Even since before I’ve started working, I’ve been enamored by the idea of financially independence. To live and to labor for the sake of self-determination rather than a paycheck would be idyllic.
But becoming financially independent is a lengthy process. By the time I reach “full” FI, I will have been in the workforce roughly 15 years. So it’s helpful to define intermediate goals, pitstops along the way, so that I can keep myself accountable and take stock of the progress I’ve made.
Going Through The Phases
There are five phases between where I am now and financial independence. Each phase is defined by an associated work requirement, e.g. when I pay off my mortgage I’ll probably still need to have a professional job, but could take on a lower-key one with less pay; when I hit full financial independence, I won’t need any job at all!
As you can see, I expect each phase to last somewhere between one to two years. This means I’ll be able to compare my progress against predefined milestones on a near yearly basis rather than figure it all out at the end. It also means I have some designated off-ramp points. If I decide I don’t want to stay in my job until 2025, I’ll know how long I need to stay in order to reach a particular level of financial security.
The soonest I would feel comfortable transitioning away from my job is once we hit the inflection point. At that phase, we’ll have a very solid financial footing with fully-funded college and retirement accounts (assuming modest growth over the next few decades). That means, in a pinch, we will no longer need to save and invest for our future selves. Our only need would be to make enough to pay our expenses day to day.
The next major milestone will then be to pay off our mortgage. Now, we might not actually pay off our mortgage– I’d prefer having money in the market instead– but I’d like to have enough to do so should we choose. Since we live in a high cost of living area, a large portion of our expenses goes into our condo’s mortgage. Once we pay off our mortgage, we’ll only need to make enough to pay for living expenses like food, utilities, and the car.
Now, the next jump is more lifestyle inflation than financial stability, but one that we deeply want. Once our home is paid off, we’d like to expand our home: build out our attic space to make a master bedroom and bathroom suite. This will upgrade our condo from a 2/1 to a 3/2. Not a necessity, certainly, but we’d like if we are able to give our children their own rooms and us our own bathroom. Which will be nice, especially as our kids get older and our current space feels more crowded.
Finally, once we’re done nesting, we can focus on financial independence. We’ll hit barista FI where we could basically subsist on our investments and part-time low-wage jobs as needed. If I stick it out a couple years more, we’ll hit full FI, where all our expenses will be more or less covered as long as we sporadically take on a money-yielding project in between. Which, given we’ll still be young yet, I am confident will happen.
How Do I Plan To Get There?
Because I’m earning a good amount of money from my full-time job, I’m running on easy mode on the way to FI. My plan, boring though it is, is as follows:
- Max out my and my fiancé’s retirement accounts (401k, 403b, IRA) each year.
- Max out my employer’s ESPP each year.
- Spend what we need to live, but track all our purchases each month and be conscious about lifestyle inflation.
- Dump any remaining funds at the end of the month into taxable accounts.
Note that my plan does not include things like working 20 hours a week or buying a rental property. There are, indeed, a lot of ways to supercharge financial growth well-beloved by the personal finance community. I am, however, quite conservative and, if I do say so myself, lazy af. The slow and steady life is for me.
There are some low-effort ways for me to speed up the journey and mitigate risk which I will be pursuing along the way. I will:
- Attempt to optimize my taxes and asset allocation.
- Diversify my skill set in case I need to transition out of my line of work.
- Establish myself as a key asset in my work in order to open myself up to future consulting gigs post-retirement.
What are your long-term financial goals? How and when do you plan to get there?