Early Retirement (through Financial Independence), is an idea which has been increasing in popularity in recent years, as people reject the idea that they have to work until they are 65 or older. And the idea that living paycheck to paycheck is normal.
Although my wife and I are not planning on the retirement part of this combination, we are actively chasing financial independence. So, what is financial independence, and why would we want to do that?
What is Financial Independence
If you are financially independent, that means that your assets (stocks, or real estate, or other investments) continually generate enough money for cover all of your living expenses.
What does this mean in terms of real numbers? Multiply your yearly expenses by 25. With this invested in stocks, you can safely withdraw your yearly expenses every year. This is known as the Safe Withdrawal Rate.
The stocks mentioned aren’t difficult – you can even invest using an app like Acorns, which takes care of everything for you.
Why would we want that?
Financial independence gives you the freedom of knowing that you can handle anything that comes your way. If you lose your job, or your health, then you will still be able to afford your current lifestyle.
It also means you have the freedom to choose to not work! Although Khin and I don’t plan on doing this when we reach financial independence, it is good to have the option available.
The general practice of prioritising where we spend money has had a great effect on our lives as well. Instead of spending on daily lunches, we’ve spent on family. Instead of spending on new phones, or game systems, we have spent on travel – which brings much more joy to our lives.
Along the way you will reach different stages of financial independence. Each milestone means an added level of freedom. Being able to pay the bills without falling behind. Having several months of emergency fund saved up. Becoming debt-free.
How can you get started?
The best place to start is to choose one area of your life where you spend often, and where there is an easy alternative. Maybe you buy a lot of take-away coffee. Maybe you buy things on sale and don’t use them. Maybe you have a gym membership you don’t use.
Keep at it, changing areas of your life where you can save without too much effort. And then try tackling some of the bigger ones. Maybe you can keep your current phone instead of signing a new contract for the latest iPhone. Go for a low cost plan instead.
If you start putting away the amount saved there into investing, or Acorns, you will be surprised at how quickly it adds up! See here for an example at what $7 a day can add up to.
The Mr Money Mustache blog was a big inspiration to me when I was discovering financial independence, so I want to share one more link to one of his articles. Here you can find out how many years it would take you to become financially independent. Khin and I are aiming for 10 years!