Financial Independence: You May Need Less Than You Realize

by FI Fighter on February 27, 2014

in Thoughts

food

I’m on the road to early financial independence. I’ve been working for the man for seven years and want to stop taking orders when I’m 30. That’s right, I’m tired of working in a corporation and no longer want to tolerate being told what to do on a daily basis anymore. I’m an adult, after all. I’m old enough to know the difference between right and wrong. I’m old enough to vote. I’m actually getting so old that the military probably doesn’t want to recruit me anymore. πŸ˜‰

Are You Ready?

So, how come I’m not old enough to direct my own life between the hours of 9 AM to 5 PM, Monday-Friday? Truth of the matter is, I’m plenty ready for early financial independence. I’ve been working like crazy these past two years, trying to save up as much money as possible to fund investments. I’ve demonstrated my ability to handle money responsibly, and the discipline to avoid wasting it recklessly.

I believe the proof is in the pudding. The growing passive income stream is strong evidence that I don’t need to go through life taking any more directions. I’m ready to be my own boss. Now.

Too Conservative We Are

Due to human nature, and the need to feel safe and secure, I’m hesitant to cut off the cord effective immediately. I’ll admit, I have my own doubts and fears about the future. I am not yet 100% convinced that I have enough saved up to be able to ride off into the sunset and never have to look back.

But even if I were forced to go crawling back to my employer… it wouldn’t be the worse thing in the world. After all, it would just mean is that I would be back where I started from. Since most of my co-workers are pushing 50+ and still have the intention of working many, many, many more years, I would be no worse off than these people.

One thing I’ve learned, though, is that if you are ALWAYS trying to plan for the safest escape route possible, you’ll ALWAYS just be postponing the event until next year.

A Startling Realization

At some point, you just have to stop planning and start executing. I want to retire at 30, and I’m going to do everything possible to make sure that happens.

Quite honestly, the more that I think about it, the more I am starting to realize just how little money I actually need to pull off early retirement.

When I attack expenses from the angle that I’m living in the U.S., it means I’ll probably need $1500/month to $2000/month to live comfortably. Yes, I realize that the term “comfort” has a different meaning for most everyone, so I am not trying to speak for anyone else other than myself.

Over the years, as more and more time slips by, I’m constantly redefining what it is that I even want out of life. When I was younger, I loved exploring California and always wanted to make road trips to see different places. As I get older, I’m starting to feel the need for a change of scenery. This is no knock on this great country at all, but I do feel the need to explore outside my realm of understanding in order to grow as a person. After traveling for a few years, I believe I’ll be able to return to this country and appreciate it so much more.

I can’t say I have much experience dealing with life outside these borders, but I have worked with many co-workers who hail from much poorer countries.

These people make peanuts compared to what most U.S. employees makes. I’ve chatted with some co-workers from the Philippines who make less in one month than I do in one day. If these folks can make do with so little, and still live each day with a radiant smile on their faces, why should it be so impossible for someone like me to do the same?

It’s All Relative

So, just how much money does a person need before they are ready to call it quits? I believe that no one else, except you and your family are in position to answer that question. When it comes down to it, everything is relative.

When I talk to more experienced real estate investors, many will scoff at my idea of retiring off of ONLY ten rental properties. In their eyes, I need to accumulate 20+, as a bare minimum. Further, they also feel like I need $100,000+ in cash reserves to weather any potential storms. Otherwise, I will be inclined to a pretty crappy life. πŸ˜‰

Like my bosses, these people will tell me what I need to do like they know what’s best! But they don’t live in my shoes… They don’t know my own unique situation. Just because they think that’s what they’ll need to declare financial independence does not mean that the same will apply to me… or for anyone else!

To put things in perspective, I also know friends from college who are still barely scraping by, living paycheck to paycheck, and have NOTHING saved for retirement. Yet, these folks still somehow miraculously get by just fine… At this point in time, my monthly passive income might even exceed the monthly wages of a few of these people.

Going back to my foreign co-workers, a lot of these people might work from now until 65+ and still not accumulate as much money as I’ve already made in my lifetime… Again, it’s all relative.

