I’ve come across various articles over the years that seem to imply that financial independence is this magical lifestyle that allows one to ride unicorns across rainbows wherever they go.
While it’s wonderful in many ways, financial independence isn’t without its fair set of drawbacks. Like anything else in this world, it’s not perfect. The benefits far outweigh the drawbacks, but that isn’t to say there are no drawbacks.
That said, I wouldn’t trade it in for the world. Being able to do what I want, when I want, with whom I want is a luxury that I no longer want to live without. Others can have their BMWs, custom suits, and McMansions. I’d rather accumulate time, options, and flexibility.
But are time, options, and flexibility only on the table for those who are completely financially independent?
I don’t think so.
50% Financially Independent
For perspective, I quit my full-time job back in May 2014. I was working 50-60 hours per week in the auto industry, for a luxury car dealership. And I just couldn’t do it anymore. Plus, there were a number of factors in my personal life that were coalescing at this same exact time, motivating me to go in a different direction.
The only problem was that I was only about 50% financially independent.
My Full-Time Fund was, at the time, only generating about half the dividend income it’s now generating.
As such, I figured I could cover about half my lifestyle via passive income alone. And so the other half would have to come via active income – income I was actively earning by exchanging personal time, effort, and expertise for.
But this wasn’t a problem, as I’ve been enjoying and making money from writing for a number of years now. For me, writing isn’t a job at all. It’s a hobby of mine that happens to pay me. I figured with more time to dedicate to it, I would only become a better writer, reach more people, and make more money. The more value I could add, the more value I would receive.
Well, that’s pretty much exactly how it worked out. I increased my writing output dramatically, both in terms of quantity and quality. And I was able to make and save more than ever.
Indeed, I believe those who concentrate too much on the math behind financial independence or early retirement are really missing out on the bigger picture. The math is moot, in my view.
That’s because financial independence simply allows you to be more of you. It accentuates you. It fills you out. It gives you the opportunity to become a better you. All of the passions and hobbies you have come to the forefront of your life, where they’re given more attention. As you add value, value comes back around to you.
So even though I was only 50% financially independent, I was easily covering all of my expenses without a traditional full-time job.
But there’s a huge reason for all of this…
The passive income my portfolio was generating gave me the courage to take that leap.
That’s right. Being in a position where about half of my bills could be covered meant I felt okay to strike it out on my own. I had a backstop. There was money coming in, no matter what. I knew that even if my writing didn’t make much, I’d be okay. That’s because I didn’t have to make much. I only had to clear one-foot bars. By lowering my expenses and building a source of passive income that covered about half my lifestyle, the gap left over wasn’t scary.
And so I started building out a schedule that I’d like.
It involved a lot of reading. I started spending more time exercising. I’d write when great ideas struck me. I tried to get outside as much as possible. There was more time available to spend with those closest to me. I slept in and stayed up late. I harnessed creativity and dumped anything that was holding me back from becoming a better version of myself.
100% Financially Independent
If we fast-forward a few years, I’m now 100% financially independent.
The growing dividend income my portfolio generates and the royalties I earn from my best-selling book combine to fully cover my core personal expenses. I can pay my rent, eat, talk on the phone, access the Internet, get around town, and hit the gym, regardless of how much active income I may or may not earn.
And so I’m now enjoying a schedule that’s completely customized by and for me.
It involves a lot of reading. I spend a lot more time exercising. I write when great ideas strike me. I get outside as much as possible. There’s more time available to spend with those closest to me. I sleep in and stay up late. I’m able to harness creativity and dump anything that holds me back from becoming a better version of myself.
You see where I’m going here…
My life when I was 50% financially independent wasn’t at all different from how it is now. Being 50% financially independent is no different than being 100% financially independent, from my experience. They feel largely the same. I go about life the same. I spend the same. I think the same.
100% Financial Independence Isn’t Necessary
I once wrote about how financial freedom exists along a spectrum.
Well, the spectrum exists to our benefit.
There’s no need to go from working a job you don’t like to financial freedom all in one shot. It’s not like you’re chained to your job on Friday and completely free to do what you want on Monday. That’s not at all how it works. You’re increasingly free all along the way. Freedom comes in increments. And these increments become, in aggregate, substantial over time.
