Financial independence - what it is, and how you can get it sooner

Most people achieve a kind of financial independence when they start to draw a pension. This normally coincides with getting older and retiring.

But a few people manage to become financially independent earlier - sometimes a lot earlier. They can pay all their bills, and spend an amount of money they're comfortable with on top, for the rest of their lives, without having to do paid work.

People who are financially independent have more options. They can choose how much, or how little, paid work they want to do. Or they can do voluntary work instead. They can focus on their hobbies full-time. Or take up new ones. And whatever they do, they can do it without having to worry about money. It's why financial independence is often called financial freedom.

To become financially independent, you need to grow a big enough nest egg by earning, saving, and investing. It usually involves paying off all your debts, living well below your means, and saving way above the average.

"Get rich and I'd never have to work again? That's obvious - if easier said than done."

The philosophy of early financial independence is that you don't need to be that rich. Think rationally about what you need to spend, and less about what you actually earn, and you may find the numbers aren't quite as big as you expect.

You don't need to be a high earner to achieve financial independence. But it does help to earn as much as you can - as long as you don't spend it all, of course.

How do you earn more? You could ask for a pay rise, get a better-paying job, or find money-raising things to do on the side, so-called 'side hustles'.


Here are some useful things to read or listen to.

Date Source Article or episode
Dec 2017 The Escape Artist Earning more is not cheating
Nov 2017 The Escape Artist Financial independence is for everyone
Sep 2017 The Escape Artist Freedom through self-employment
Jun 2017 Monevator Seven reasons why you shouldn't start your own business
Mar 2017 Derek Sivers Think like a bronze medalist, not silver
Feb 2017 Financial Panther When leaving big law, the financial struggle shouldn’t be real
Nov 2016 Millennial Revolution How to find the perfect job

It's not unusual for people in the financial independence movement to have a savings rate of 50% or more - yes, they save at least half of their income. A few manage three-quarters or more.

Having a frugal lifestyle helps. This doesn't necessarily mean going without. But it does mean making better spending decisions and not throwing your money away. Most FIers prefer experiences to things, and tend to avoid buying 'stuff'.

The biggest threat to saving is lifestyle creep - spending more as you earn more. If your income goes up, the trick is to carry on spending the same as before.

Here's the bottom line: the less you spend, the less money you need to accumulate. And the more you save, the faster you become financially independent.


Here are some useful things to read or listen to.

Date Source Article or episode
Oct 2017 Can I Retire Yet? The three great misconceptions about retirement saving
Aug 2017 Insourcelife Lifestyle deflation
Feb 2017 Financial Panther Do you use work as an excuse not to reach financial independence?
Dec 2016 Money Boss Is $10 million enough to never worry about money again?
Oct 2016 Mr Money Mustache How to be happy, rich, and save the world
Aug 2016 Done by Forty Early retirement isn't for you
Jul 2016 Money Boss Here's how much you actually need to save for retirement

Once you've started to save, the first thing to do is build up an 'emergency fund' - a pot of cash you can get your hands on quickly if, for example, you lose your job. The second thing to do is start investing.

You have to invest. You won't become financially independent by keeping all your money in the bank, especially today when interest rates are so low. If your money stays in cash, you risk not keeping up with inflation and running out of money.

There are different things to invest in, but the basic rules of investing are:


At its simplest, your investment plan might be to buy one or two investment funds that track the movements of the world's stock markets. The prices of those funds will rise and fall each day, sometimes steeply. But the long-term trend of markets is up. So as long as you don't panic and sell when prices fall, your nest egg should grow over time.

There are ways to try to 'beat the market' - to try to get a return that's higher than the market average. But many argue the market average is good enough, and that very few people can beat the market for more than just a short time.


Here are some useful things to read or listen to.

Date Source Article or episode
Dec 2017 RockWealth Investing: the evidence
Jun 2017 Millennial Revolution Why everyone needs to learn to invest
Jun 2017 Monevator Investing for beginners: the global stock market
Jun 2017 Financial Panther You don't have to keep up with the Joneses when it comes to investing
May 2017 The Escape Artist What is a house? And can it make you rich?
Apr 2017 Sex Health Money Death Smash the system
Feb 2017 The Escape Artist What if you know nothing about investing?
Jan 2017 Monevator Volatility, inflation, and asset class returns
Aug 2016 Monevator This former hedge fund manager reveals how you can invest for life in five quick videos
May 2016 Money Boss The optimization trap