Poll of the Day > Has anyone heard of financial independence?

(+) Yeah! (+)

The concept of your passive income is enough to pay for your lifestyle.

In July I got that high paying job I've been talking about for the past few years (140k right out of school, hoping to get to 200k within the next two years). And really, it's just not for me. I loved school, residency was alright, but I strongly dislike work. I basically wanted a way out, and found out about early retirement through Mr. Money Mustache and the Mad Fientist.

It basically boils down to just having a high savings rate and putting money into something that makes you money. Most of the community likes low cost index funds like VTSAX because they are completely passive and you can withdraw 4% a year without touching the principal most of the time. Basically an index puts your funds into many companies, like VTSAX holds over 3000 in it now.

Anyways, I put 52k in low cost index funds this year, so that gives me like a 2k passive income. Hoping to do 80k next year (an additional 3k passive income) and any salary raises I get will go to that. Hoping when I get a passive income of 30k (I typically live on less) I can "retire" which most likely means working temp jobs for a few months a year and hopefully not touching my passive income, but we'll see.

But anyways, even on an income of maybe 60k, the math still works out so you can retire early if you live frugally. Like not in your 30's, but definitely in your 40's. Honestly living on less than 30k and I feel like I am living like a king in my luxury apartment with my musical instruments, board games, and eating out at happy hours. Just wish I could move back to Utah and be with my friends and family instead of moving a couple more times with this job.

https://www.mrmoneymustache.com/wp-content/uploads/2012/01/mmm-early-retirement-savings-rate.png

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I guess it works for some. Though, you have to have a good enough job to do it. Not everyone has a job like yours where they make 140K-200K. And definitely not right out of school for most. And depending on where they live, most of their money might go to other more important things. Not to mention some dont like living frugal if there is no reason to.

That being said, how long do you think itll take until you reach 30K passive a year? From the way you explained it, that means you need to save up $750,000 (3/4 of a million) to do that. And that seems like it would take a while...

It honestly sounds like a humble brag more than anything else...
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One issue you can have with this strategy is the unexpected. If you have something bad & pricey happen that wasnt in the plans (health related, a car crash that results in you needing to get a new car, something unfortunate with family, a large dip in the market that causes dividends and/or interest rates to drop across the board, etc.), it can mess up everything.

Hopefully everything works out for you.
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LinkPizza posted...

I guess it works for some. Though, you have to have a good enough job to do it. Not everyone has a job like yours where they make 140K-200K. And definitely not right out of school for most. And depending on where they live, most of their money might go to other more important things. Not to mention some dont like living frugal if there is no reason to.

That being said, how long do you think itll take until you reach 30K passive a year? From the way you explained it, that means you need to save up $750,000 (3/4 of a million) to do that. And that seems like it would take a while...

It honestly sounds like a humble brag more than anything else...

Less of a humble brag and more of an update (why I said about my part) and wanting to let people here know this idea is out there and seeing if any PotDers are also FIers. I hate my days and schedule, it's not enviable. I've never heard of FI before a year ago and it really changed how I think about things. I mean even coming straight out of high school and doing a well paying associates like dental hygiene, a person would hit 30k about the same time as me because they had more time for compounding while I was in school.

You're right definitely not for people who don't want to live below their means. If someone has really high means they could still live on a lot and save a lot until their passive income hit 100k (or higher, it grows exponentially). It's typically known as fatFIRE.

I expect it to take about 7 years for me to hit 30k assuming I don't get any raises. But if I keep working I'd hitting 60k will take another 5 years, and 120k passive will take about another 5 years. Or if I stop working at 30k and just support myself with a part time job or something it'll take 10 more years for 60k if I just sit and let it compound. Ballpark numbers.

Okay

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Isn't this just plain old retirement planning? The basic concept of investing money until you can live off of the RoI without needing to work is nothing particularly new.
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adjl posted...

Isn't this just plain old retirement planning? The basic concept of investing money until you can live off of the RoI without needing to work is nothing particularly new.

Pretty much. But taken to an extreme so you hit retirement in your 30s instead of 60s.

Thought low index funds was common knowledge for those that do any kind of basic research.

