Financial Independence 101: Never Have to Work Again

In the three years following graduation in 2012, Lauren and I extended what you might call our “college lifestyle” into young adulthood — skipping cable TV, sharing one car, riding bicycles instead of driving, strategically living in one-bedroom apartments in mostly low-cost-of-living areas, getting our groceries at Walmart, and just generally avoiding buying stuff we didn’t need. As a result, we managed to save more than half of our lower-middle class incomes while learning that living on less isn’t so bad after all.

Emboldened by the feeling of freedom our savings gave us, we decided to take our honeymoon in Hawaii for 6 months in 2015, which actually ended up not costing us any of the money we had saved.

After that, we worked full-time for about three more years, increasing our incomes and saving even harder than before, until we finally took a seven-month road trip to every US National Park. You might think that would have wiped us out financially, but we actually ended up coming home from that trip with more money than we had the day we left.

Now (mid-2019), we’re back home from our trip, and we’re earning money yet again (albeit at a much more relaxed pace) to save just a little bit more. So the obvious question is: Why on Earth would we keep living frugally just to save more and more money that we never spend? What’s the point of all this?

Setting Ourselves On FIRE

There is a growing trend in the world of personal finance called the FIRE movement. “FIRE” stands for “Financial Independence / Retire Early” (not my favorite acronym, but it’s what we’ve got).

The basic idea is this: Spend way less money than you earn, invest the difference, and eventually accumulate enough that the returns on those investments alone could pay for all of your living expenses, for the rest of your life. When you’ve reached that point, you’ve achieved financial independence.

Many people who get started on the path to FIRE in their early 20s expect to be able to reach that magic tipping point where work becomes optional sometime in their 30s, although everyone has their own timeline. It’s not a race.

You might be thinking, “If this is a real thing, how come I’ve never met anyone who’s done it?” Well actually, you probably have…sorta. Traditional retirement (like that of your grandparents) is based on the exact same principles, but when you’re planning on retiring at age 65, you only need to invest 5-10% of your income starting at a young age. To reach financial independence many decades earlier, you have to pump up the numbers, socking away 50% or more of what you bring home. There’s even a crude but reasonably effective online calculator to help you make estimates.

Okay, so how much do you need to have invested before you can quit your job and sit on the beach all day? The answer to this lies in the 4% rule: Based on historical data, you can withdraw about 4% of an investment portfolio’s original starting value each year, giving yourself a little “raise” every year to account for inflation, with a very low probability of ever running out of money as long as you live.

Put more simply, you need to have at least 25 times your total annual expenses invested in order to be financially independent. If you spend $40k per year to live your life, you need about a million bucks to retire:

$40,000 × 25 = $1,000,000

But if you can get by on only $20k a year, you can hang up your work clothes with only $500k in investments:

$20,000 × 25 = $500,000

This is why living on less is so important in the FIRE community. When you reduce your expenses, you’re able to invest more of what you make, and you need less overall to reach financial independence. Reducing your spending pays double!

But what are these mystical “investments” we’re putting our money into? The typical FIRE-seeker invests primarily in low-cost, passively managed stock and bond market index funds*. That was a lot of fancy words, but for now, just think of these “index funds” as an easy place to put your money to work.

My favorite example of one of these is VTI, the Vanguard Total US Stock Market Index Fund. When you buy shares of this fund, you are actually purchasing a tiny slice of ownership in thousands of companies in the United States. While some companies will succeed and others will fail, the overall stock market tends to rise on average over the long run, and that’s how the early retiree is able to continuously withdraw from their portfolio without ever depleting it.

While FIRE orthodoxy is to earn your returns from the stock and bond markets, plenty of other early retirees have made it happen with real estate. Buying and renting out property requires more effort than just clicking to buy some shares of a few index funds, but it can be a great path to financial independence just the same.

But Aren’t You Like 29? Retirement Sounds Kinda Boring

To be honest, retiring early just to sit around drinking piña coladas all day without lifting a finger actually sounds pretty awful to me. Humans find satisfaction and fulfillment by being useful — by setting goals and then achieving them. I would never want to rob myself of that, especially not this early in life.

Actually, a lot of people in the FIRE community reject the “RE” part of the name and just call it “FI” for exactly this reason.

The motivation behind wanting to reach financial independence early in life is different for everyone, but for us, it boils down to three main reasons:

1. We don’t feel like 40+ hours of working per week is mentally healthy for us (or most people), long-term. Both of us have found jobs we’ve liked and gotten satisfaction from, but neither of us has ever found joy in spending half of our waking hours dedicated to one. What, or who, would you have more time for if you could cut back on your work hours?
2. We have way too many cool ideas of our own to spend the rest of our lives working on someone else’s. There is nothing wrong with being an employee, especially in a fulfilling role, but if you could dedicate yourself to any project of your choice, without concern for money, would it be the thing you do right now? What other exciting opportunities might you jump into?
3. We want to be free to say “no.” When you depend on a paycheck, you have less freedom to reject work you find meaningless or unfulfilling. If all your work was optional, what parts of your job would you stop doing?

Since we enjoy a healthy dose of productivity in our lives and will probably never stop earning, we’ll also probably never actually live off of the prescribed 4% of our investments each year. For us, reaching financial independence is more about being free to direct the course of our lives with concern only for what’s really important to us, not a need for money.

This Blog’s Little Secret

You might have come here after reading about one of our adventures and figured this was a travel site. Well, surprise! The real reason we’re writing this blog is to help others become financially free as we’re closing in on the finish line of financial independence ourselves. Wanderlust can be a great motivator for that. We hope that our images and stories from the road will help inspire you and give you an exciting reason to save.

This article is the tip of a giant iceberg. While we’ll be sharing a lot more of our travel experiences, like which National Parks are the best in the country, we’ll also be taking deeper dives into slashing everyday expenses, investing money, and living life on your own terms. Hopefully that doesn’t scare you away.

If you’re convinced (or you want to be convinced), make sure you sign up for new post alerts at the bottom of this page, or follow Trip Of A Lifestyle on Facebook, Twitter, or Instagram to see where we go from here!

— Steven

* The 4% rule is loosely based on a portfolio that maintains at least 50% of assets in broad stock market index funds, with the remainder in bonds.

Update, May 2020: We’ve recently launched a complete Financial Roadmap to take you step-by-step from zero to financial independence. Check it out — it’s free!

Update, November 2022: When I originally wrote this blog post in August 2019, I had a full-time job, and we were still pushing toward financial independence. I’m happy to report that thanks to those years of effort, we made it! Neither of us has had a full-time job in almost 3 years now, and our net worth continues to grow as we travel more than ever. This stuff really works!