How to plan for financial independence vs. retirement

In a recent study on the changing concept of retirement in the US, 76% of respondents feel it is “more important to achieve financial freedom than to retire.”

But even though the majority (81%) of respondents think financial independence feels more empowering than retirement — only 56% feel it’s an attainable goal.

As someone who aspires to be financially independent within the next ten years, these not-so-optimistic results got me thinking…

• What does it take to achieve financial freedom?
• What do we need to make it feel doable? And;
• What tangible steps can we take to reach our desired level of independence?

Upgrading your long-term financial health

Are you guilty of sweeping your money management under the rug? Perhaps you’ve been wildly short-sighted when it comes to planning for the future?

If you’re nodding “yes” right now, don’t worry — it’s not just you.

Having previously given no thought to my retirement (other than the compulsory superannuation my past employers have paid), I know how awful it is to feel like you’re “falling behind.” And now that I’m self-employed — and don’t have the luxury of passing off my retirement planning to the HR department — panic mode has gripped me.

Thankfully, as my research has shown, it’s never too late to take charge of your personal finances and go all-in on working towards financial independence. And today, I will share some practical tips that will help you shift your focus from the short-term to the long-term and give you a roadmap for getting started.

Before we dive in, it’s worth mentioning that this is not a post about cutting your expenses to the bone and retiring as early as possible. It’s about reaching a point where:

• your work provides deep fulfillment,
• your time is your own, and
• your finances are on track to keep you in a state of financial security for the rest of your life

… no matter when you decide to retire.

The FI Goal: Reach a state where money isn’t stressful anymore

True luxury is living stress-free when it comes to your finances. And is the driving force behind reaching financial independence (FI).

Because not only can you stop worrying so much about your bank balance and getting your bills paid on time, but the ensuing financial relief leads to time and mental freedom.

Work becomes optional.

You can spend your days on projects you enjoy (and with the people you love).

And the emotional flailing we experience when we don’t feel financially secure — becomes non-existent.

Of course, getting to that point often seems like an unobtainable dream. Unless we start taking concrete, purposeful action toward making it happen (which is easier than you think!)

A simple first step? Take stock of where you’re at right now.

The Numbers: What to start tracking first

The first essential step toward gaining more freedom is to get a clear idea of your current financial situation. And explore the many factors that will affect how and when you can achieve a sustainable level of independence.

Using the list below — take some time to write out your answers to give yourself a complete picture of your current financial health. And get an idea of what you’d like your future to look like.

• Establish some general financial goals. E.g., I'd like to be financially independent and work-optional within the next ten years.
• Set a target FI age, estimate the number of accessible funds you’d like to have, and determine your withdrawal rate. You might also like to consider the location you’d like to live as it will affect your other numbers. Eg., Age: 50 / Funds: $3M / Withdrawal rate: 4% / Living in: Panama
• Consider your educational background and future plans : E.g., a Master’s degree but no plans for further formal education. Maybe learn a language or craft like woodworking. I have taken some online courses in business and marketing and would like to build on those skills.
• Outline your current career situation and future plans. E.g., I Work as a software developer at a tech company. I want to find a fully remote position to have more options for where to live. I also hope to earn additional income from a side project.
• Identify (and estimate) your current and future income breakdown, including one-time events. E.g., Income: ~170k/year (150k salary + variable bonus) and $10,000 annually from my online course.
• Create your budget breakdown. E.g., Average spending is roughly 60-65k per year. Monthly credit card spending (groceries, shopping, etc.): 3k. Monthly necessities and fixed costs (bills, rent, insurance, etc.): 2.5k
• Examine your current asset breakdown. Including home, cars, investments, etc. Things to consider:
  • Total Net Worth
  • Total in checking account
  • Total in a savings account
  • Total in IRA
  • Total in Roth IRA
  • Total in 401k
  • Total in HSA
  • Car value
  • House value
  • Other assets
• Break down your debt, too. Loans, credit cards, amounts you’ve borrowed from family.
• Consider any health concerns and your current lifestyle. Your well-being is a huge factor in determining your future needs. And preventive healthcare can significantly decrease the amount of money you need to reach your state of independence.
• What is your family status? Identify your current situation, plans, and special needs to factor in, e.g., elderly parents, about to have kids, or perhaps your kids will be moving out. Extra mouths to feed and additional care costs can dramatically affect your savings and income.

Now that you have a clear picture of your current status and how you want your future to unfold — let’s take a look at what it takes to make financial freedom a more achievable goal.

The four stages to unlocking financial freedom

In the book Your Money or Your Life — we’re introduced to four key milestones that can transform your relationship with money. And make achieving financial freedom feel obtainable.

