Imagine a world where you had the freedom to plan your day as you wish. You wouldn’t have to wake up to the sound of pesky alarms, and you could do what you want to do, rather than what you have to do.
You could read leisurely for hours, or decide to go hiking in the middle of the week — in the middle of the day no less. You could focus on your hobbies and pursue your long forgotten passions.
Work would be on your terms and something that would fill your life with purpose, rather than deplete all your energy and consume the majority of your waking hours.
Sounds like a dream, doesn’t it? Well, this dream is a reality for a few financial rebels who have pursued financial independence in order to live life on their terms. And this dream likely isn’t as far off as you think. Here’s our best advice for how to become financially independent.
Here’s our best advice for how to become financially independent.
What is Financial Independence?
Financial Independence (FI) may sound like a pipe dream, but it is possible. To achieve financial independence, you need to have enough money in savings and investments, or in passive income (through properties or business) to cover your expenses indefinitely.
Reaching financial independence means that you no longer rely on regular income to survive and pay your bills.
Being financially independent takes you out of the rat race to enjoy other things in life like family, friends, and passions. Instead of working until you are 70, you can stop working at a much younger age and pursue life on your terms.
How Do You Become Financially Independent?
As you would imagine, you’ll need a lot of money saved and invested to achieve financial independence. But maybe not as much as you might think.
A standard metric that is often used is having 25 times your annual expenses in savings and investments, which accounts for a safe withdrawal rate of 4 percent, indefinitely. But how did this magic number come about? It’s not magic, but math.
Consider that average returns in the stock market are 7 percent before inflation. Inflation eats up about 3 percent, leaving you with 4 percent to safely withdraw each year. Of course, there are a lot of variables that could affect this calculation, but this is a general rule.
Financial independence is inextricably linked with how much you can save, as well as your cost of living.
For example, you don’t have to be a millionaire to be financially independent. Let’s say that you live in a low-cost area and that your expenses are very minimal. Your annual expenses are about $30,000 per year.
FI equation: $30,000 X 25 = $750,000
Yes, that’s a hefty number, but remember you aren’t saving that money all on your own. You’ll have the beauty of compound interest and time working on your side.
How Does This Relate to Me?
You may be thinking, “I’m in debt! How does this relate to me?!”
I remember when I first heard about financial independence, I simply laughed it off because that was for “other people”, not me. For someone in debt, it can seem like a totally different universe.
But think about how much you are putting to debt currently. If you have a high debt load like I do and are trying to pay it back as soon as possible, your payments could be close to $1,000 per month. What will you do with that money after you are debt free?
Once you are debt free, it’s easy to think, “What’s next?” Instead of succumbing to lifestyle inflation, you could have that money work for you and your future.
If you happen to put that same amount of money into savings and investing, you may very well be putting yourself on the path towards financial independence. But at the end of the day, it all depends on your expenses.
When I first realized this, I was incredibly motivated. For months, I had been frustrated at putting so much money towards debt each month.
But when I flipped the script and thought about my life after debt and what I’d do with that money, I suddenly became very inspired. If I could put that same amount into savings and investing while increasing my income over time, I could open up more possibilities in my future.
For so long I thought retirement was the real pipe dream for the Millennial generation. But paying off debt has given me the confidence to accomplish other amazing feats in my financial life, like financial independence.
How to start working towards financial independence now
If you are interested in pursuing financial independence, here are some key points to help you get started:
- Pay off all your debt (and stay out of debt!)
- Save much more than the prescribed 10 percent — more like 50-70 percent (yes, it’s possible)
- Lower your expenses — each expense you cut out permanently is that much less you will need to live on in the future
- Invest, invest, invest — look for investment vehicles with high returns and low fees
Financial independence opens up a whole new world of possibilities. Imagine if you never had to take a crappy job ever again. What if those money worries completely vanished from your mental landscape? What if you were free to pursue your calling?
Often we think of pursuing our passions as a luxury. To a certain extent, it is. But if you can invest with the same amount of fortitude it takes to pay off debt, why not open up other opportunities for your life? This is much preferred to me rather than be relegated to a prescribed 9 to 5 job where you work until you are 70.
You can go against the grain and do something different. Now, I know financial independence isn’t for everyone. But if you are looking for something different and are willing to put in the work, you can pave a path of possibilities.
Once you are debt free, you can use that same momentum to save and invest and pursue the life of your dreams.
Have you heard of financial independence before? Is it something you’re hoping to achieve soon?
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|