The reality is, not everyone needs $10,000/monthΒ in passive income to get through life. The best thing you can do is analyze your own situation and filter out any extraneous noise you might get from your peers, friends, co-workers, etc. They don’t know what’s best for you… and neither do I.

For myself, I’ve learned that life doesn’t have to be so complicated. Human beings require just a few basic necessities. Everything else is just excess… and it’s only through continuous brainwashing that causes us to believe we really need so much more.

Just Do It!

When the time comes, you just have to do what is right for you. I know that I don’t require the latest flash to be happy. I just want free time to enjoy the simple human experiences:

  • Eating breakfast at a slow pace.
  • Building friendships and relationships with people.
  • Exercising and working out regularly.
  • Getting fresh air.
  • Reading books, newspapers.
  • Learning a new language and culture.
  • Volunteering and charity work.

As you can see from the above, most of my interests aren’t expensive. They are even less expensive to do in a cheaper country. That $1500/month passive income that I need to “survive” here in the U.S. might only require $500/month, elsewhere.

Again, to play it safe and conservative, I’m going to try and hold off for another year or so. But I really don’t anticipate myself needing too much in early retirement.

When you are young and full of energy, it’s a good idea to work hard and make a lot of money. When you start to get older, money becomes significantly less important. It starts to take a back seat to free time… With enough years, there will come a crossing threshold when the value of free time exceeds that of earning a few more bucks.

I’m getting to that point. The intersection is very near. I can always play the “just one more year” game forever, in perpetuity. But I refuse to.

I want out of this cave. I want my life back. Sooner rather than later.

And quite frankly, I’m realizing that the price of freedom doesn’t have to cost so damn much.

{ 35 comments… read them below or add one }

1 The Stoic February 27, 2014 at 12:28 am

Indeed, it doesn’t cost much at all. I’ve spent a great deal of time looking at the expense side of the financial independence equation. I’m really amazed at how inexpensive it is to live when you have your financial house in order. I’ve looked at living expenses overseas before as well and have recently realized that I can keep my expenses here to a level very comparable to an inexpensive destination.

Wishing you continued progress.

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2 FI Fighter February 27, 2014 at 6:00 pm

Stoic,

Yes, it really doesn’t take much if you strip life down to the necessities. I’m trying to cut out the expensive fluff that doesn’t make me any happier.

I’ve seen both ends of the spectrum, so I believe that reality lies somewhere in between. I guess I’ll find out firsthand, but it’s amazing how many people manage to get by with so little.

I’m probably a lot more wasteful than I even realize.

Cheers!

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3 Leigh February 27, 2014 at 3:08 am

This week has been pretty bad. I feel like I have been working constantly. I’ll probably work 60+ hours in this week, but at least almost half of that has been at home. And here I am, at 3 am, working again.

The part that I’m struck the most by about working is that I would like 8-10 weeks vacation per year. I think if I had that, I would be less disinclined about working, even if not all of the vacation was paid. I would also like to work on my own company at some point, which is probably the most likely thing I would do after hitting FI in a few more years. If I do retire early, it wouldn’t be to a far away country, but in the home I’m making today, with a significant other, as a base and doing some long trips.

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4 FI Fighter February 27, 2014 at 6:03 pm

Leigh,

That’s exactly what I’m trying to avoid! When you work for someone else, you don’t have a choice and must get the task done.

I’m not opposed to work, I just don’t want to be working for someone else any longer. I want to be my own boss, set my own hours. If it’s 3 AM and I want to go to sleep, I should be able to.

8-10 weeks, wow, that would make work a lot more tolerable, I agree. πŸ™‚

Yes, starting your own company is something a lot of people tackle post-FI. I could see myself doing the same as well.

Sounds like a plan! I hope you are able to have all that someday. I would love to travel around the world, but ultimately I do expect to return back home. I just gotta scratch that travel itch first!

Take care!