I've always lived well below my means, so making bank like that, I would be rich in no time. At the same time, I don't care so much about money, so I don't know how long I would last at your job if I hated it.

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LinkPizza posted...

humble brag

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blu posted...

adjl posted...

Isn't this just plain old retirement planning? The basic concept of investing money until you can live off of the RoI without needing to work is nothing particularly new.

Pretty much. But taken to an extreme so you hit retirement in your 30s instead of 60s.

I feel like thats a low age for most. I feel like maybe 10% at most would be able to do that. And even that feels like a high number. Most people dont get a job like that right out of school. And even the few that do dont usually start off that high. And thats not even taking into account life stuff like marriage, kids, and location. Which play a big part in things like this. I only mention that because I think you were the one whos GF was being controlled by her mom or something...
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Invest into property.

LinkPizza posted...

blu posted...

adjl posted...

Isn't this just plain old retirement planning? The basic concept of investing money until you can live off of the RoI without needing to work is nothing particularly new.

Pretty much. But taken to an extreme so you hit retirement in your 30s instead of 60s.

I feel like thats a low age for most. I feel like maybe 10% at most would be able to do that. And even that feels like a high number. Most people dont get a job like that right out of school. And even the few that do dont usually start off that high. And thats not even taking into account life stuff like marriage, kids, and location. Which play a big part in things like this. I only mention that because I think you were the one whos GF was being controlled by her mom or something...

IT is a low age, but I feel if someone cared about it then it's achievable for most people, even on a teachers salary. You just have to want it and make a few choices towards it. Since we moved out of state my gf is getting better with the control thing, but I think that's only because we moved out of state. Her dad makes like 300k and borrows money from her making 30k, so her parents aren't doing well. Her mom spends like 20k a year on itunes though, so no chance they'll ever get money from me.

Korruptor posted...

Invest into property.

Yeah, after maxing out both of my retirement accounts I have 30k leftover for investments right now. I am considering just an index fund, but property would be nice to get into because it's the only real leverage teh normal person has access to.

blu posted...

LinkPizza posted...

blu posted...

adjl posted...

Isn't this just plain old retirement planning? The basic concept of investing money until you can live off of the RoI without needing to work is nothing particularly new.

Pretty much. But taken to an extreme so you hit retirement in your 30s instead of 60s.

I feel like thats a low age for most. I feel like maybe 10% at most would be able to do that. And even that feels like a high number. Most people dont get a job like that right out of school. And even the few that do dont usually start off that high. And thats not even taking into account life stuff like marriage, kids, and location. Which play a big part in things like this. I only mention that because I think you were the one whos GF was being controlled by her mom or something...

IT is a low age, but I feel if someone cared about it then it's achievable for most people, even on a teachers salary. You just have to want it and make a few choices towards it. Since we moved out of state my gf is getting better with the control thing, but I think that's only because we moved out of state. Her dad makes like 300k and borrows money from her making 30k, so her parents aren't doing well. Her mom spends like 20k a year on itunes though, so no chance they'll ever get money from me.

Just wanting it isnt enough. For example, you got lucky landing your job. Not everybody who wants it will get it. There could have been people who wanted it more than you that you didnt know about, for instance. Not to mention, life can shot on you at any moment. Like expensive hospital bills, paying for some kind of accident, or even deaths on a family. Those are a few costly things that could happen to anybody. Someone could be on track to get that passive income, the. Have too many bills piling up where they have to pay and cant really afford to do anything about it anymore. Its not that he didnt want it, but literally cant because of life...
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LinkPizza posted...

Just wanting it isnt enough. For example, you got lucky landing your job. Not everybody who wants it will get it. There could have been people who wanted it more than you that you didnt know about, for instance.

But I'm not capable of FI because of my high income, but it does bring the date closer. I'm capable because of frugal habits and would arrive at FI ten years later if I didn't have a high income because compounding would take care of the work instead of direct investing.

I would say I got a high income job because I optimized for it. Googled "highest paying college majors" and chose two to pursue that looked the most interesting. Then Googled "highest paying jobs" and "highest paying graduate degrees" within those college majors and chose what looked like I'd enjoy the most and had the highest income for someone who was around 25th percentile (so even being below average I'd be high income). Spent time reading books about interview skills and social skills and practicing them (which was a really difficult transformation for me as the painfully shy and unsocial person I was in undergrad). I'd say I was conscious of luck affecting income and attempted to minimize the role that luck plays at each step.

