Let me start this post by asking you how much money you make each year. $30,000? $40,000? $60,000? Maybe $100,000+? Everybody knows the more you make the easier it is to become financially independent, right?
Let me ask you another question: How much money do you save each year? $2,000? $3,000? $8,000? Maybe $20,000+? Everybody knows the more you save the easier it is to become financially independent, right?
Okay, last question: What do you know about investing money? Not much? A little? Enough to be dangerous? A lot? Everybody knows the better you invest the easier it is to become financially independent, right?
Three Tenets to Reach FI - But the Foundation is Disciplined Saving
What you make cannot be ignored but it is only one element of three core tenets that will lead you to financial independence. I’ve met people over the years who have made as little as $30,000 who’ve managed to save 10% of their income every year, and others who were earning $200,000 or more that were in debt up to their eyeballs.
If you want to be truly financially independent - the kind where you have enough income to not have to work to cover your expenses - it is not just about what you make. Sure, earning big dollars will make it easier, but so will being a disciplined saver and good at investing the dollars you do save. Take any one of these three elements out and you can still get to financial independence - you just need to be realistic about the timelines. Take two of these elements away and your chances of getting to true FI become slim.
So, you aren’t a big earner. Learn to be a disciplined saver and effective investor. I can promise that being a disciplined saver is more important than being a big earner.
Where are you on the disciplined saver spectrum?
Do you have a formal budget? If not, create one today.
How honest have you been about wants versus needs? If you aren’t a high earner and tell yourself you NEED a Starbucks latte every day, the honesty may be “meh.”
Do you live on your own, with a roommate, or with an older couple (you know, the ‘rents)? The answer can have a dramatic impact on your ability to save. Can you improve that situation to save more?
If working remotely, would living someplace with cheaper rents be an option?
How often do you eat out versus eating at home? The former is WAY MORE EXPENSIVE than the latter.
When eating at home, would buying in bulk to save money be an option?
Where do you shop? Some stores are much more affordable than others.
Do you own a car? If yes, do you need to own a car? If still yes, did you buy it new or used? When it’s time to replace, buying used can make much better financial sense for one simple reason: depreciation.
Are you a spender in other ways: fancy clothes, shoes, expensive makeup, music, games, subscription services (like Netflix or Amazon Prime), etc? Sometimes our difficulties saving are a result of the dozens of tiny expenses that on their own don’t seem meaningful, but in the aggregate are throttling our savings.
Maybe today you don’t know how to invest to advance your financial independence, but that’s okay. I’m taking you post by post through ways to identify and then invest in productive assets to increase your income year by year, even if your primary job isn’t moving the financial needle as much as you want. Let’s call this part of your plan a work in progress. That said, while I’m sharing the proven investments and techniques I’ve used to reach financial independence, I hope to inspire you to be on a search for additional possibilities that play to your unique skills and knowledge.
Not All FI is the Same
There is one more very important question you need to answer to know whether becoming financially independent will be about what you make: What kind of FI lifestyle do you require?
Does your true FI require living somewhere upscale? Driving a nicer car? Big vacations every year? Or is your true FI located in a safe but not necessarily upscale neighborhood? With a reliable used car? With road trips or less expensive vacations?
If you want the living large version of FI, beyond being a diciplined saver, you will need to excel at either earning money or getting exceptional returns on your investments. Either one can get you there, but it is naturally harder to build up productive assets to service this level of living.
If you are content to achieve true FI for a more modest lifestyle, you can get there as a disciplined saver with a modest income and solid effective investing results. Effective investing means the acquisition of productive assets to provide income, replacing the income you currently derive from the job that pays the bills. When you learn to save on a modest income, it also means you know how to live on a modest income.
Conclusion
My recommendation is to get to a modest level of true FI and then work to increase your non-traditional job earnings over time. Once at FI you can take a percentage of your investing and put it into “moonshot” investment opportunities without any meaningful downsides to your life.
My wife and I followed that very path: first being diligent savers, then acquiring productive assets by investing in real estate to create income outside of our primary jobs, and then, after several years of nurturing those productive assets, making a speculative moonshot investment that wouldn’t change our lives in a meaningful way if the investment went to zero. When it came through, we took the profits and expanded our base of productive assets to increase the baseline earnings not tied to our jobs. All of this activity took place in 12 years, so things can change for the better quickly if you are disciplined and stick to a well-crafted plan for achieving FI.
Imagine, if you are a twenty-something, reaching the living large FI lifestyle by the time you are in your mid to late thirties, or if you are a thirty-something doing so by the time you reach your mid to late forties.
It can be done. The opportunity is there. Really and truly. Keep reading and I’ll offer up more secrets for investing success to get you where you want to go.
Until next time, may peace and prosperity be with you.
The Natural Economist
Next up: A poll of readers to see what is working for you on this blog and what isn’t.