The Basic Principles Behind Achieving Financial Independence
-the financial state of a dedicated and self-disciplined badass that can spend their time doing whatever the heck they want
“after achieving financial independence, Jordan felt free to quit his job and move to Florida to blog and pursue new entrepreneurial activities”
One of the goals of this blog is to encourage our readers to achieve financial independence much earlier in their life. The biggest confinement people feel, is the inability to earn money doing what they’re passionate about. Or even more challenging, the inability to leave a good paying job they are a “wage slave” to. Wage slaves are chained to their jobs because their lifestyle has inflated to the point where their current level of income is a necessity.
Structuring Your Financial Independence (FI)
There are four components you need to create and understand in order to live a FI life:
Know why you want to achieve FI
Component number one is the most important! On our blog’s introductory post we mention that the first and most common retirement hack is when people “do what they truly love for a living and eliminate the grudging sensation of going to work.” By forcing yourself to observe whatever is fueling your FI journey, you become more inclined to live a fulfilling life faster. For example, perhaps Little Bo Peep wants to achieve FI so that she can quit her job babysitting sheep and spend more time at the beach and at home cooking. Once Little Bo Peep recognized why she wants FI, she’ll have more insight on how to hack the stereotypical retirement path and lead a more fulfilling life faster. Perhaps Little Bo Peep can have the best of both worlds by making money chilling on the beach and selling gyros at a pop-up lunch stand.
Understanding why you want to achieve FI will be the driving force that keeps you on track to your end goal. If you absolutely love what you’re doing to make money and are pursuing FI solely for the freedom and peace of mind that it enables, then more power to you.
Understand where you’re starting at
Before you define where you want to go, you must know where you’re starting from. In the future, we’ll explore each of these starting points further but for now, try to acquire a sense of the following:
Lifestyle: What is your current lifestyle and is it contributing to your happiness? Beyond the bare essentials of shelter, food, and water, humans need very little to survive or be happy.
Philosophers who practiced stoicism would often abandon their more frivolous niceties for a few days and would walk the streets wearing simple garments, drink only water, and eat only what was required to survive. This served as a reminder that they could live on very little and could be happy with the bare essentials.
- When reflecting on your own lifestyle, you might ask:
- How much did my vehicle cost? What percent of my yearly salary is that?
- Last time I went to the grocery store, what did I buy?
- How many times have I went out to eat in the last month?
- How much credit am I carrying on my credit card?
- How much have I used my last “toy/guilty pleasure” purchase?
Streams of income: What streams of income are currently fueling your lifestyle? For most people, this list will be quite short. Don’t worry, we’ll work on building it together!
Debt/fixed costs/cost of living: In addition to the cost of living (shelter, food, water) be familiar with every liability that is sucking the money out of your bank account: mortgage, student loans, car payments, credit card interest, etc. Understand what other recurring costs will be draining your income: cable payments, insurance, online subscriptions, gym memberships, etc.
Assets: What assets do you currently hold? This includes your 401k, IRA’s, physical assets such as rental property, businesses, etc. If your spouse or brokerage account manager is the “knowledgeable” one when it comes to your assets, change that. NOW! I’d do some serious digging to find out what exactly you have and where you have it.
What is your end goal
After taking a thorough look at where you are now, you should have a rough idea of what debts/fixed costs you must be able to pay to sustain your current lifestyle forever. Perhaps when you were analyzing your own lifestyle you discovered a lot of your fixed costs aren’t creating much happiness for you anymore. Maybe your mustard of the month club subscription just isn’t doing it for ya anymore. GET RID OF IT. You only watch 10 out of your 1000 cable channels. GET RID OF IT. You get the picture.
Recognizing and removing these unwanted costs is obviously one less liability that you’ll have to pay for.
After finding the level of income that you need to have, you can set a goal of what you want to have. While you may be able to survive off of $25,000-$45,000 per year, you may decide that you want $60,000 to $80,000 a year to meet your basic needs and take 3 luxurious vacations each year.
Creating my own end goal:
After calculating my own debts/fixed costs/cost of living, my fiancé and I have found that we need about $45,000 per year to live off of comfortably (detailed breakdown will be provided in the future). This cost includes
- our mortgage
- student loan payments
- vehicle expenses
- medical insurance
Adventuring and traveling are important to us, therefore, we’ve created the goal of having enough income streams to provide us $100,000 yearly. In addition to the income produced from our assets, we aim to eliminate our debt. The combination of this income and the lack of debt would allow us to cover travel expenses and provide for a very comfortable lifestyle.
How are you going to generate that stream of income
After deciding how much income you need to generate, the final step is deciding how you will generate it. Some of the income streams that you can use to replace your j-o-b income include:
- Revenue from paper assets: stocks, bonds, mutual funds, CD’s, etc.
- Rental property income
- Informational Product sales e-books, online courses, etc.
- Advertising, affiliate links, consulting
- Peer-to-Peer lending
- Business income (passive or active)
- Lifestyle income (make money from your hobbies)
- The list goes on and on!
When creating this additional income, acquire enough streams to the point where your eggs aren’t all in the same basket. However, too many, and you won’t be able to master them. As soon as your other income streams generate your end goal income, then viola! You’ve done it!
So let’s giddy-on-up.