LinkPizza posted...

Not to mention, life can shot on you at any moment. Like expensive hospital bills, paying for some kind of accident, or even deaths on a family. Those are a few costly things that could happen to anybody. Someone could be on track to get that passive income, the. Have too many bills piling up where they have to pay and cant really afford to do anything about it anymore.

This is definitely a possibility. Some people have just bad things happen that are out of their control. FI not something that any individual can do, but a huge amount of individuals are capable of it if they would individually like to pursue it.

A BS holder reasonably makes 60k, if they can invest 20k a year (pre-tax) then they could have a passive income of 40k in 22 years, mid-40's if they got a job right out of college. Combining shared expenses and dual incomes (and even having a kid) into this, you need about 15 years for a normal married couple each holding a BS and contributing 20k to hit about the inflation-adjusted median household income in the US. And that's without really optimizing for increased income, just being the average person going to college. A cashier won't be able to FI, but there usually isn't anything stopping the cashier from going and getting a better job, even a well paying AS.

Good luck in California. I read a story about a family that earns two paychecks and STILL has to live in their van.
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I was lucky and when young there were Gov EE bonds with 12-13% interest (doubled every 7 years). I also was frugal and very smart, so I was able to make alot of money and save half of it and invest it.

I had a plan to retire by 30...which at the time looked very feasible (considering I had know way of knowing the interest rate would drop so fast).

My basic plan was to work, invest half of everything, and re-invest every 7 years. The end result would have been 40k every year in interest from my bonds by the time I hit age 30.

Marriage of course destroyed that plan all together and most of my savings was gone pretty fast after that. The thing is, you don't know how much things are going to cost in the future, and you can't plan for medical crap etc (and nope, health insurance has a cap, so even having that..which we did...doesn't cover you).

Best bet is to find a job you actually don't hate, that makes enough money for you to save while doing it, and do that job as long as you can. Honestly there is nothing great about retiring super early, but what you could do for instance, is take a trip to Europe etc for a year at some point (maybe when you hit 30..if you don't have kids etc at that point). If you do get married eventually etc, you'll have money to get a nice place to live, go on some great trips together etc.

That being said, real estate investments, even starting low with mobile homes, is a great way to make money with your money, and do so while basically being retired. Even as little as $100k total can enable you to at least double your money every year that way....while barely working at all.

The housing market is crazy right now in many areas and its' ripe for people making a freakton off it. Because mobile homes also have gone up drastically (in 1995 I got my mobile home in Hayward CA for $20k, in 2009 it was worth $40k (lost it due to being busy with my wife's illness), and now ten years later it's worth 250k......as an example.) you can get started pretty easily, without too much money to invest. You can also look for forclosures etc. I would aim to get enough money together in savings to branch into that while you work your current job (Which it sounds like you don't like), and then once you do have enough to buy/sell with, take any job you really love, even if it doesn't pay that much, work as many hours as you like, and make most of your money....with your money for the rest of your life.
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Financial independence, in my opinion, is when your money works for you via investments etc. having enough money to pay your expenses for the rest of your life without having to be employed or dependent on others.

Financial independence is the income you get without actually working for it.
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blu posted...

But I'm not capable of FI because of my high income, but it does bring the date closer. I'm capable because of frugal habits and would arrive at FI ten years later if I didn't have a high income because compounding would take care of the work instead of direct investing.

I would say I got a high income job because I optimized for it. Googled "highest paying college majors" and chose two to pursue that looked the most interesting. Then Googled "highest paying jobs" and "highest paying graduate degrees" within those college majors and chose what looked like I'd enjoy the most and had the highest income for someone who was around 25th percentile (so even being below average I'd be high income). Spent time reading books about interview skills and social skills and practicing them (which was a really difficult transformation for me as the painfully shy and unsocial person I was in undergrad). I'd say I was conscious of luck affecting income and attempted to minimize the role that luck plays at each step.

