For the sake of this post, we’ll define “financial independence” as when you have enough money saved or passive income coming in so that you don’t have to work anymore for the rest of your life (if you choose not to).
If you’re investing in index funds, this means you’ve saved up enough to withdraw at the 4% withdrawal rate every year. So let’s say you want to live off of $50,000 a year. You’d need to have saved 50,000 / .04 = $1,250,000!
That’s kind of a lot of money!
Some of you probably thought, “By the time I have that much money, I’ll be 65 and my financial independence will just be called retirement!” It might seem daunting, but many others have reached financial independence much earlier than 65. And if you’re reading this post right now, you’re probably on the right path to do the same.
With such large numbers to reach, we’re going to need to do a little extra to get there as soon as possible. You’re going to have to be more than average. Dave Ramsey’s known for saying, “Live like no one else now, so later you can live like no one else.” Remember this while aiming for financial independence and building wealth.
There are more ways of reaching financial independence than just index funds – we’ll get into a few below.
8 Ways to Speed Up Your Journey to Financial Independence
1. Make More Money
I hate when I see articles that have some line like “just make more money!” as if it were something we just needed to be reminded of in order to do. If it were that easy, everyone would be doing it!
However, making money is important when it comes to financial independence. The more you make, the more you can save, and the sooner you reach your FI number.
If it’s real estate, the more money you make, the more money you can put towards rental properties. The more properties you have, the sooner your rental income can cover all your expenses.
So how do you do it? Start with the job you already have. Is there anything you can do to help increase your value at work so you can get promoted or at least get a raise? If there aren’t many opportunities there, consider jumping to another company and negotiating a higher salary going in.
You could start a part-time business, working a couple of hours after work each day. Sell a course or ebook (on a personal site or places like Amazon or Udemy), buy rental properties, start and sell niche websites, create some innovative software, start a big-time podcast – the list goes on and on and on! You probably have some skill, or can develop a skill, that other people need.
Maybe you don’t have money to start your real business idea yet. Then start with something that doesn’t take any money to get started. Could be freelance work on sites like Fiverr or Upwork. Could even be selling/flipping things around your house on Ebay or Craigslist.
Also, make sure your investments are giving you the best returns possible. The better the return, the harder your money will be hustling along side you.
I don’t mean to make this sound easy, because it’s not. But there is always a way to make things work. Think of your skills, interests, and even frustrations at what you wish could be improved and start there.
2. Save More Money
In the end, it’s really about the amount of money you’re saving that will determine how quickly you reach FI.
There are a million+ tips out there on how to save money, but to be honest, a lot of them are just ridiculous. Time is arguably the most valuable commodity out there, so why would you ever spend hours to save $5? That’s what so many of the ‘tips’ seem to suggest doing!
When it comes down to core elements of money saving, the most important things are tracking your expenses (which I’ll get to in #4), thinking about money in terms of future value, lowering or eliminating recurring expenses, and (optionally) automating you savings.
Instead of going out to eat and thinking, “It’s only $10!,” try thinking that if you do that twice a week, for a year, you’re spending $1040! And if you do that every year, for 20 years, instead of investing that money in index funds at a 7% rate of return, you could have had $42,635! Compound interest alone makes up over half of that money! Same for buying shoes or video games every month. Think about your future self!
You should also get rid of unnecessary or high recurring expenses. Cut the cable! Call around and get better insurance rates. Get a cheaper phone plan. Stop renting your router and modem from your Internet provider. It’s ok if it takes a little while to call around – high recurring expenses can eat up a lot of your money over time.
Finally, if you don’t want to be too involved with your savings, give yourself a savings rate you can afford after all your essential expenses are paid (say 50%). Then pay your expenses, save your rate, and if you want, spend the rest without feeling too guilty about it.
3. Lower Your FI Goal
Saving money has the added benefit of lowering your FI number. So you don’t have as far to reach!
If your FI number was based off of you living (post-FI) on $50,000 a year, but you’ve learned to save a lot more and are now living off of $40,000 a year (or less if you’re living alone), why not cut your goal down from $1,250,000 to ($40,000 * 25) an even million? You’ll reach that number way faster than the amount you had originally planned for.
Maybe you try dividend investing instead of doing index funds. With a return of higher than 4%, you wouldn’t need to save as much money. Same with real estate – if you can get a 10% return on real estate as opposed to 7% with index funds, it might be worth the additional work involved. Real estate’s the route I’m planning on going because I don’t mind working more in exchange for a faster FI date.
4. Track Your Progress
Tracking your expenses and savings helps you make better decisions when temptations come your way. It becomes a game to try and lower your expenses each month and increase how much you invest.
