Living Freely: Achieving Financial Independence

September 7, 2019 Living Freely Series

Last updated on September 10th, 2019 at 04:02 pm

Disclaimer: I am not a professional financial adviser, and this series in not meant to provide individualized financial advice.  I am just one guy who did well enough to become financially independent at age 35.  This series simply shares the lessons I learned for your entertainment.

By The Pointer

We’ve discussed a lot in this series.  Now, we’re getting for the final step: achieving financial independence.  Travis, our main character in this series, went from living paycheck to paycheck to being on track to retire at the age of 51.  While that’s huge improvement, he’s still looking at 21 years of diligence to achieve his goal.  Can he accelerate that?  How does he deal with such a long journey?  What happens when he finally reaches his goal?  These are the questions we’ll tackle in this final installment.

Managing the Long Journey

Travis has a dream to travel the world on his own terms: no asking for time off from his boss, no having to “get back to the office.”  Once he realized it’s actually possible, he couldn’t get it out of his head.  Who could?  I know I couldn’t after I discovered the world of financial independence.  He wants to get there sooner!

Constantly Reevaluating

Remember, this whole journey is pretty simple: spend less, earn more and invest the difference wisely.  That means there are 3 variables Travis should constantly be looking at.

Cutting Expenses Now

The first is reducing his spending.  So far, he’s only cut his spending to $54,894 by looking at his mobile phone and car costs.  That’s a start, but it only scratches the surface.  I’m also a single guy in my 30s, and I live in a high-cost-of-living city (Jersey City, NJ) while spending just $44,000/year.  If I could move to a low-cost-of-living area (mainly to reduce housing costs), I believe I could live comfortably spending just $35,000/year.

If Travis could also reduce his expenses to $44,000/year, he’d cut his time to FI from 31 years to 17 years.  If he could cut his expenses all the way to $35,000/year, he’d go down to 13 years to FI (age 43).  It’s all about constantly reevaluating what you need to be happy: would he be less happy in a smaller apartment, ordering food less often, using miles and points to pay for travel, etc.?

It’s also about benchmarking.  Sometimes you don’t realize there’s another way to do things until you see someone else do it.  The internet is littered with posts from people in the FI community who live on what others consider “poverty” budgets:

  • Mr. Money Mustache was spending about $25,000/year on a family of 3. Although it’s worth noting that his mortgage was paid off as part of his road to financial independence so his spending was probably closer to $40,000/year if he had a mortgage.
  • Jacob from Early Retirement Extreme pays for two people with $7,000/year
  • Justin from Root of Good has a family of 5, and only spends $47,398/year, a large chunk of which is temporary expenses like school tuition for his kids, which won’t be an expense forever.
  • Bryce and Kristi from Millennial Revolution travel around the world full time, and only spend $40,000 CAD (~$30,769 USD)/year as a couple

Lots of people have thrown out society’s conventional notions of what people “need”, and are living freer (yet still comfortable) lives because of it.  With a few examples for inspiration, you and Travis could do the same!

Cutting Future Expenses

Most of what Travis has considered so far is that he should cut his expenses now.  Maybe he has to live in an expensive area because of where his job is located, but he’d be happy to move closer to his family in rural Ohio one day.  That would significantly reduce his housing expenses.

Some people consider moving abroad after they achieve financial independence.  The United States is actually one of the most expensive countries in the world, relatively speaking.  Travis could live like royalty in Thailand, India, Colombia, Vietnam, Eastern Europe or any number of other place for less than $20,000/year.  At The Earth Awaits, you can plug in your budget, and it’ll show you the tons of potential places you could live within that budget.

The Earth Awaits is an excellent resource researching what it would cost to live in different part of the country or the world.

Earning More

We already covered earning more, but Travis should always be looking at:

  • Am I being underpaid relative to my peers?
  • Can I turn that skill or asset into a side hustle?
  • Can I focus my efforts to earn a promotion or bonus?


It’s going to be tempting to say, “Couldn’t this go faster if I invest in [fill in the individual stock]?  It’s been hot, and I could earn a ton if it doubles in price.”  Don’t do it!  Even experts can’t beat the market.  You’re not likely to do any better.  Sticking with passive index funds is slow and steady, but it works over time.

