When I read the book “Your Money or Your Life” in 2009, the concept of financial independence was totally new to me. It hit me like a ton of bricks. Our society says “simply work 9 to 5 until you’re 65, and then you’ll be free! Financially Independent!” Or, for some brilliant entrepreneurs out there it might be age 50 or 55.
This book started me questioning that logic. It’s not really logical after all, it’s cultural. Financial independence (FI), when it’s boiled down, is more accurately defined as living in such a way that you don’t have to work for money. To me, that’s a radically different statement than “FI is when you’ve got a million dollars in your 401k and you retire with social security benefits” (or some other fixed amount of savings).
What Is Money?
Money is a tool. A resource that provides for us, our families, and our interests. It’s something that we trade our life energy for, day after day, until we achieve whatever level of security we think we need. It’s something we can exchange for goods or services. We work for it day after day, often without questioning why, or how long we actually need to do this.
Our society often defines success in terms of wealth, status, and position. For some stay-at-home mothers I know, its embarrassing to state “I don’t have a job, I’m a stay at home mother”. Really?! You mean to tell me that you don’t have to work because you’ve got enough money for your family to live on, so you get to stay at home and invest your time in/enjoy your kids, helping them to grow up in a great family environment? That’s awesome! I salute you! The same goes for the man or woman who invests their time in something besides the most high-paying job they can find because they want to be a part of something bigger. Non-profit work, volunteering in spare time, church ministry, etc. I’m glad to hear that you’re living life on your terms!
For some folks, financial independence is staring you in the face if you’ll just wake up and realize it. For others out there, it’s a long way off. But from what I’ve seen, all of us have a path to it if we stop and think about it. Here’s a fictitious example:
Bob’s Path To Financial Independence
Bob is a 35-year-old software programmer in Ohio. He makes an average salary for someone with his experience level, let’s give him $60,000/year. After taxes it’s closer to $50,000, and that takes care of his expenses. He’s paying his bills, saving a bit in his 401k, and going to work every day. Programming. This is what he plans to do for the next 30 years of his life until he retires. It’s a little hum-drum but hey, it pays the bills.
One day Bob decides to rethink some things. Instead of commuting into the office every day he decides he’s going to ask if he can work from home. Or, he decides to move into a very small house close to his office. He takes some freelance work on the side to add $10,000/year to his income. He packs lunches, saves gas, spends less on maintaining his home, and starts saving $30,000/year into some index funds. As his savings grow, so does his income over the years, and at the same time some of his expenses drop because he’s finished paying off his small house. His investments are returning their proceeds back into his index funds, and 12 years after starting this plan, Bob’s index funds are paying him a small salary equal to what he’s been living on for the last 12 years. He’s arrived at financial independence!
So what changed in Bob’s life? Did he land the perfect job? Did he win the lottery? Did he invent the next Facebook? No (although now he’s got time to think about things like that). All Bob did was rethink what he categorized as “needs” in his life. He disregarded society’s definition of “wealth” and started thinking for himself.
Once Again, Say It With Me
Financial Independence is reaching that state where income from investments or assets takes care of my daily needs, so that I no longer have to work for money. It’s a simple concept, but one that few of us really learn.