I use Personal Capital to consolidate all my accounts into one place, so I can look at a single place to see what I spent and how my savings/investments are doing. Personal Capital is known for tracking investments well and for being FREE.
A lot of people just use Personal Capital, but I find that using an Excel spreadsheet to organize everything from Personal Capital makes me even more aware of progress I’ve made and it just gets me more excited about saving and investing in general. If you’re looking for a good one, here’s a nice spreadsheet that’s already made for you.
5. Understand What Your Goal Really Is
For most of you, having money probably isn’t the real goal. It’s what you can do with the money that you’re really after. Whether it’s quit your job, take more risks at work, spend more time with family, travel – it’s important to keep this end goal in mind.Financial independence isn't about the money. It's about what that money can provide for you.Click To Tweet
As I’ve said, financial independence isn’t as easy as “just make more money and save more money” bits of advice can make it seem. When times get hard and you really want to buy something or you just don’t feel like hustling, you’ll need to have a vision. Vision fuels your desire, desire turns into thoughts, and your thoughts turn into action. So keep that vision with you at all times!
6. Keep More of the Money You’re Making
You may be making a ton, but like a bully on a playground, the tax-man takes a huge portion of your money away. So to reach FI faster, you need to learn how to fight back! Obviously, taxes can help provide public services and you should pay what you owe, but never a penny more!
Protect your money by learning about the taxes you’re paying and ways of legally avoiding them. Invest as much as you can into tax-advantaged, retirement accounts. If you start a business, take some time to understand what deductions and exemptions you can claim. Taxes may not be the sexiest topic in the world of personal finance, but they’re definitely one of the most practical! I’ve found this to be especially true in real estate.
If you’re paying out about a third of your income each year in taxes, it’ll take much longer to reach FI then if you find ways of reducing that amount. So learn about them, learn how to lower them, and you’ll be much better off than the average kid on the playground.
7. Use Your Time Effectively
In order to reach FI as fast as possible, using your time effectively is critical. For example, on a Saturday evening you could use 30 minutes to watch a show on Netflix or count up your monthly expenses. After work, you could lounge around until it’s time to sleep or you could use a couple of hours to work on a little side venture.
I’m not saying turn into an Elon Musk who sleeps 4-6 hours a day, runs several companies, and works constantly. FI is about spending time with those you love and enjoying life. But if you’re just going to watch TV or surf through social media feeds with your free time, why not direct that time toward FI instead? Your future self will be very glad you did.
Using your time ‘effectively’ means that you’re not just doing things, but you’re focusing on the right things. Yes, clipping coupons is good, but cutting those recurring costs is better. Filling out surveys online can make you some money, but starting your own part-time business on the side is better. See what I mean?
Remember the Pareto principle – about 20% of inputs cause about 80% of outputs. So 20% of what you do (or could do) gets you 80% closer to FI. Figure out what that 20% is for you and then focus on those things! It might be easier to focus on that other stuff that isn’t getting you anywhere, but if you really want to speed up your path to FI, it’s the 20% that you’ll want to focus on.
8. Geographic Arbitrage
I throw this one in for fun. Some FI-ers love this idea, and for others it’s a little over the top. Geographic arbitrage is the idea of making money in a stronger currency like the US dollar, and then spending it somewhere with a weaker currency like the Nigerian naira.
Let’s say 1 USD (US dollar) is worth 315 NGN (Nigerian naira). So what if you lived in Nigeria (this is just an example), but worked remotely for a company in the US or had investments growing in US dollars. Suddenly, your relative income shoots through the roof! For us in the US, you could move to a country in South America for a similar effect.
Geographic arbitrage even works within the same country. If one state has a really high income tax (like California), and then you move to another state that has no income tax (like Washington) but keep the same salary, it’s almost like you’re getting a raise. You keep more of your money because of lower taxes.
Washington probably makes up for this with their very high sales tax, but you get the idea – your relative income can go up just by moving to another location. But like I said, this idea is more for you adventurous types.
As you can see, it just takes a little extra to reach FI faster. The average person sees a number like a million dollars and thinks, “I might as well just wait until I’m 65 to have that much money.” But as someone pursuing FI, you’re not average. You understand that working hard now is the only way to enjoy the benefits later.
Each idea, if consistently applied, can shorten the time it takes you to reach FI by years, maybe even decades! But an idea is just an idea until it’s applied. So start the real FI hustle today by making plans to integrate each of these ideas into your life. I know that the reward will be even better than you imagined.
What are you doing to reach FI faster? Do you plan on integrating any of these ideas into your own life?