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5 Income Surfer February 27, 2014 at 3:21 am

You’ve made great progress FI. We all have our doubts though. About once a week I wake up and ask myself “what the hell am I doing”?! Fortunately, we’re sticking to the plan….and the panic passes :o) I am actually writing a book about this topic right now.
You’re absolutely right about living inexpensively. When I was laid off in 2010, I took a 80% cut in income. The funny thing is that I didn’t save any money for those 3 months, but I didn’t have to take any out of savings either.
-Bryan

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6 FI Fighter February 27, 2014 at 6:05 pm

Bryan,

Thanks! Haha, seriously, some days I also wake up and am wondering just what exactly it is I’m doing… Glad to hear I’m not alone on that πŸ˜‰

Very neat that you are writing a book. I’m definitely interested in checking it out when it’s finished.

It’s amazing how adaptable we are as human beings isn’t it? I think that’s a good thing, and who knows, maybe early FI will be easier that anticipated. Who would have thought…

All the best!

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7 Retire Before Dad February 27, 2014 at 3:51 am

FIF,
I question my retirement goals all the time. Should I aim to retire earlier. Or work longer? The longer we work the more we save, at least it should be like that. If I planned to work until I’m 65, then maybe my spending would be different. I think its right to question ours goals constantly. Someone told me one of the benefits of retiring early is you can always go back to work if needed.
-RBD

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8 FI Fighter February 27, 2014 at 6:07 pm

RBD,

Yeah, totally, if I planned to work until 65, I would probably spend a lot, lot more than I do right now πŸ˜‰

For those who know how to manage money, it’s crazy to think about how big that nest egg would grow if we all decided to just stick to conventional wisdom and grind it out until 65… multi-multi millionaires?

Yes, that’s why I’m not scared to attempt this at all. Worst case, I end up back where I am now… It’s worth the shot, I think.

Take care!

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9 Brett February 27, 2014 at 8:21 am

Safety is indeed a big concern. I think when I first started to plan for retirement, I just planned to live the same lifestyle as I currently live. But then you start thinking, how much extra do I need if I develop a taste for french wines? Or what if I want a certain percentage cushion to grow my lifestyle or save more money? I think that’s when you start considering to work for “just one more year.” Because to me, I’d much rather work one more year before I retire, save 100 percent of my income, and be that much more unlikely to be FORCED to return to the workforce.

Due to the nature of compounding interest, having an extra years salary when you first start your journey into retirement is worth much more than having an extra years salary 10 years later should you need to return to the workforce. As you mention, though, when you think in that manner, it tends to snowball into a year after year process, and before you know it – you’re 55 and still working…..

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10 FI Fighter February 27, 2014 at 6:10 pm

Brett,

I hear what you are saying… You definitely don’t want to cut out too prematurely, especially if you know just one more year would make such a huge difference in the long run…

I struggle with this as well… Some days (when work isn’t so bad), I tell myself, why not just grind it out for another 4 years? Then I’ll really be set! However, it’s worth pointing out that tomorrow isn’t guaranteed to anyone… There are so many things that I’ve been longing to do, that I would have so much regret if I never got the chance to do them.

At some point, you just have to know when it’s time… I’m getting very close to that point.

Cheers!

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11 Brett March 3, 2014 at 9:40 am

Congrats to you for that! I feel that emotionally I am more than ready to cut the cord to the corporate world, but financially I probably have at least ten more years left. Good on you for sacrificing so much now in order to move that date up for yourself.

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12 No Nonsense Landlord February 27, 2014 at 8:52 am

All good points. You can get by on much less, assuming that you have an inflation adjusted income. Rent is generally considered inflation protected.

Living overseas is cheaper too. Remember that some of that comes with hidden costs. The dollar exchange could fluctuate. Even some of the consumer protection laws that we all do not even think about are not in place in foreign countries.

Whether you need one property, or 100 is relative. It depends on how much you owe and how successful you (or your PM) is at maximizing profit.

Worse case, you misjudge, and have to go back to work. You can always cut a property or two loose and let it go back to the bank or do a quick sale.

I have seen many investors not account for vacancy or nightmare tenants and all of a sudden they are looking at $10K+ in expenses to get a property back in shape to rent. If they don’t have 10K, or cannot weather the storm, they resort to tactics that bring on the next bad tenant and $20K in expenses.