In the book, the authors call them the “Four FI’s,” and here’s a look at what they involve:

1. Financial Intelligence is the ability to step back from your assumptions and emotions about money and observe them objectively. And to understand how the flow of money in your life affects your wellbeing and sense of security. One tangible outcome of financial intelligence is getting out of debt and having at least six months of basic living expenses in the bank.

2. Financial Integrity is learning the true impact of your earnings and spending, both on your immediate family and the planet. This stage is where you begin to evaluate what enough money and material goods look like (to keep you at the peak of fulfillment) — and what is just excess and clutter. It is having all aspects of your financial life aligned with your values.

3. Financial Independence is anything that frees you from a dependence on money to handle your life. But it’s more than just having a secure income. It’s also about freedom from crippling financial beliefs, debt, and the inability to manage modern conveniences.

4. Financial Interdependence is the next level we naturally aspire to once we manage to separate ourselves from dead-end routines, unsatisfying jobs, relationships, and ways of thinking. It’s finding joy from love and contribution and gaining more time for what makes life more meaningful. Our interdependence — doing for one another, receiving from one another, creating for one another — is part of what makes our lives rich.

As you move through each stage, you’ll find that your outlook and optimism regarding your financial future will shift dramatically. And by taking more focused steps toward boosting your financial health — you’ll create more opportunities to free yourself from depending on an unfulfilling source of income.

Leveling Up: 7 reliable tips for reaching financial independence

Everyone’s path to financial freedom looks different.

Your goals, current financial situation, and career aspirations — not to mention your unique set of values and beliefs — will all shape what financial freedom looks like for you.

But that doesn’t mean there aren’t some unifying tactics and strategies for mapping out your best course of action.

In the interest of helping you negotiate these early stages — here are seven tips for starting on the right foot. And some steps you can take to gain more clarity and control over your current trajectory.

#1 Become active in the management of your finances

Personal finance is a learnable skill.

And you can crank up your expertise by reading books, listening to podcasts, taking courses, and talking with friends who know more than you do. But as with any new skill, you may get stuck when it comes to applying what you learn (mainly because you won’t know where to begin).

So here’s a simple place to start:

One of the first and most basic steps of financial management is tracking what comes in and what goes out regarding your money—and then taking a more active role in how you funnel those funds each month.

The most remarkable (and valuable) framework I’ve encountered for this early stage is Ramit Sethi’s idea of treating every $100 the same. In short, you set up some parameters for any income you earn and stick to them whenever you see those dollars hit your bank account.

Here’s what that might look like:

And you can go as far as setting up your accounts, so this distribution happens automatically. But the point is, with intentional boundaries (and access to more innovative systems), you can significantly reduce the time and energy it takes to process your money.

And treating every $100 the same is an excellent place to start.

#2 Forgo the financial advisors and self-direct your learning

While it might make sense for you to reach out to an expert after a windfall or a dramatic change in your financial status, self-directed learning can be a better approach when you’re simply looking to take more control of your finances.

It’s a great way to broaden your knowledge, challenge your beliefs, and follow your natural curiosity. And at the very least, if you seek some expert help, you’ll have a solid foundation for considering any advice you get.

The main thing to consider when self-directing your learning is to focus your education around your financial goals and the specific path you want to take toward reaching your desired level of independence.

Some starting points to think about depending on where you’re at right now:

• Get out of debt
• Cut expenses
• Increase your income
• Invest in your future

Predictably you can’t work on everything at once. And, of course, progress in some areas will naturally spur progress elsewhere (e.g., increasing your income can give you more to invest and help you pay off debt faster). But it’s good practice to think about where you want to focus your energy to gain maximum impact.

In any case, consistently contributing to your savings account is something you should do from the start.

#3 Focus on paying down debt first

Debt is debilitating. And comes with all sorts of emotional baggage.

It can ruin relationships. Stifle career choices. And demoralize your self-worth.

It essentially chains you to a job. Which flys in the face of what financial independence is all about — freedom.

It’s debt that keeps us with our noses to the grindstone, making a dying to pay off pleasures we’ve long forgotten and luxuries we scarcely have time to enjoy.

Vicki Robin

Even if you love your job, I’m sure you’d still like the option of not “having to work.” Or be able to pursue a different career and not worry about the impact on your income or your family’s lifestyle.

No matter your current situation — if you can prioritize paying down your debt, your chances of reaching financial independence will be greater than if you keep spending money you don’t have. And living foolishly beyond your means.

#4 Get to love boring investments and automation

When you set your money management up for peak automation, you remove many time-wasting decisions from your daily life.

Here are some simple ways to get started with some automation:

• Connect your salary to your retirement fund, so it transfers each month automatically.
• Connect your current bank account to your savings account. Then set up an automatic payment so that it’s deducted at the same time every month.
• Connect your credit card to any bills you’ve been paying via your current account. And any bill not payable by credit card, link to your bank account so you can arrange for a direct debit.
• Set it up so you can pay all your credit card accounts from your current bank account (preferably at the same time each month, so you can make sure the money is always there)
• Connect your current bank account to your investment account to funnel your funds for "future you" (without even noticing!)

