Financial independence – ahhh, what a dream! Doing as you please, not as you must. Having all the money you need without needing a job. Travel. Adventure. Relaxation. Time to write that book you’ve been thinking about for years.
Well, I’ve been there and done that since I was 25 years old. I’ve had an adventuresome life. I’ve worked for love, not money. I’ve slept late when my body needed it and worked late into the night when the juices were flowing. And I’ve written a book (actually two, one published) which lays out how anyone can have what I have – without risky business ventures or shady deals or being born into the right family. The book, of course, is Your Money or Your Life, which presents a step by step approach to the process of earning, spending, saving, giving and investing with a focus on having enough for life, not “it all” or “more and more.”
I’d like to unpack this notion of “financial independence,” though, so we can see it not simply as being filthy rich with a mega portfolio but rather as having a diversity of ways to assure your needs will be met with minimal if any paid employment. It’s a combination of passive income, occasional income, frugality (increasing your unnecessary income) and reciprocity (freely sharing stuff, services and skills with others).
First, you need to understand Financial Independence as having what YOU need to support a life you love. Not what the Wall Street Journal or People Magazine say is rich, not what your financial adviser says you must have, but what you determine is enough by observing and refining your spending patterns until you neither squander nor hoard money. You come up with “your number” – the monthly income needed to have all you want and need but nothing in excess. This is your “enough point”. If FI means having everything the rich people do, you’ll never get there. But if it means having enough income from sources other than work to cover your expenses, we can all achieve through investing time, intention and focus.
Second, you need to take seriously the old saw of penny saved is a penny earned. Let’s say that through comparative shopping you can get your car or refrigerator for 25-40% off retail price (I have done just that. My car was $16000 rather than $22,000, my fridge $750 rather than $1200). Should such savings generalize to all your spending, then your “enough point” might be $40,000 a year instead of $50,000. That’s phantom income – you still have a $50,000 a year lifestyle, but $10,000 of it comes from sheer frugality.
Third, you need to only buy things that only money can buy. For example, there are several ways to get food on your table. You can buy it. You can grow it. You can forage (like picking blackberries by the roadside). There are also several ways to satisfy a gnawing hunger. One is eating. One is having a glass of water since most of us drink far too little each day. Another is to ask before eating: What am I really hungry for? It may be peanuts or it may be the oil in peanuts or the crunch of peanuts or writing in your journal about how mad you are at so and so. Sometimes we consume something material when the need is emotional or spiritual. There are several ways to read the books we like: buying them new, buying them used, borrowing from friends, borrowing from the library. Likewise, there are several ways to look terrific at a wedding. One is to buy a new dress. One is borrow a dress from a friend. One is to shop your closet and wear last year’s new dress because you still look great in it. Being resourceful is a great income stream because some things you need come into your life without spending dollars. Substituting creativity and awareness for knee jerk spending might save you another $5000 a year!
Fourth, you need to only pay others to do what you really can’t or won’t do for yourself. Every competency is an income stream because you don’t have to pay others to handle it – and plumbers and electricians and mechanics are mighty expensive. You don’t have to do everything yourself, but you can pick one task of daily life to do yourself and this further reduces the amount of income you need to be FI.
Fifth, you need to find ways to share resources with other people. There truly could be one lawnmower or extension ladder per city block if people could work out a trading system. You can rely on pure neighborliness, or you could set up a neighborhood listserve where offers and asks are posted or, if you’re lucky, your community might have a more elaborate alternative currency system. Even without such a system, though, we’re awash in other currencies. Discount coupons can be substituted for dollars so they are a means of exchange. Air-miles are also a currency. IOUs are also currency – that slip of paper could change many hands before it comes back to you for final payment.
Sixth is to turn things you do for love into things you do for money – without stress. Sell birdhouses if you love making birdhouses. Sell flowers if you love growing flowers. Do fundraising part-time if you’ve become a great fundraiser through serving on many boards. Baby-sit if you love kids and one more running around your house is no problem.
Finally, you do need to invest in financial instruments that give you a return on investment – the classic form of financial independence. You might own bonds or stocks or mutual funds or real estate.
My financial independence is based on all these “income streams”. I do have a small but steady fixed income from several sources: bonds, a rental house I own and soon Social Security. I do have a little side income from selling a few hours a month of my expertise (conducting tele-classes, facilitation, coaching, meeting planning, running workshops). I am frugal to a fault and if I were to tally up how much under retail I pay for all my purchases I’d likely find I live on half what others do for the same set of things. Having lived with other people for most of my adult life I know how to share, which means I know how to negotiate, to ask for what I need and take no for an answer, to be direct and not underhanded, to return things in better shape than I found them, to understand where I can be generous and when I just can’t give an inch.
In these tough financial times, which may last far into the future and become the new norm, the smart money is on people who know how to manage these multiple streams of income so that their core well being does not depend on any one of them. This is truly diversifying your “portfolio” for financial security.