Instead, I’d recommend focusing your efforts in the investment arena on reducing your tax burden.  Travis hasn’t maxed out all of his taxed advantaged investment vehicles yet (HSA, 401k, IRA, etc.).  He doesn’t even know about the Backdoor Roth IRA or Mega Backdoor Roth IRA yet.  With a little research, he can optimize his current and future taxes even more.

Don’t Torture Yourself

This path should be about liberation, not deprivation.  Travis is cutting his expenses to reach FI so he can be sustainably happier.  That doesn’t mean he has to make himself miserable now to get there sooner.  If he really loves going to concerts with his friends every month, and he wouldn’t be as happy if he cut that expense; then, keep spending the money.  We’re looking to remove what’s unnecessary; not to cut at all costs.

Also, way too many people stay in jobs they hate in order to achieve financial independence.  Sure, the money may be good, but maybe you should be looking for a new employer that pays you the same or more.

Find Community and Support

We’re all human.  We want to share our experiences, and have others sympathize with us.  On the path to FI, that can be tricky.  A lot of what we do along this journey can be seen as weird, extreme or cheap.  However, once you’ve taken the red pill, and escaped the Matrix, you’ll probably start thinking everyone else’s priorities and consumption habits are weird.

To help stick to your goals, it’s helpful to hear relatable stories, get the latest information and talk to like-minded people in person.  I can recommend a bunch of resources:

All of these examples just scratch the surface.  You’re not alone!  Other people share your values, and you can help each other reach your goals.

Being Ready for FI

Financial Independence isn’t a panacea.  The day after you hit your number, your shit still stinks and it still rains now and then.  The biggest difference is that you’re not reliant on an employer in order to support yourself.   What you do from there is up to you.

Have A Plan For Your Time

If your only plan is to reach FI and “be free,” then you’re going to be bored after you leave your job.  Trust me: exercise and Netflix are great, but they won’t fill every day for the rest of your life.  You’ll need a plan for how you’ll spend your time after hitting financial independence.

Different people have all sorts of plans: start a website, become an artist, home school their children, volunteer with a local organization.  There aren’t any rules for what’s a good way to spend your time, but it important to have a plan.

Sequence of Returns Risk

Once you pull the trigger on financial independence to “retire,” you’ll be withdrawing money while the market is moving all over the place.  While there’s a low likelihood that you’ll run out of money, but that low probability is most likely to happen when there’s a particularly bad downturn in the first few years after you “retire.”

Let’s look at an example, let’s say your goal is to save up $1,000,000 in stocks, and withdraw $40,000/year to support yourself (the 4% “rule”).  As always, we’re only talking in real terms to correction for inflation.  Here are a couple of ways that things could potentially play out:

In both of these scenarios, the returns are exactly the same.  They’re just in a different order.  The first 3 years of really bad returns happen in years 10-12 in the second scenario.  Everything is the same, and the average annual return after 30 years is the same in both scenarios: 7%.  That one little difference, the sequence of returns, can be the difference between bankruptcy and growing your portfolio to $1.6 million.  This is called sequence of returns risk.

How can you hedge against sequence of returns risk?   It’s actually not that hard.  You just have to minimize the amount you’re withdrawing early on.  Maybe instead of retiring in the traditional sense, you just cut back your working hours or start a business that makes a small amount of money.  If you just earn $25,000/year for those first 5 years, the results look entirely different:

Instead of going into bankruptcy, you preserve your initial principal in the really unfavorable scenario.  In the slightly less pessimistic scenario, your portfolio would grow to over $2 million:

This isn’t the only path to financial independence

In this series, I’ve only exposed you to one route to financial independence: passive index fund investing.  Others have reached the same goal in different ways where I don’t have expertise such as real estate, growing their own business or multiple other avenues I can’t even think of.

The Dream is Achievable

At one point, I completely dismissed the idea of financial independence because I thought it was unrealistic.  That was a huge mistake, and I regret not waking up to the idea sooner.  FI simply requires a shift in how you look at the world, and awareness of some basic investing and tax principles.  There is slow and steady route to financial freedom that just about anybody can follow.  If you prioritize freedom over materialism, you can live the dream!

5 Replies to “Living Freely: Achieving Financial Independence”

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