When you consider a 2-3 month vacancy period, and $7K in fix-up, it goes fast. Just carpet and paint might run $3K. Add another $500 to $1000 in cleaning/disposal, $1,000 in appliances, a $10K fix up is not unreasonable nor is it excessive for a poor quality tenant.

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13 FI Fighter February 27, 2014 at 6:14 pm

Eric,

Thanks for the tips. Yes, if the dollar exchange isn’t favorable, I’ll just have to find another country where it is. At least for the first year, I want to minimize stress and maximize my spending capability πŸ˜‰

Yes, I agree it’s very important to see aside ample reserves, just in case something big crops up. I’m not opposed to that at all, but I also don’t want to over-plan either. If I do that, then I’ll just always be playing the one more year game…

Cheers!

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14 Liam @ HBS Real Estate February 27, 2014 at 9:50 am

I agree that perspective is all a part of retirement. For the past three years, my wife and I traveled to St. John, USVI. We absolutely love the island and wanted to go back this year, but she’s now a stay at home mom, and the trip is simply beyond our current income.

As is true with almost every other island we have ever visited, prices for everything are significantly inflated due to shipping and energy consumption. 1 Pint of Ben and Jerry’s Icecream? $6+; one crappy bagel and cream cheese? $2.50.

When we first got to the island, we were horrified to learn of the prices. However, after only one week on the island, those prices seemed reasonable and upon arriving back at the mainland, we thought everything was incredibly cheap.

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15 FI Fighter February 27, 2014 at 6:15 pm

Liam,

Haha, tell me about it! I was in some sticker shock when I saw that gas was over $6/gallon in Hawaii…

This is one reason why I think Hawaii is currently out of the cards for a post-FI destination. I’m going to try a cheaper island to start off with, for sure.

USVI seems intriguing. Hopefully someday I’ll get the chance to visit!

Take care!

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16 Michelle @fitisthenewpoor February 27, 2014 at 10:44 am

Have you looked in to blogs by digital nomads? I know a ton out there who are living this type of life. It’s actually on our to-do, but we plan on working freelance. There is one couple in particular that was able to survive on about $600 a month in South America. I know another who house sit all over the world and only have food and travel expenses.

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17 theFIREstarter February 27, 2014 at 1:50 pm

Survive! You could live a very comfortable lifestyle in Bolivia, Peru and Ecuador for that about. πŸ™‚
Granted some of the others are much more expensive.

FI you are spot on with this post (as usual).

I say get out as soon as you can! You will no doubt get tired of traveling the world and/or end up making some money in the future anyway, you are clearly an intelligent, resourceful and productive human being and that is the biggest safety margin going.

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18 FI Fighter February 27, 2014 at 6:18 pm

theFIREstarter,

My guess is you would be right about that one — I do see myself getting tired of traveling one day… But right now, that’s all I want to do πŸ˜‰

I’ll worry about what to do afterwards… but you’re right, I’ll probably find something interesting/fun to do. I’m definitely not the type to just sit around all day doing nothing…

Thanks for the support.

Cheers!

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19 FI Fighter February 27, 2014 at 6:16 pm

Michelle,

I actually haven’t but that sounds like a great idea right now. Do you have any recommendations?

I’ll try and google the SA couple…

I’m sure I could learn a ton on how to maximize the dollar from these travel experts.

Cheers!

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20 Tom February 27, 2014 at 10:45 am

“When you start to get older, money becomes significantly less important. It starts to take a back seat to free time…”

This right here is so true. As time has gone on I find the things that give me the most enjoyment cost little to no money after an initial investment (i.e. kayaking, running). Going to a bar until 2am was fun, but after awhile, it got old.

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21 FI Fighter February 27, 2014 at 6:20 pm

Tom,

Yup, I feel the same way. Just give me a tuned guitar and that’s hours and hours of endless fun. Sure, it costs some money upfront, but if you buy quality, your gear/equipment can last for decades, or longer.

Take care!

