How to Stay the Course to Financial Independence
The journey to financial independence can be a long one. Even if you save 50% of your income (pre-tax), it can take 12 to 20 years to achieve financial independence. This is a very long time to live frugally. And let’s face it; saving 50% of your income is living very frugally. Not many people can live on 50% of their income while their friends and family members spend everything they earn. Living frugally means living in a smaller house, driving older cars, eating out less, and having fewer cutting-edge tech gadgets than everyone around you. That’s challenging for anyone.
Luckily, my wife and I are both naturally frugal. This gave us a huge advantage in our journey to financial independence. We never spent more than we made and we started investing in our early 20s. Of course, we didn’t save that much when we were young. It took time and commitment to ramp up our saving rate to 50%. It became easier as we earned more income and generated passive income. When my work environment deteriorated, I made early retirement my goal and we ramped up our saving rates even more.
I didn’t keep good records back in my 20s so I’m not sure exactly how much we saved. I think we started with around 15% of our income and eventually ramped up to about 60% during my last few years as an engineer. Today, we save about 50% of our income every year. Our saving rate is very good right now because Mrs. RB40 is still working. She plans to retire before 2020* so we are saving as much as we can to prepare for her early retirement.
We have been living frugally for over 20 years and we should be able to continue to do so for the next 20 years. What’s our secret to staying the course on the journey to financial independence? Read on…
*Originally written in 2016. Updated 2021. Wow, it’s been 5 years since I wrote this post. Mrs. RB40 is doing so well at her job and she doesn’t want to retire yet. Her work is helping to save the planet. Why retire when you’re improving the world and enjoying it? Instead, she plans to take 6 months off in 2022 to recharge. Now, she plans to retire when our son finishes high school, in 7 years or so.
Being naturally frugal
Being naturally frugal is a huge factor. It gave us a huge head start. Is there such a thing as being “naturally frugal”? Nobody is born frugal, right? It must have been the environment that we grew up in that made us more frugal than the average middle-class family.
My family immigrated to the US when I was 12 years old and it took us a while to find our financial footing. My parents worked minimum wage jobs for a few years until they were able to start their own small business. It was tough and we struggled financially for many years. We always had a place to live and plenty to eat, but not many luxuries. I lived in a frugal household when I was growing up and the habit stuck.
Mrs. RB40 can’t pinpoint exactly why she developed a frugal mindset. Her family was middle class when she was young and she was conscious of how hard her parents worked to pay the bills. Her childhood was comfortable, but her parents bickered constantly about what they could and couldn’t afford. This environment must have contributed to her unwillingness to spend money. She remembers very distinctly after being accepted to a university being told that she couldn’t go because the family couldn’t afford it.
I think many people (in general) haven’t had similar awareness around finances, so they never knew how important it is to save for the rainy days. I don’t know how true this assumption is. I’d love to hear from you about your childhood and how that correlates with your natural frugalness. I assume most parents want to shield their children from their financial struggles.
Anyway, the point is frugality doesn’t come naturally to most of us. Our kid has a very cushy childhood compared to our younger years. His childhood is a lot more comfortable than mine. He needs to learn life isn’t easy like this for everyone.
He has seen some poverty but never had to deal with it personally. For example, our city has many homeless people. We can see some homeless camps and tents from our window. We also travel to countries with lower standards of living so Junior has seen that his life is comfortable. While this type of exposure is helpful, I don’t think it’s enough to learn about being frugal. Junior often thinks that if we don’t have something, we can simply go and buy it.
*2021 update – Somehow, RB40Jr is pretty frugal too! He rarely spends any money and saves almost all of it. If he wants something, he’d wait for his birthday or Christmas and ask for it then. I love it! He has learned how to delay spending. That’s one of the best ways to spend less money.
Avoid expensive neighborhoods
Traveling is a great way to see how other people live, but it’s important to understand frugality at home, too. It’s hard to be frugal when people around you aren’t. That’s why I avoid living in expensive neighborhoods. When I was an engineer, most of my coworkers lived in a particular area of the city. I looked for a house nearby, but I never really liked that neighborhood.
