It’s been an interesting journey to achieve financial independence (FI). I had always thought that one day I’d become wealthy. It was a goal that motivated me to begin the search. As such I wanted to tweak my own lifestyle to reach this goal. I was happy to change direction to reach it.
Post FI, I came to the crossroads of carrying on my current path or blazing a different path.
However, I’m getting ahead of myself. This particular blog post is just to clarify that there are many ways of getting wealthy/financially independent. However, I’ve found that there is a template that can be followed in order to increase your chance of success. Of course this is not the only way, nor the best, quickest way, but it is one a majority of middle-class folks can follow. Perhaps surprisingly, I’m going to recommend a very traditional route – grades, school, university, job, save and hit FI.
The key to financial independence – mindset
It might sound cliché, but critical to building any wealth is having the mindset of wealth. It is critical to understand that in order to become wealthy you’ll need to make choices.
The choice? your decisions need to be under a lens of financial allocation of capital. This means that a purchase that increases your wealth and income is a good purchase. If it is purely a consumer purchase, then it is likely harmful to your goal of financial independence. The gray areas are always transportation, housing, and family and you need to craft a life that you’re happy with.
I expect that if you go too far on the financial scarcity spectrum you’ll cause too much stress to your happiness. I believe that too much scarcity to reach your financial goal is not a good route to reach financial independence. For example, if you grew up in a household that spent $50k per annum you may be quite unhappy if you cut your expenses to such an extent that you’re living on less than half your old lifestyle. My personal feeling is that your upbringing will determine your expected level of expenditure due to family and friends.
Rather than cutting your expenses to a level below your upbringing, let’s first look at the next section, income.
Choose a high income field of work
If you want to have a high likelihood of achieving financial independence, pick a high income field. This means the likely traditional fields of banking, finance, investments, law, management consulting or corporate position in a large multinational. Depending on your market, possibly technology and software. Medical fields are great for high income, but delays your high income greatly due to the number of years of study. Hence I’m not a fan of being a doctor for the income.
I’ve noticed that in some countries these traditional fields pay far lower than in other markets. Does your country pay lawyers poorly? then rather pursue finance. If software developers are underpaid, then switch to a higher paying field, or move to a country that pays significantly better.
If you can earn 4x your salary but your expenses only double by moving to a different market, it is worth it in your pursuit. It all comes down to the return on investment. Everything needs to be assessed on this criteria in pursuit of FI.
Also, look to those older than you and assess who is in a well-paid career. Depending on your market, some corporates will give you the opportunity to start straight out of school, whereas many will require a university degree. Understand your market.
Additional assessments for high income
Sadly, in some developed markets your university degree comes with a huge debt burden. I cannot comment on whether it is worth the cost, but if you take on a high income position at least you’ll have the opportunity to quickly recover from the debt load. I would suggest assessing alternative education methods, especially since software allows many to work without a degree if you have high numerical aptitude. Get scholarships, either via academics or sport so you can reduce the debt. My own experience? University was cheap and post graduate degrees were paid by the employer and scholarships.
The reason for such a single pursuit of high income? It is far easier to reach financial independence if your income is 2x your expenses, than it is for you to cut your expenses in half. Unless you have enormous wastage in your lifestyle, earn the highest income and then after a decade or two and reach financial independence.
I’ve noticed that people ramp up their lifestyles based on their income. I’m not sure why if you were happy living on the lifestyle afforded to you from a lower paying position, you’d suddenly need to spend more to be happy now. I think it’s a mindset issue, and a misunderstanding of the purpose of income.
Treat your lifestyle as a business
This is a simple way of saying “save your income”. You need to maximise the amount of capital that you keep. If you target 50% or more, you’ll reach FI quickly (15 to 20 years). You’ll need to grow in your job to reach higher levels of income, while not growing your expenses.
If you think of your own personal circumstances as a business it will make things clearer. Your income is revenue, your costs are expenses and you need to increase your gross margin as much as possible for the business to be a success.
Once you reach financial independence, then you can upgrade your lifestyle if you wish, but until you’re wealthy I wouldn’t put an anchor on your wealth accumulation. Life is far better being financially secure, than worrying about your lifestyle imploding because you lost your high income job.
The compounding on your wealth once you reach FI will serve as a fantastic platform to pursue becoming wealthy, not working, or new career changes and hobbies.