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22 Done by Forty February 27, 2014 at 11:20 am

Great point about going abroad to either reach FI earlier, or to live a better, more comfortable life on the same passive income. The only rub is that while moving to a cheaper country is the easy bit, coming back and finding work that pays just as well is a slight risk. I’m sure you’d definitely find work, but you never know what serious time away might do to your salary potential.

Still, nothing to keep you from doing what you want. You know your situation better than anyone: when it’s time, it’s time.

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23 FI Fighter February 27, 2014 at 6:22 pm

Done by Forty,

Yeah, I think I’ll probably be ok with making less money when I come back. Once you’re financially free, the dollar signs are less of a motivator. I would rather do something fun or have flexibility in my schedule than to seek out the most lucrative offer.

I’m pretty burned out… The time will come soon, I’m pretty certain. Just need the markets to cooperate for a bit longer πŸ™‚

Cheers!

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24 Integrator February 27, 2014 at 12:24 pm

FIF, As someone without kids, I think you’re in a great position to set your lifestyle and determine what you need to optimize around. It’s not hard to make minor adjustments here and there to get by. I think you are right. You just need to do it and reset if you need to.

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25 FI Fighter February 27, 2014 at 6:39 pm

Integrator,

Yes, I would agree that it is much easier for someone like me to attempt this since I have no one else to consider but myself. I can come and go as I choose.

The reason my plan works is because I’m flexible. I don’t know what the future will bring, and I don’t really waste my time worrying about it. Whatever happens, happens. I’ll adjust and adapt when it does. Who know, maybe I meet someone else who’s on the journey to early FI and she’s a millionaire? That sure would make my quest, life a whole lot easier πŸ˜‰

Cheers!

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26 Refinerr February 27, 2014 at 1:12 pm

Totally agree with your article but the part where you talked about your interests made me sad! Do you have to wait for retirement to do these things? I love my job but I think partly because I make time for everything you stated.

Eating breakfast at a slow pace. (I started getting up 1 hour earlier than I have to just to do this)
Building friendships and relationships with people. (I left Finance and went into Operations so I could get outside of my cube every once and a while. Sometimes I can even leave the state and go to another facility if I can make up a good enough reason!)
Exercising and working out regularly. (Partly getting up early and partly doing nano workouts like Tabata. Some days it’s just planks if I’m crunched for time)
Getting fresh air. (I ride my bike to pick up my groceries every Saturday. I do want to increase my hiking and beach time though)
Reading books, newspapers. (I don’t own a tv, Netflix or Hulu+. I’m going to buy a Kindle because you’re supposed to read 20% which I have been when I steal my husband’s. I set an alarm 30 mins before I need to go to sleep so I spend it reading in bed.)
Learning a new language and culture. (Duolingo! Or find a friend to teach you if they need a little extra cash. Immersion is the best method)
Volunteering and charity work. (I volunteer or donate my birthday every year for organizations like Charitywater. Some companies, like mine, also give you a paid volunteering day.)

I understand if you want to do more of these things during your day instead of working in corporate. Believe me, I’m lucky to love when I do and who I work with. It’s not everyday but doing all of these things help me get through the drudgery of it all sometimes. But I do think you’re on a great path to do more of your interests!

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27 FI Fighter February 27, 2014 at 6:50 pm

Refinerr,

Although not explicitly stated, what I meant was to have a lot more free time to do those things. I’m the type of person who likes to indulge in things πŸ˜‰

You seem like someone who has the whole work/life balance figured out, and that’s a wonderful thing. Kudos to you! For myself, no matter how I slice or dice it, I have to be at work 8-10 hours each day. Once you add in 8 hours for sleep, I’m left with almost nothing left over to do the things that I want.

That’s where the problem lies… Work simply consumes too much of the pie. If I could have 8 hours for sleep, and 16 hours of freedom, then I could extend the time I have available to do those things that I listed above.

Since I’m not financially free yet, I make do the best I can. I try and incorporate all those things, and others (like this blog) in my spare time, but I’m always left wanting more. A lot more.

Take care!

