It’s the Fourth of July today which means it’s Independence Day here in the US! That’s as good a reason to talk about Financial Independence as any I can think of!
As a Brit living in the US, I usually joke to my friends that I don’t celebrate this holiday since it represents the legal separation of the original Thirteen Colonies from Great Britain back in 1776. But of course I do celebrate it, and I enjoy living here in the States. Although I am looking forward to visiting my family in the UK later this year!
So we know the historical meaning of Independence Day, but what is Financial Independence or “FI”? It’s simply having sufficient passive income to pay for your living expenses such that you don’t need to work. Or, writing that another way, “it’s being able to take early retirement”.
To many, FI is more than just about money. It’s about having security, living a lifestyle of value, of gaining back time which can be spent with family, friends and hobbies and enjoying life for what it is: living in the ‘now’ and not worrying about the future.
Of course, this is opposite to the conventional ethic of working long hours for someone else to gain material possessions until you’re 70 only to retire. There’s nothing wrong with that either; for some work is their life and it’s rewarding. I don’t mean to judge anyone here but only pose the question: “does your job add value to your life and to you as a person?”
The road less travelled
Financial Independence is sometimes referred to as a ‘journey’. That’s because it requires planning to start, takes discipline to keep on track and requires navigation around setbacks in order to reach your destination. It’s no different from life in that respect.
And like any journey, it takes time. To quote, George Harrison, “a whole lot of precious time,” although admittedly he wasn’t singing about Financial Independence!
The secret of wealth
There’s no magic answer and no get-rich-quick scheme involved in becoming wealthy and reaching FI.
It’s simply this: spend less than you earn each year. Which tells you that there are two things you can do to become even wealthier – Spend Less and Earn More.
This is the “easier” of the two. I say that with quotations since for many people, it may not be easy. In my opinion, it’s easier to save $4 a day on a cup of coffee than increasing your income by $1,800 a year, which is how much a $4 cup of coffee every day actually costs after taxes. The downside is that you can only cut so much out from your budget.
Spending less is often called “frugality” and you can find a wealth of internet sites on this topic. I’d recommend Mister Money Moustache for inspiration and proof that it can be done.
There are likewise many ways of earning more money. It could be income from investments, income from a side-business, a hobby, baby-sitting etc. or even starting your own new company. There’s usually risk involved, and the higher the rewards, the higher the risk.
I’m following the investing approach for now as I find this gives me security as well as additional income. You can find more sites about income investing on my blog list. It’s going to take me a while to reach FI, perhaps another 20 years but hey, a journey of a thousand miles starts with a single step! And in the short term, I’ll have another reason to celebrate when I reach my Work Freedom Day later this year.
So on this Independence Day, set your mind on true independence and start your journey if you haven’t already. It will be an adventure and you’ll learn a lot about yourself and the value of time.
If you’ve already started, then congratulations! I wish you continued success on your journey!
Quote of the day
The Constitution only gives people the right to pursue happiness. You have to catch it yourself.
Image courtesy of nirots / FreeDigitalPhotos.net.