Except without a high income, it justbsounds like a normal retirement like adjl said... You being able to reach it (and so soon) sounds like it is attributed to your high income. And many people (if in your situation instead of their own) could probably reach it much easier.

And most people try to minimize the role luck plays. But its not always up to them... Sometimes, thats what it comes down to. My best friend back home is a dental assistant. She went to get her hygienist license. To get the hygienist license is tough. Not because she doesnt know the stuff. But because you need patients. From what I heard, they use to supply the patients. Then something happened recently. And now they only have a few. If it were just getting anyone, that wouldnt be a problem. But they have to be certain types of people. People who are in certain age groups, people who have special needs, people with stage 3 Periodontitis (which some people dont know which stage they are at, if they even know they have it)... And multiply that by the amount of people in the class... The main reason people fail the class is because they dont have patients...
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blu posted...

This is definitely a possibility. Some people have just bad things happen that are out of their control. FI not something that any individual can do, but a huge amount of individuals are capable of it if they would individually like to pursue it.

A BS holder reasonably makes 60k, if they can invest 20k a year (pre-tax) then they could have a passive income of 40k in 22 years, mid-40's if they got a job right out of college. Combining shared expenses and dual incomes (and even having a kid) into this, you need about 15 years for a normal married couple each holding a BS and contributing 20k to hit about the inflation-adjusted median household income in the US. And that's without really optimizing for increased income, just being the average person going to college. A cashier won't be able to FI, but there usually isn't anything stopping the cashier from going and getting a better job, even a well paying AS.

I think youre under estimating what youre doing and over estimating people. Especially in the US. I believe 78% of the US is living paycheck to paycheck. They usually dont have money to live, let alone, save any. And lots of the love as frugally as they can with sacrificing health. Like cheap food to kept them fed and such. Some of them are just bad financially, but not all... And location is still an important factor, as well. The cost of living changes with wherever you are. Which mean pay may go down in cheaper places. But possibly, may not go up in more expensive places... And most people arent as lucky as you to get a job right out of school. These days, people with degrees are having a hard time getting job anywhere... and the average person, as you say, isnt what you think. In the US, the average person is living paycheck to paycheck. And many have a second job for a secondary income, as their primary one isnt enough to live. As for that cashier, its probably money stopping them (Or the fact that there might not be any other jobs around). You need money to make money, as they say. In their case, they may not have the money to go to school. And who knows if they could get a loan. Even if they could, they have to pay that back once they get out, if they get a better job. As getting a degree doesnt always mean they will. And they still have that college loan to pay off first before being able to really contribute that money to anyone else. You are a different case then most. You got lucky. Not everyone can do what you do just because they really want to. Or else, they would be way more people doing it. Really wanting something doesnt always work...
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He's also acting like no one has student loans that take a huge chunk of their income.

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LinkPizza posted...

Except without a high income, it justbsounds like a normal retirement like adjl said... You being able to reach it (and so soon) sounds like it is attributed to your high income. And many people (if in your situation instead of their own) could probably reach it much easier.

And most people try to minimize the role luck plays. But its not always up to them... Sometimes, thats what it comes down to. My best friend back home is a dental assistant. She went to get her hygienist license. To get the hygienist license is tough. Not because she doesnt know the stuff. But because you need patients. From what I heard, they use to supply the patients. Then something happened recently. And now they only have a few. If it were just getting anyone, that wouldnt be a problem. But they have to be certain types of people. People who are in certain age groups, people who have special needs, people with stage 3 Periodontitis (which some people dont know which stage they are at, if they even know they have it)... And multiply that by the amount of people in the class... The main reason people fail the class is because they dont have patients...

Not necessarily a normal retirement. Normal retirement is 60-65, even retiring at 50 is shaving 10-15 years off your working life. A normal income for a college graduate can retire mid-40's, shaving 20ish years off their career.

Yes, that is the process of becoming a hygienist. They have to supply their own patients for board. The ones I know had backup patients in case their main patient didn't show. If worst comes to worse and they prepared well and if a main and backup patient doesn't show...they can take the exams again next year. There's over a 90% passing rate for the exam. Pretending passing was completely random and you didn't pass two years in a row, you're in the bottom 1th percentile of luck. Third time, bottom 0.1th percentile of luck.