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28 Dividend Mantra February 27, 2014 at 5:50 pm

FI Fighter,

I agree. I think many of us need a lot less than what we might think. We tend to adapt. Give someone $30,000/year in passive income and they’ll probably find a way to spend it. On the other hand, give that same person $20k and they’ll find a way to get by.

Just for curiosity sake, what’s your “passive income number”?

I think once I hit $15k in dividend income I might give it a go. $20k would allow me a lot of confidence, however.

Best wishes!

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29 FI Fighter February 27, 2014 at 6:55 pm

DM,

Therein lies the beauty of human beings… the ability to adapt! I hear you, and if you give me $30,000/year, I’ll find ways to splurge a bit more. I think $20,000/year would be cutting it close, but I would find a way to manage. Wouldn’t be a problem overseas, I think.

My passive income number right now is $5000/month net. I’m far off from that atm, but I do have plans to get there… I just need the market to hold up and cooperate for another year or so.

My means of freedom is through rentals, so that inherently requires a larger figure. I’m following the 3x rule (not a real rule, I might have just made it up). If I require $1500/month in true passive income (dividend stocks), then take that number and multiple it by 3 for rentals. Since I have mortgages on each property, it’s better safe than sorry.

Best of luck. I know you’ll get there soon enough.

Cheers!

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30 The First Million is the Hardest February 27, 2014 at 5:53 pm

There are plenty of people in this country who live quite comfortably on $1500/mo. Like you said, the key is knowing what YOU need to live the life you want. I’ve read a few other bloggers who have retired early talk about the “one more year” syndrome. We all deal with it in some form, pushing our goals out just a little bit more each year. After a while you just have to take the plunge and go for it!

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31 FI Fighter February 27, 2014 at 6:59 pm

Jay,

The “one more year” syndrome is actually a real good problem to have. It means you are close to the finish line πŸ™‚

Yeah, I could keep dragging this out for awhile longer, but I’m starting to feel real burned out at work. My mind and body need a breather… Realistically, another year or so is probably all I got left.

Take care!

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32 PC February 28, 2014 at 12:47 pm

Great inspirational post. What you are doing, most people can only dream. Congrats on making the dream a reality given the short time frame you’ve been on the workforce. I’ve been on the workforce for a decade, but never making much money. Living frugally and trying to save as much as possible. But it never seems enough. Especially with the hot housing market up north in Vancouver. I can only afford to buy one investment property up here, but buying more than that would be stretching it a bit. So continue to slave away for many years to come.

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33 FI Fighter March 3, 2014 at 7:42 pm

PC,

Thanks! Glad you enjoyed the post.

Yeah, I’m very fortunate to be able to make a good amount of money, and able to save most of it for investing. I realize this isn’t possible for everyone, so you just have to do the best that you possibly can. In the end, I think it’s consistency that matters b/c over enough time, the compounding will do the bulk of the work for you… Either that or asset appreciation.

You could possibly look outside of Vancouver as an alternative? I know California houses are pricey so I’ve started venturing outside my own backyard.

Cheers!

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34 Joan March 11, 2014 at 1:10 pm

Hello FI fighter,

I loved this entry on your blog. I also plan to reach financial independence in a few months , by age 31,5. And as you, I don’t think you need a big fortune to make the move.

In my case, I plan to quit my job and move to Europe with a net gross of about $150k, no real estate at all. My strategy for the first year is to keep $12k in easy accessible cash and pay myself $1k/month. Within this year, I expect to have the time to build a solid passive income and to be smart enough to find other sources of income.

It’s risky and maybe unrealistic, but worst case scenario I will be back to case 1. I think it’s totally worth trying, the potential benefits if you succeed are really huge.

In any case, I wish you all the best!

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35 FI Fighter March 12, 2014 at 8:10 pm

Joan,

Glad you enjoyed this post! Wow, early FI at 31.5, that’s so amazing!

You sound like you have a plan and I wish you the best of luck! Don’t let anyone tell you what you can’t and can’t do. I absolutely agree with you… the worst that can happen is you’ll end up right back where you are now. So, there’s really not much to lose and a whole lot to gain.

Go live life and please let us know how everything goes!

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