A lot of people harbour hopes of achieving financial independence in order to pursue more purposeful work. Some people are very lucky in that they are already doing what they love, which very often removes a lot of financial motivations; the work is so intrinsically soul quenching that the income earned is just a lovely side benefit.
For the majority that are currently doing things they secretly don’t want to do, check out how to improve your happiness in the meantime.
In today’s world, achieving a form of financial independence can be extremely difficult, particularly with rising house prices and wages decreasing over time adjusted for inflation. Caught on the hedonic treadmill, we work hard to buy things and then adapt to our new situation. So we work hard again to buy new things, we adapt, and so on. This hedonic sandstorm, coupled with rising costs, can make it seem impossible to achieve a form of financial independence.
Nassim Taleb calls it F*** You money. The ability to have freedom of your choices.
Interestingly, the hedonic treadmill works both ways, we adapt downwards. Think you can’t live without your beloved car? You’d be surprised how quickly you adapt.
After some googling, I found a couple of blogs (Early Retirement Extreme; Mr Money Mustache) that have taken this approach to its extreme, suggesting that you can achieve financial independence early through a systems approach to lifestyle design, by creating strategies to meet your needs whilst minimising costs and effort.
Or to simplify, ruthlessly cutting away that which you don’t need, investing your normal income in cash generating assets, and enjoying life through developing your independence and purposeful creation.
Below are the notes I’ve taken after reading both blogs. If you’re interested in saving a bit more money and cultivating purpose from everyday things, they are well worth a read.
Early Retirement Extreme (ERE)
From the about page:
ERE is a set of principles that are based on a systems theoretic approach to “lifestyle design” allowing each individual to create their own robust strategy to a flexible lifestyle that is resilient to economic shows and which meets all needs and reasonable wants while minimizing ongoing costs and effort.
From the wiki:
Early Retirement Extreme (ERE) is a movement of individuals integrating ideas from anti-consumerism, DIY, the Renaissance man ideal, home economics, individualism, environmentalism, and rentier capitalism toward the goal of achieving financial independence extremely rapidly. Putting ERE principles into practice yields a lifestyle that meets all needs while minimizing ongoing inputs of money, natural resources, friction, and effort.
“In particular, I did not want to pay for my house 3 times over by getting a mortgage. Thus my initial motivation was to save for a house to avoid mortgage interest.”
Rich Dad Poor Dad - go from poor to wealthy by having my money work for me while cutting down on my liabilities (car payments, mortgage, credit cards) and avoiding having me work for money
“Investors don’t pay other people to use money. They are other people. If you want to be an investor, you need to build income generating assets. Investing is mainly about escaping the need for a wage income.
Mr Money Mustache
From the about page:
Mr Money Mustache is a thirtysomething* retiree who now writes bout how we can all live a frugal yet Badass life of leisure.
My wife and I studied engineering and computer science in Canada, then worked in standard tech-industry cubicle jobs in various locations throughout the late ’90s and early 2000s.
Then we retired from real work way back in 2005 in order to start a family. This was achieved not through luck or amazing skill, but simply by living a lifestyle about 50% less expensive than most of our peers and investing the surplus in very boring conservative Vanguard index funds and a rental house or two.
Same principle - don’t spend on crap. Save more. Invest the savings.
Live close to work. Move to another city if you like adventure. Don’t borrow money for cars and don’t buy stupid ones. Ride a bike whenever you can. Cancel your TV service. Stop wasting money on groceries. Lose the overpriced phone. Use your own body to get things done. Learn to mock conveniences. Practice optimism.
Then invest your money. In stock index funds. In paying off your own home, in real estate and other. (examples - high yield rental homes, stocks that pay quarterly dividends, p2p lending)
“Starting a new business can be risky, but if you do it from a position of strength (minimal startup costs, a day job, and a low personal cost of living), your chances are much better. [Improving your luck can really help here - check out how to get lucky]
“A house to me is the home base of your spirit, and when you’re living a frugal and natural life, you spend a lot of time at home - save up a big deposit and pay off mortgage asap.”
“I think that slowly mastering your own motivation and learning to run yourself as a fully independent person is one of the most worthwhile things you can do with your life.”
“Life is not so much about money and possessions, it’s about freedom of time and mobility to go wherever you like. And it’s not about not working, it’s more about not being tied down to any particular job.”
“The deepest satisfaction in life and the widest smile as your head hits the pillow each night comes not from optimising your consumption, but from the act of purposeful creation.”
Maximise your earnings, whatever it is in. Don’t be limited to your current field - as much as you can to achieve financial independence.
Check out ERE and MMM for more details about cutting costs and investing income to achieve financial independence.
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