Of course, when you start making significant changes to your money management — one of the most challenging decisions to make is how to start investing for your future.

Something to remember here is that it’s much easier to make progress if you focus on boring investments first. In other words, diving into crypto and day-trading may not be the best beginner approach (let’s face it, even seasoned professionals rarely beat a simple indexing investment strategy).

So please look at something like the Bogleheads three-fund portfolio, or set up a target date fund to ease yourself into it.

#5 Ask these seven questions to help define what’s enough

Enough is a fearless place. A trusting place. An honest and self-observant place. It’s appreciating and fully enjoying what money brings into your life and yet never purchasing anything that isn’t needed and wanted.

Vicki Robin

In a survey we recently held with our, many users struggle with knowing “what’s enough” when it comes to their savings.

But what’s important to note here is that “enough” is not just about a number.

It’s about taking a good hard look at what a wonderful life looks like for you and working within those conditions. It’s about seeking enjoyment, fulfillment, and, most importantly — contentment from the lifestyle you choose to create.

So rather than focusing on coming up with a specific number to reach, you can first ask yourself some deep-diving questions that will help you figure out what “enough” looks like for you.

Here are seven pertinent questions we swiped from the book Your Money or Your Life:

1. What makes you happy?
2. What’s most important to you?
3. What values will you never compromise?
4. What would you do with your time if you had $1 million right now?
5. What’s one thing you could get rid of to make yourself happier? (A person doesn’t count.)
6. Will you ever have enough money to retire?
7. If someone today erased all your debts, would you dig yourself into that hole again? How or how not?

Digging deeper into your vision of what financial freedom feels and looks like in your world will help you establish a more relevant figure to fulfill those dreams.

And of course, you can always plug some data into this helpful free tool — Maybe’s Freedom Calculator

#6 Explore the life-changing benefits of creative frugality

Waste lies not in the number of possessions but in the failure to enjoy them.

Vicki Robin

When most people think about frugality, they think about penny-pinching. But that’s misguided.

Frugality is about enjoyment. And getting the most out of your money and material goods while also making room for other forms of building wealth — like your friendships, network, and skill set.

A few ways in which you can begin to start practicing more frugality are:

• Adopt a Conscious Spending Plan : This is an idea from Ramit Sethi where the aim is to create a purposeful (guilt-free) plan for your spending. Working through the process helps you understand your values and beliefs around money. And knowing what you love to spend money on and what you don’t care about — simplifies your financial decisions moving forward.
• Stop trying to impress other people and stay out of debt — two critical elements discussed in the book Your Money or Your Life. Your spending naturally decreases when you give up the notion that your happiness stems from external factors and instead focus on an inward approach toward boosting your well-being. And of course, avoiding debt is the single most effective way to promote your financial health. But you already knew this.
• Get some free advice from the FIRE community — even if your plan isn’t to retire as soon as possible, the FIRE community shares numerous ways to cut costs (so you can increase your savings rate), invest wisely, and live well below your means. Not everything will work for you and the way you like to live. But you might find a few nuggets of wisdom that you can apply to yourself.

#7 Delve into the lucrative and fulfilling world of side projects

Achieving financial freedom is more than just boosting your net worth.

It’s about optimizing your overall well-being, which considers your physical, mental, and financial health. And one path to boosting your sense of well-being is to work on side projects that provide deep fulfillment.

The perfect work life would offer enough challenge to be interesting. Enough ease to be enjoyable. Enough camaraderie to be nourishing. Enough solitude to be productive. Enough hours at work to get the job done. Enough leisure to feel refreshed. Enough contribution to feel needed. Enough silliness to have fun. And enough money to pay the bills . . . and then some. Even the best jobs have trade-offs. 

Vicki Robin

We often forget (or, in some cases, never realize) that work can be joyful and provide daily satisfaction and contentment. And even though you may not be in a position or job where you enjoy what you do or feel challenged at a “flow state” level — you can choose to work on small projects outside of work that meet these needs.

Side projects can lead to profound levels of purpose. And living a more purposeful life is an underlying payoff of seeking financial independence (rather than taking the traditional route to retirement.)

If your side-project takes off — you have a new income source that can increase your chances of hitting your FI target (likely earlier than you’d initially hoped.)

What does freedom look like to you?

We’ve covered a lot in today’s post. And I know you might look at this list of things to do and balk at the sight of it.

But as we talked about at the beginning — defining some goals and taking stock of where you’re at right now is the most straightforward first step you can take. And from there, you’ll get a better idea of what your next steps should be.