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It’s no fun having a job you don’t enjoy. Waking up in the morning thinking “I hate my life”, driving through traffic, going to the same dreary office, dealing with annoying people, pushing through because you have a family to support or the expectations of others to live up to.
Last time I talked about living with intention – is another boring day at the office really what life intended for you? I doubt it. But if you have a life plan then you can say, “I’m working here for ABC reasons and in X months/years it will enable me to do what I was put on this earth to do”.
What they don’t teach you at school
The financial part of this plan isn’t too complicated, it’s just nobody teaches it at school. The answer to ‘When can I retire?’ is ‘When you have enough money to cover your living expenses throughout retirement’. This is Financial Independence. Being able to reach FI early enables us to put up with our jobs and not spend extravagantly to cheer ourselves up – there’s a longer-term goal in mind.
The length of that term may make FI seem so far away that it’s not worth considering. By then, robots will do all the work, social security will have evaporated and we will all speak Mandarin. But you will be surprised how a little bit of financial discipline and sensible investing goes a long way to bringing that retirement date closer and closer, maybe to within less than a decade from now. For others, you may find you are financially independent already and didn’t realise!
Going all the way – or not
If you start going to the gym, it doesn’t mean you have to end up posing on stage in a skimpy outfit and covered in fake tan. A session or two per week will still bring you health benefits. Similarly, even if you plan to work forever, you will still gain from the discipline of managing your finances and from understanding the (simple) mathematics of FI.
Here is the simple but all-powerful Financial Independence equation. You have reached Financial Independence when:
That’s right, when all your income excluding your salary is greater than your living expenses, then you don’t need your salary anymore. Imagine how that would feel – pretty good huh? You have enough money to live on without needing your main job. The traffic, annoying people, dreary office – all gone. You have lots of time to pursue your dreams and, because we can’t live on dreams alone, your mission.
Non-work income can include all sorts of things:
- Rental income from property (beware though, rentals are rarely ‘work-free’)
- Dividends from stock funds and bond funds (and gains when they go up in value)
- Side-hustles – money you earn on the side from activities you enjoy and which in ‘retirement’ could become your main focus
Get started with my free guide:
3 Steps to Expat Financial Independence
15-minute read. Discover the simple process for taking control of your finances so you never have to stress about money again.
How can you predict your living expenses in retirement? It will come down to where you want to retire and the sort of life you want to live. Typically, people need a bit less than when they are working. The spending habits you have now will make a difference. Reducing your living expenses has a double impact on accelerating your time to retirement: not only will you be able to save more money towards retirement every month, you also won’t need so much money to live on in retirement. You will have become used to a more efficient standard of living.
The website Numbeo has a large database of cost-of-living information for many different countries, in case you want to explore different options and estimate your future living costs.
Retirement is not a dirty word
Let’s be clear that ‘retirement’ doesn’t mean sitting on the beach or playing golf all day, unless you want it to mean that. You could change to a less stressful job, or one that truly inspires you – the sort that usually doesn’t pay so well, at least initially. Or you could devote yourself more to a hobby or charity that doesn’t pay you at all. You won’t need the money because you have other sources of income. Your time is available to spend how you wish – that is true freedom.
How much money do you need to save before you can declare yourself financially independent? I’ll show you next time. For the more impatient of you, it involves the 4% rule, which is another life-changingly useful idea they don’t teach you at school. You can find it via Google though.
Before you go
- Have a think about what your life would look like if you reached Financial Independence
- What would your living expenses look like?
- What income sources could you use to get there? Changing jobs? A side hustle or two? Rental income? How about the traditional FI approach of a nice big investment portfolio of stock index funds and bond funds?
Any questions or comments? Share your thoughts below.
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