Aim to be Financially Independent

If you’ve done your research on Retirement Planning, you might have come across FIRE – Financial Independence Retire Early. Usually when people talk about FIRE, it’s an overnight switch that involves a massive lifestyle change. Quitting your job, pulling your kids out of their current school, moving your family to an entirely new low-cost-of-living region, and making any and all lifestyle changes required to reduce your expenses.

Admittedly, these are all pretty drastic steps to take. What if your kids really like their current school? What if your family hates the new town you’ve moved to? Making so many major changes at once is always a risky endeavor. Besides, in order to make FIRE a reality, you often need at least a million dollars in savings, which will usually take at least a decade to pull off. Is there a smoother and more immediate path you can follow towards financial freedom?

The metric that I’ve personally found helpful is the earlier part of FIRE: Financial Independence. In particular, I find it helpful to regularly track your ratio of investment income to life expenses, and consciously work towards getting this ratio to 1.0.

Some examples:

  • If you’re just starting off your career and have $0 in monthly investment income and $3k in monthly expenses, then you’re at 0% Financial Independence
  • If you’ve accumulated many years’ of savings, producing $3,000 in monthly investment income and have $6,000 in monthly expenses, then you’re at 50% Financial Independence
  • If over the next decade you continue saving and cutting down your expenses, leading to $4,000 in monthly investment income and $5,000 in monthly expenses, then you’ve reached 80% Financial Independence

Your goal, as you might have guessed, is to get to at least 100% financial independence as soon as possible – and then stay there for the rest of your life. You can accomplish this goal through a combination of accumulating more savings, which leads to more investment income. And reducing your monthly expenses by living frugally and avoiding expenses that don’t spark joy.

At any point in your life, you can take a look at your savings and monthly expenses and figure out exactly how financially independent you are. Over time, you should see this number going up. If you ever see it going down, you should treat it as a red flag. 

With FIRE, it is easy to fool yourself into thinking that “all I need to be happy in retirement is $X and I’m sure I’ll have that in the next 10 years.” Unfortunately, kicking the can 10 years down the road is often a recipe for procrastination. In contrast, your Financial Independence ratio forces you to take stock of your current lifestyle, and make any lifestyle changes required immediately, long before you take any drastic steps such as retiring.

Unlike FIRE however, being 100% financially independent allows for but does not automatically mean retiring. It simply means that if you were to lose your job and are unable to find another job, you would still be able to maintain your current lifestyle permanently. 

Being financially independent is the opposite of living paycheck to paycheck. The person living paycheck to paycheck requires a paycheck within the next 2 weeks to make ends meet. A person with more savings but not 100% financially independent will need a paycheck within the next X weeks to make ends meet. Whereas a person who has attained 100% Financial Independence will never need a paycheck again to make ends meet.

Why Financial Independence? For the piece of mind. Don’t like your job? Quit. Don’t like the job offers you’re getting? Don’t take them. Want to get away from it all and sit on a beach indefinitely? Do it. You’ve never experienced freedom until you’ve attained Financial Independence.


When I bring this up to people, I often encounter a couple common questions:

“My current expenses are very high, but that’s only because I have a well paying job. If I left my job, I would just cut my expenses”

The things you own will end up owning you. If you’re used to driving a Tesla, trading it for a Corolla will feel like torture. If you’re used to living in a swanky luxury apartment, downgrading to a starter home will feel like torture. If you’re used to annual Caribbean trips in 5 star resorts, giving it up for staycations will feel like torture. 

And even if you’re somehow able to put up with it, there’s no guarantee that your spouse will feel similarly. If your partner is used to a certain standard of living, there’s a very real chance of your marriage falling apart once the gravy train stops. The best way to avoid getting run over by this gravy train is to not get on it in the first place. 

“Sure, but it’s very reasonable to cut expenses after I quit my job. I’ll be able to move somewhere cheaper and I’ll have more time to do things myself which I’m currently paying others for”

This is a very reasonable point, but consider the risks involved. Suppose you’re currently living in Denver because of your job, and you plan to move to a rural town upon retiring. You run the real risk of hating your new surroundings. Imagine if you’re married to a person of color or have a LGBTQ child, and you realize that the small rural town you just moved to is now extremely hostile to your family. Or imagine if you plan to cut expenses by cooking your own meals everyday, only to realize after a year that you hate cooking even more than you hated your previous job. Any and all future plans come associated with a significant risk of falling through.

“What’s the point in aiming for 100% Financial Independence so early on, if you want to work longer? Why would anyone continue to work if they are 100% financially independent?”

Simple, to upgrade your lifestyle. If you currently have $500,000 in savings, you’ll be 100% financially independent if your annual expenses are ~$25,000. Sure, it’s great to be financially independent, but few would want to live permanently on a budget of $25,000. Hence, even though you’re already financially independent, you could choose to continue working until you accumulate $2M in savings, which will allow you annual expenditures of about $100,000.

Attaining Financial Independence sets a lower bound on your future lifestyle, even if your career falls off a cliff. Continuing to work while still maintaining Financial Independence will allow you to keep increasing this lower bound.

“If my goal is to retire with $2M in savings and $100,000 in annual expenses, why shouldn’t I allow myself to spend $100,000 annually right now?”

You certainly can. This is likely what most people do. But if you only have $1M in savings and are spending $100,000 every year, you aren’t financially independent. This means that you do not have the freedom to arbitrarily quit your job at any time if you find yourself hating it. If you lose your job, you’ll have to quickly find another one immediately. And if you find yourself unemployed over a long period of time, you’ll have to make painful lifestyle cuts. Being financially independent at all times gives tremendous peace of mind and flexibility, and I think that is something worth making hedonic sacrifices for.

Admittedly, there are trade-offs involved. If you only have $100,000 in savings, it’s unrealistic to limit yourself to an annual budget of $5,000. Aim to get to 100% financial independence as soon as possible, but know that it will take many years to get there.

“I’m still in my early 20s and there’s no way I can be financially independent right now. What can I aim for instead?”

As discussed earlier, you should regularly track your ratio of investment income to lifestyle expenses. And work on getting this ratio as high as you possibly can. You may find it motivating to even make a graph out of this and gamify this into a fun challenge for yourself. If your ratio is steadily improving each year, you’re on the right track. This is the most important metric you should be tracking.

In the meantime, here are some fun milestones you can aim for as well:

  • Recession Independence: You can afford your current lifestyle in perpetuity even if you had to take a 50% pay cut
  • Walmart Financial Independence: You can afford your current lifestyle in perpetuity even if the only job you’re able to get is a minimum wage job
  • Barista Financial Independence: You can afford your current lifestyle in perpetuity even if you quit your job and worked as a part-time barista

Obviously no one wants to work a minimum wage job, nor the same job they currently have at half the salary. But these intermediate milestones will help motivate you to get closer to 100% Financial Independence. And also give you the peace of mind that you can maintain your current lifestyle indefinitely even if things go very badly at your current job.