I imagine that at some point, very soon, I’ll be financially independent. Realistically, maybe next year or the one after that, unless the Japanese Yen decides to screw me once again.
And, at some point, I think my friends will ask me how I did it.
That last point is actually a fictional scenario: I intend to be stealthy in my wealth. As far as everybody except my wife is concerned, I’ll be driving my own business from the comfort of my home, with some savings on the side as a backup. In practice, that won’t be a total lie in the beginning, but a majority of our income should ultimately come from our investments, not from my side gig.
Nevertheless, I would love for some of my friends to ask one day: “How the heck did you do it, dude?”.
“Dude, it’s simple, you just have to save 60% of your income for 10 years and you’re done. You still have time, plus you already have some savings, I’ll see you in 5 years”.
When you save 60% of your income, assuming an average market return of 7% during those years, it takes about 11 years to save enough that you can then live off your investments (assuming a 4% withdrawal rate). You can play with the online calculator at networthify which hopefully should motivate you.
Of course, my friends will proceed to tell me that one cannot save 60% of their income unless they make millions. And they wouldn’t be entirely wrong (although millions is definitely overshooting it, but I’ve heard that one for real): to save 60% of your income for ten years, you either need to be very (overly?) frugal, or have a very high paying job. In my case, with a stay at home wife and two kids, it took a combination of both. But I’m living proof that it’s doable, with kids, and on a single income!
Financial independence is not for the faint of heart. In order to be able to save 60% of my take-home income, we had to be very frugal and I had to increase my income significantly over the years (which, if you follow, also means I was not saving 60% of my income until very recently).
The frugality part was natural for us, we were both good at saving. But taking it to an extreme level, I won’t lie, has brought some frustration in our household. For example I was proud of not owning a car for years, which has saved us an insane amount of money. But recently my wife’s expressed a strong desire to get a car, and we had a micro-argument on the topic. There’s lots of things we’re missing out with the kids because of not owning a car (and we’ve realized that our initial project to “rent whenever we need one” is not something we’re actually doing. Too much hassle). Conversely, other things such as cutting down on our mobile phone plans, bringing lunch to work, not having cable, and walking to the office, have shown benefits in our wallet and in our health as well.
We’ve been good at savings, and that alone would have brought us financial independence ultimately. But what accelerated the process dramatically for me was a huge increase in my income over the years. In 13 years, I have multiplied my yearly income by more than 6. That didn’t come for free: I had to make a few bold moves, first to move from France to Japan, then in Japan to look for better jobs than the one I had there, and recently to accept a move to the US. In some cases the increase in salary was a nice side effect of something I would have done otherwise, but in all cases there was a leap of faith to dramatically change my (and my family’s) lifestyle with such bold moves. I’d recommend everyone to look for opportunities to increase their salary, but I’d be lying if I was saying this is how I was driving my decisions. The increase in salary just happened as I made my choices, but was rarely the main decision factor.
My salary increase alone is not what took me to 6 times what I made in my first job. I was also very lucky with my company’s stock options, but, more importantly, I grew one of my hobbies into a side business. Nowadays that hobby is responsible for 20% of my income. That income is not passive however, and once again not everyone’s cut for that kind of thing. In my twenties, when all of my friends were partying and having fun on weekends, I was growing that side business, secretly hoping to make some money off of it one day. Then when that happened, I never gave up. Today, Once I’m done with my day job at 6, I then easily spend an additional 2 to 3 hours working on my side gig, just to keep it running. It’s definitely not passive income, and trust me, 3 more hours every day is not always fun, especially when once it’s done you have to handle bedtime with the kids. I’m lucky that my wife is so patient with me on this.
The conclusion: Saving 60% of your income will get you to financial independence in about 10 years. But it’s not easy to save 60% of one’s income, especially with children. It takes a combination of frugality and increasing one’s income. Frugality is typically the first thing you should look into because it only requires dedication from you and your family. Increasing your income comes next, and can dramatically accelerate your path to financial independence, although it is not what will “make or break” FI for you.