it sounds, there’s one more thing to keep in mind: timing.
The earlier you start taking steps toward financial independence, the better.
It is never too late to start learning about financial literacy but any time you wait equates to dollars left on the table. It is always a good time to get some help from a financial advisor. The best time to start working on your financial independent future is NOW.
In fact, even Millennials know that it’s best to start early. Remember when #MillennialRetirementPlans broke Twitter last month? We even published an entire article about it right here.
This hashtag in itself recognizes the importance of starting early. Today, millennials are roughly 23-38 years old. The particular tweet that we’ve even highlighted in that article mentioned cultivating kids in order to grow up as millionaires.
That’s how early we should all start thinking about financial liberation. As kids. I still cringe a little bit whenever I think of all of my time wasted in the corporate world, working that 9 to 5 and even with my high-paying salary, I accumulated debt, just to “keep up”.
I wish I’d have known all about financial independence sooner. Then I’d have written and published this post earlier in order to impart whatever wisdom I’ve learned through experience pronto as well.
But alas, experience doesn’t work that way. That’s why I sincerely hope that you have learned much from reading my article today and that it saves you from the entire trial-and-error cycle that we all want to avoid.
So, which tips are you thinking of trying out soon? What are the life goals that you want to achieve once you gain financial independence? Feel free to share your thoughts below!