I’m not sure why some people see a big difference between 99% financial independence and 100% financial independence. There isn’t. There’s no big button to press. Nothing magical happens when you crossover. Likewise, I haven’t experienced any major personal difference between 50% and 100%.
As I’ve discussed before, someone who’s driven and focused enough to become financially free at a very early age is highly likely going to go on and do really amazing things. And these amazing things are highly likely going to financially reward this person.
The big benefit to all of this is that initial courage I mentioned above.
The passive income is the wind beneath your wings once you leap.
But you’re going to learn how to fly once you’re off the ledge. You don’t need the passive income to keep you floating indefinitely. In fact, I’d argue that being able to float indefinitely will make you worse off than if you have to continue expelling effort to stay in the air.
I’d write articles and coach people even if my passive income were triple what it currently is. Furthermore, I’m even actively searching for my next big opportunity in life. I have a few different ideas, all of which will pay me for my time. Of course, a significant portion of any income I continue earning for the rest of my life will just end up going toward philanthropic efforts. But I’d be actively searching for this next opportunity no matter how much money I have.
And that’s really at the heart of the thought process behind all of this.
If you’re the type of person who’s able to achieve 50% financial independence at an early age, you’re going to eventually hit 100% (and 200%, 300%, 400%, etc.) anyway. There’s no need to sit around and wait for that to happen. And so you won’t likely see much of a difference between 50% and 100% because you’re the type of person who’s going to soar and engage.
When I first started the journey toward financial independence, I thought for sure I’d be working at my car dealership job until I hit 100%. I set a goal early on to be able to retire by 40 years old. And I did some backward math that I thought would get me there, knowing that I was starting with a net worth below zero at almost 28 years old.
Well, the math turned out to be correct. But it also turned out to be moot.
I quit my job the day after my 32nd birthday. I turned 32… and the next day I was out. Eight years early! What would I ever do? How could I deviate from the plan? Wouldn’t I end up broke all over again?
Not only did I not end up broke, I ended up still hitting financial independence way ahead of schedule. By the time I’m 40, I’ll probably be financially independent two times over. But it just doesn’t matter.
The thing is, those who are consumed by the numbers are really blind to how they’re getting there in the first place. You don’t accidentally become 50% financially independent. That takes a certain person with a certain amount of will, conviction, and focus. You have to have an incredible amount of patience, persistence, and perseverance.
Harnessing these traits means that which got you to 50% will eventually get you to 100%. It also means there’s no effective difference between 50% and 100%. And so 100% financial independence actually isn’t necessary at all.
Much of the groundwork is laid when you go from 0% to, say, 50% (or whatever number would give you the right amount of courage to live life on your terms). Those traits become part of your special sauce… your competitive advantages. They form a recipe of success. Once you start, it becomes a holistic lifestyle that will serve you well for the rest of your life. As such, going from wealthy to even more wealthy shouldn’t matter at all. I mean, I’m probably going to end up a millionaire at some point within the next decade or so, and I’m not even trying anymore.
So I’m not sure that reaching full financial independence is actually the right goal at all.
The goal should instead be to build your own recipe for success, which allows for financial independence almost as a byproduct. You should be creating your own special sauce. You should be thinking about forming a holistic lifestyle that builds a better version of yourself every single day.
I think of financial independence now less as a target to shoot for and more as something that naturally manifests itself when you’re living the right way.
If I would have instead been stuck thinking about 100% financial independence as the main financial goal in life, I would have never quit my job at 32. I might even still be working those 50-60 hours per week… and I’d be pretty miserable.
And all of that for nothing, really. It’d all be for naught because I’d be suffering just to shoot for a target that’s an eventuality anyway. And my happiness would be suffering, which would be completely silly when you know that money is just a means to an end rather than the end in and of itself.
So is there a right number? No. 100% is probably unnecessary. And 50% might not be right for you, either.
The right number really depends on a number of individual factors. To paraphrase Warren Buffett, I think the right number is that which gives you enough to feel like you can do anything, but not so much that you feel like you can do nothing. You want the courage to leap, but you also want to feel the excitement of leaping. I felt that at 50%, but you might feel it at 20% or 80%. Either way, I think you’ll find it comes long before 100%, which begets 200%, 300%, and 400% for almost all of us living this lifestyle.
What do you think? Do you think 100% financial independence is necessary? Do you have a better number in mind?
Thanks for reading.
Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net.