The homes are bigger and more expensive. People who live there drive luxury cars and live a more upscale lifestyle than the rest of the city. It made me feel like I would have to compete with them. There is one great benefit to living in an expensive neighborhood — the schools are usually much better. However, we didn’t have a kid until our late 30s, so we didn’t care about schools back then. I prefer to live in a middle-class neighborhood. People spend more modestly and we feel no need to compete with our neighbors.
These days (2016), we live in a neighborhood near a university. I love it because there is a good mix of people. Our building has college students, young professionals, families, retirees, and a diverse population. Nobody is competing with anyone and it’s a great neighborhood. We could have purchased a condo in a more expensive building, but I like living in a low-key place with normal neighbors who aren’t too rich. Luckily, our schools are really good too.
*2021 update – We moved into our duplex. It’s in an old mixed-use neighborhood. The house next to us is worth over a million dollars, but you could rent a studio across the street in a historical building for about $1,200/month. We love the neighborhood because there are so many places we can walk to. It’s way better than the suburbs, IMO.
What is your goal?
Avoiding expensive neighborhoods is just one way to avoid lifestyle inflation. Many people who live there may make more money every year, but they are unable to increase their savings rate. They spend money on unnecessary stuff. I think this is due to the lack of long-term goals. If your life is already comfortable, why change?
This isn’t a problem for someone who is already on the journey to financial independence. Usually, someone finds out about FI and they throw themselves into it because it sounds great. Well, that’s probably not true. I think only a small percentage of people really go for FI once they learn about it. Most people just go on with their lives. The problem is financial independence on its own isn’t motivation enough to live frugally for years.
To stay the course on this journey, you need to think about what comes after financial independence. Why do you want to take on this journey in the first place? You need to figure out your long-term goals.
Here are my motivations for early retirement/financial independence.
- RB40Jr– I wanted to become a stay-at-home-dad. I wanted to spend more time with our son and see him grow up. We didn’t like the daycare raising our kid.
- Health – I wanted to get well, physically and mentally. My old job was making me sick. I was depressed and had variety of physical ailments. I couldn’t think straight because I hated working there. Life is much better now that I’ve been retired for over 4 years. (2021 – I’ve been out for 9 years!)
- Self employment – Working for a corporation wasn’t a good fit for me and I wanted to try self employment. I started blogging in 2010 and quit my job in 2012. I didn’t get much sleep during those two years and Retire by 40 wasn’t very good. Retire by 40 is much higher quality now and I’m getting more sleep so it’s working out well. I love the autonomy of self employment.
- Lifestyle – I needed a more relaxed lifestyle. I wanted to read more, watch some sci-fi shows, and to simply have more leisure time. Eliminating full-time employment enabled me to avoid traffic jams and the craziness at the office. Life is a lot more relaxing when you don’t have a boss.
- Travel – Once Mrs. RB40 retires, we’ll travel more. I plan to take a year off to travel around the world when Junior finishes 4th grade. That way he can come back and start middle school after our trip. Once Junior goes off to college, I want to live in other parts of the world part time. (This didn’t work out due to conflicts with Mrs. RB40’s job. We’ll travel later.)
What are Mrs. RB40’s motivations?
- Right now, she is wearing a lot of work hats and has a lot of support for her professional development.
- She wants to spend more time working on her arts and crafts and vegetable gardening.
- She wants to return to public speaking and traveling for fun.
Stay the course
Whew, I rambled a bit in this post, but I hope it’s helpful to someone who is on the path to financial independence. It’s a long journey and we need to be able to endure it. If you can live like a monk in the interim and enjoy it, then that’s great! However, most of us need to find a comfortable level of spending and then stick with it. The key is to minimize lifestyle inflation as much as you can. Grow your income and funnel most of the growth toward investments. This will grow your passive income which will help increase your saving rates. Keep at it and you’ll creep closer to financial independence every year. Stay motivated by keeping your long-term goals in mind and don’t give up!
How do you stay the course on your journey to financial independence?
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