Jen0125 posted...

He's also acting like no one has student loans that take a huge chunk of their income.

If you dont have student loans, dont get high amounts of student loans. Going to a school you think is flashy isnt better than getting a car you think is flashy. Especially when you dont have a plan to pay for what youre buying. There are many schools with tuition 3k and under a semester in the midwestmove there for a year and become a resident. So many unclaimed scholarships exist simply because nobody applies to them, apply. Not everyone can, but anyone can. I could completely restart and go back to college, and I wouldnt graduate with much/any student debt because I spent time trying to understand how to do it cheaply.

If you already have student loans and didnt think about choosing a higher paying occupation while racking them up, it sucks that some schools are predatory and charge so much. But right out of college just continue living like you did in college, one or two roommates and not buying luxury purchases. Enjoy your life, just pay attention to what you consume (live like you did in college, get a roommate if needed) and it should be paid off in 2-3 years if you live frugally. Even when I made 50k for two years I invested 25k a year, enough to pay off 50k of student loans.

Though you should still consider investing even when you have student loans. What you make off your investments will likely be more than what you'd be paying extra on student loans.

blu posted...

If you dont have student loans, dont get high amounts of student loans.

Did you read this before you hit post

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blu posted...

Not necessarily a normal retirement. Normal retirement is 60-65, even retiring at 50 is shaving 10-15 years off your working life. A normal income for a college graduate can retire mid-40's, shaving 20ish years off their career.

Yes, that is the process of becoming a hygienist. They have to supply their own patients for board. The ones I know had backup patients in case their main patient didn't show. If worst comes to worse and they prepared well and if a main and backup patient doesn't show...they can take the exams again next year. There's over a 90% passing rate for the exam. Pretending passing was completely random and you didn't pass two years in a row, you're in the bottom 1th percentile of luck. Third time, bottom 0.1th percentile of luck.

You say normal, but normal where? Because as I said, it's not in the US. Since the normal person is living paycheck to paycheck... 78% of Americans, which means that's probably the norm. Not to mention, it seems like even the college graduates are having trouble finding jobs these days... And I know any people who have retired with a decent amount needing a second job. Whether it's because they got older and prices went up, while their retirement amount didn't, or they lived longer than they thought they would.

And passing isn't the problem. They can easily pass the exam. But it's getting the patients. They apparently use to provide the patients at the school. But could only get a small amount. Passing the exam isn't the problem. Getting the patients is. And that become luck because you have to get patients that fall into the certain groups. Pretending that getting those patients is easy is ridiculous. The students are literally helping each other find patients. But they still have to find their own first...

You don't seem to understand that you got lucky. And are in a better position than most. Or maybe like I said earlier, you just want to humble brag about how much better you are doing than others on this board... Hard to tell, tbh...

blu posted...

If you dont have student loans, dont get high amounts of student loans. Going to a school you think is flashy isnt better than getting a car you think is flashy. Especially when you dont have a plan to pay for what youre buying. There are many schools with tuition 3k and under a semester in the midwestmove there for a year and become a resident. So many unclaimed scholarships exist simply because nobody applies to them, apply. Not everyone can, but anyone can. I could completely restart and go back to college, and I wouldnt graduate with much/any student debt because I spent time trying to understand how to do it cheaply.

It's gonna cost money no matter what. Just because you can pay out of pocket or whatever doesn't mean everyone can. And especially young people will have either a hard time getting it, or a really high interest amount.

Moving also cost money. And you would have to be able to find a job. And still be able to pay for tuition, even if it's cheap. And that's if they can find a degree at that school for their major. Also, lots of people know how to live a cheap and shitty life. They don't need help with that...

blu posted...

Though you should still consider investing even when you have student loans. What you make off your investments will likely be more than what you'd be paying extra on student loans.

The problem with this is that many people don't have enough to pay student loans and invest. Most people barely have enough to live month to month without the student loans. Adding that is what hurts families and households sometimes...
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You mean the FIRE (financial independence, retire early) movement? Yeah, it sounds cool, but hard to do (and very dependent on where you want to live). Aside from index funds, you can do things like write a book, offer an online course, make YouTube videos, or whatever. The biggest part is, of course, living frugally.

