How to Become Financially Free

Did you have a nice 4th of July? As we reflect on this US holiday of independence, what does financial independence mean to you?  

Many people think retirement and financial independence are synonymous, but differences exist.

Traditional retirement means you work until age 65 and leave the workforce entirely.  Financial independence reframes this historical perspective of retirement and refers to a time when you no longer have to work for money to support your family financial goals. Financial independence is not attached to a particular age. You’ve worked hard throughout the wealth-building journey and get to enjoy the fruits of labor early.

FIRE

Increasingly, there are people who worked diligently in their 20s, 30s, and perhaps 40s but lived frugally enough to become financially independent at a young age.  They are part of the FIRE movement, which stands for Financial Independence, Retire Early.  

Many of them are now online bloggers in true “sherpa” fashion: they reached the top of the mountain and are now teaching others to do the same.  They leverage time to share important information with their audience yet slow down to live a simpler life.  

For example, Peter Adeney (aka Mr. Money Mustache) is a Canadian born blogger.  He and his ex-wife studied engineering and computer science and worked in tech-industry cubicle jobs in the late 1990s and early 2000s. They saved aggressively in passive index funds and real estate investments, achieving an early retirement in 2005 to start a family.  Six years into retirement, Mr. Money Mustache became frustrated with friends and former coworkers living ridiculously expensive lifestyles while sacrificing long-term financial freedom.  He started the blog in 2011 to share his secrets of financial independence. 

The FIRE movement is growing rapidly, and for good reason.  Are you frustrated with the old school mentality of work?  Are you searching for deeper meaning in your work?  Are you willing to pursue an unconventional career path?  

Perhaps you do not want to retire “early” even if you can afford it.  Rather, focus on financial independence and open the door to volunteer opportunities or contract work that provides schedule flexibility.  Regardless of whether traditional retirement or financial independence is your end goal, you will need a solid financial foundation to make it happen.

There Is No Magic Number

My number is going to differ from yours to be financially independent.  If your mortgage is paid off, you have no debt, your kids are grown, and you live frugally, you’ll need less money than me to reach financial independence.  My kids are young.  We still have a mortgage.  Our living expenses will continue to be high for the next 15+ years.  We need to amass more than you for financial independence.

As a financial advisor, I cannot tell you that $1 million or $2 million is “enough.”  Each situation is unique, and there are too many variables. The average US life expectancy is 78.7 years.  My financial planning software uses 95 as the average life expectancy for a woman and 90 for the average life expectancy of a man because people may live well beyond the average.  What if you live to 100?  Or 110?

When modeling future cash flow, I take family history (including medical conditions) into account. We look at the long-term trajectory of the retirement plan. Is the financial net worth growing or depleting over time? Inflation, social security,  tax rates, lower investment returns and other factors can derail retirement plans.

Live Purposefully

Financial wellbeing isn’t the only focus for a pre-retiree. If you are within a few years of financial independence, you should also contemplate what your life holistically looks like “post-retirement.” What activities are you doing on a daily basis? What will get you up out of bed in the morning?

Let’s ponder this Bible verse:

  “For I know the plans I have for you, declares the Lord, plans for welfare and not for evil, to give you a future and a hope.” – Jeremiah 29:11

Depression and anxiety are serious issues that pervade our society.  Nearly 50% of people suffering from depression are also diagnosed with anxiety disorder. Retirees who were previously driven by work may feel like they have nothing left when the workday is removed.

That’s why purposeful living is so important.  Try to be intentional with time, talent and treasure so you can bring your best self to others.  Christians should wrap their identities in Jesus, not in the tasks they accomplish at work.

In his book The New Retirementality, Mitch Anthony reiterates that retirement is not about a number.  Rather, it’s a shift in attitude.  Plenty of people retire at age 65 without adequate savings and are forced back into work because Social Security is not enough.  Others, who are financially secure, continue working past age 65 simply because they enjoy what they are doing.  I’d argue that the latter group has it much better.   

Ready to Take the Next Step? 

I have the privilege of working with parents every day who are well on their way to financial independence. It’s amazing how much progress you can make when you have an experienced financial planner to guide your financial decision-making. Set up your free, initial consult if you are interested in exploring a one-on-one relationship with a trustworthy advisor who always has your best interest in mind.