Typically, that means not buying a lot, not going out to eat, using things for as long as possible (typically big ticket items like phones and cars), not Netflix and chilling, and maybe not even chilling (unless your SO is into it too). But that's like super extreme. If you want to include any of that, you just have to save a bit more.

There's also ROTH laddering. I don't know if you've heard of that. It's basically converting a bit of your 401k into a ROTH every year (and you can withdraw the principal after 5 years without penalties). If you convert to ROTH every year, the 5 year mark occurs every year, for a different principal amount. If you're "really good" at it (but really who can predict this stuff), the 401k should be making more money than what you convert each year.
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you just gotta pull yourself up from the bootstraps
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blu posted...

The concept of your passive income is enough to pay for your lifestyle.

Technically financial independence is just the concept of having or bringing in enough income without being dependent on an employer or other single source. Passive income is a popular means to financial independence, but hardly the only one. If you maintain enough savings, you don't necessarily need passive income because you're already secure. I've known a lot of people over the years who could easily afford to retire but continue to work because they either enjoy working, get bored easily, or -- in some cases -- just want to spend less time with their spouse or family. They could quit tomorrow and still be set.

Semi-funny story about that. My brother knows a multi-millionaire who still owns and operates a business and is working into his 70s. The guy likes his job, makes a lot of money, and likes spending good chunks of it. Some time ago, his son -- wanting to protect his future inheritance -- apparently got a judge to question the man's intellectual competence and, as I understand it (and assuming that my brother wasn't just bullshitting), the judge apparently put something in place that limits how much the old guy can spend.

And my uncle is a multimillionaire with multiple residences, including some overseas, yet he still works despite not needing the money at this point and gets involved in money-making ventures.

Then, of course, one of my more distant-relations is a 1%er (well, "1%er" kinda understates how much money he makes since it includes people making less than half a million a year; this is a guy who bought a multi-million property in an expensive area, tore it down, then built a bigger residence where it was) but he's still working. I'm not sure what his overall finances look like, but he almost certainly no longer needs to work to support himself.

blu posted...

In July I got that high paying job I've been talking about for the past few years (140k right out of school, hoping to get to 200k within the next two years). And really, it's just not for me. I loved school, residency was alright, but I strongly dislike work. I basically wanted a way out, and found out about early retirement through Mr. Money Mustache and the Mad Fientist.

It basically boils down to just having a high savings rate and putting money into something that makes you money. Most of the community likes low cost index funds like VTSAX because they are completely passive and you can withdraw 4% a year without touching the principal most of the time. Basically an index puts your funds into many companies, like VTSAX holds over 3000 in it now.

How you ever thought about just doing something else that you actually enjoy? >_> Retiring altogether, especially in your 40s, just sounds fucking depressing.
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Zeus posted...

How you ever thought about just doing something else that you actually enjoy? >_> Retiring altogether, especially in your 40s, just sounds fucking depressing.

That would also be a good idea. I've heard of people getting another job after retiring just because they're bored. And they are usually older. Doing so earlier does sound like it could get boring fast... Unless you do something like travel. But you would probably need more money than what the passive income pays, unless it's super high...

Also, I do agree about doing something you like. Life sounds horrible if you're doing a job you hate, and living frugally (Which can be pretty shitty depending on how frugal you live)...
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Yes, I've heard of the "FIRE Movement".

wolfy42 posted...

I was lucky and when young there were Gov EE bonds with 12-13% interest

Hmm... Carter administration? I believe mortgages and other loans were at 15-20% interest then.

I had CDs in the '80s that were in the 5% interest range.

LinkPizza posted...

I've heard of people getting another job after retiring just because they're bored.

Also known as semi-retirement, which I'm hoping to be relatively soon.
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Blaqthourne posted...

Hmm... Carter administration? I believe mortgages and other loans were at 15-20% interest then.

I had CDs in the '80s that were in the 5% interest range.

early 80's yup. Here was the rates.

MAY 1, 198511.17%
NOV 1, 198412.87%
MAY 1, 198411.71%
NOV 1, 198311.04%
MAY 1, 198310.17%
NOV 1, 198213.05%
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