WHY I DISCOVERED FINANCIAL INDEPENDENCE
2015 started like any other year for me – working far too many hours, with family time and exercise in any limited spare time I had. In February I ran from our home in Wainuiomata to my parent’s house in Churton Park for Sunday dinner. About 24km. This was great as it combined two of my favourite leisure activities – running and eating.
The following day I experienced great pain in my back. I thought nothing of it. Maybe I was just a bit tight from the previous days run. Over the following weeks the pain started getting worse, until it started radiating down my left leg. I went to countless Physiotherapy sessions and there was no improvement in sight. This went on for about 5 months.
I was finally referred to a sports doctor that organised a scan. The results showed my lower disc severely impacting on my back nerve which is what was causing so much pain.
I was basically bed ridden for two years while doctors tried various options. It is hard to describe the pain I was experiencing. I could barely walk. Let’s just say it was a very challenging time in my wife and I's life.
During this period, I had a lot of time to think. I guess it bought my mortality into question as well. I was previously a very active person and in the blink of an eye that was all taken away from me. I then thought, is this what my life has come to? Working 50 hours a week with a small window of time in the weekends to do as I please. It was a real eye-opening moment for me and I thought there must be more to life.
I received two cortisone injections and was finally well enough for general day to day living, but not much more. At least I could now work and earn a living. But what if I was bed ridden for longer? We wouldn’t have the money to support our family long-term and may end up living in poverty. I didn’t want to run the risk of running out of money or having to rely on work for income. Life can be fragile, and I wanted to wrestle back control.
What I did next
So, I fired up the laptop and googled “early retirement”. From there I found some blogs on early retirement and I was hooked. To discover that early retirement was possible was a great moment. I thought it was a near certainty to have to work to old age. I thought early retirees were only lotto winners, high income earners and inheritance recipients. But to discover it all comes down to a bit of math for the average earner was exciting for a math nerd like me. I ran my own numbers and came to realise I may be able to retire before I turn 50.
Note: I don’t necessarily want to retire at 50, even though I could if I wanted. I just plan to have enough money to do the work that I want to do. Not because I need the money, but because that is how I want to fill my time.
FI is short for financial independence. You can click here for more on that. The benefit of FI is that your time now belongs to you. Not to our employer. Not to health and safety meetings. Not to managing staff. Not to meetings about meetings or any of that other corporate BS. When we reach FI we can choose what to do with our time. If we want to quit our job, quit. If we want to travel, travel. I much prefer the word FI to early retirement. I do not want to retire from life. When we reach FI you could argue that is when we can really embrace life. We can finally pursue our passions that were previously limited from lack of time and money.
The standard formula is we work for 40 years and retire. When we are working, we tend to have the money but lack time to do the things we love. Whereas, when we retire we have the time, but we lack the money. Money gives us FI. FI gives us time, freedom and happiness. FI gives us much more than money can give us. Unfortunately though, money is needed to get us to FI. It turns out money does buy happiness - indirectly through buying time.
HOW I STARTED PLANNING FOR FINANCIAL INDEPENDENCE
Knowing that my money will buy me time we are now saving approximately 40% of our income every year as a single income family. I went on a cost cutting spree because the results will be well worth it.
Ditched the SKY subscription
Renegotiated lower rates for annual insurance, electricity, and internet bills
Halved our food bill
Moved to a smaller house
These were the main categories. When we think of cost cutting we tend to think of deprivation, but reducing these expenses had no impact on my quality of life. In fact, I could probably argue it has improved it.
Cancelling paid TV has resulted in me doing more productive things than sitting in front of a 42” box. Such as reading, studying and volunteering.
Lower insurance, power, and internet bills only took a couple of phone calls and has caused me no hardship. I still receive the same service as always but at a lower cost.
Lower food bill was the hardest for me as I love my grub. It has had a positive affect though as I am now healthier, despite the fact I still can’t exercise. If I kept up my same diet without exercise I would have ballooned. I have also found by eating less and more healthily, I am less lethargic at work. We still eat like kings and queens, there is just not as much waste now.
Moving to a smaller house has had the biggest impact on my ability to save more money. Where we live is the single biggest expense for most people. By moving down the property ladder we were able to get a much smaller mortgage. Smaller houses also mean lower insurance, less rates (generally), less maintenance costs, less things to buy to fill the house, lower electricity bills, and less cleaning. Where we live can impact many areas of our spending, not just the house itself.
Also notice how the expenses we targeted are recurring monthly expenses? Reducing recurring expenses can have a big impact on our ability save over several years. Saving $20 per month on a new internet/phone plan may not sound like much but because this is a recurring expense, over 10 years this is $2,400 savings. Even more if we invested the money instead. Make lots of these types of minimal changes and our future self will thank us, while our present self continues on with life, unaffected.
We have continued to spend money on things that bring us value in our lives. That is the whole point of budgeting and cost cutting. To eliminate/reduce the things that don’t add much value to our life, while getting to keep the things that are most important to us. That way we are not depriving our present selves AND we get to reward our future selves with the gift of time, freedom, happiness, and money.
The key has been to cut out the excess. We have enough to make us extremely happy, and each extra dollar spent above that level does not bring us additional happiness. That is the level when our current dollars are better used for the future. Otherwise it is wasted on our current selves. We don’t need more, we only need enough.
The other way to increase our savings rate would be to increase income. I haven’t managed to pull this one off. But if I could then that, in combination with reduced expenses, would really speed up the road to FI. If we find cutting expenses too hard, this may be the strategy. Getting promotions at work or maybe starting a side business or second job.
To grow our savings faster than inflation we should invest for best results. Read my upcoming beginners guide for investing series for some practical information. When starting out though, how much we save is more important than high returns. Returns have little impact on lower investment amounts. The most important thing is just to get some skin in the game.
Pro tip: I have had great success with automating my savings and investments. Instead of spending and then investing what is left, I have set up automatic payments to invest FIRST, and then spend what is left. This removes our tendency to want to spend the money unnecessarily on excess. Just like Kiwisaver, it is out of sight out of mind.
I was blissfully living my life paycheck to paycheck with little regard for my future self. I didn’t have any debt apart from the mortgage, and I thought I was doing well. I was buckled in for a 40-year working career. I didn’t know there was an alternative.
Injuring my back was a terrible experience for sure, but in a strange way I am thankful it happened. By being immobile for such a long time it gave me moment for pause and to reflect. I highly recommend deliberately slowing your mind sometimes, as we often get caught up in such busy lives. From this time, I was able to make life changing decisions that will benefit me and my family for years to come.
With my new plan of FI by 50, I will be buying an extra 15 years of time to do as I please. I can now do some more volunteering, play with my daughter in the middle of the day, watch her grow up, travel as a family without needing permission, learn a new language, and anything else I can think of.
Using money to buy this extra time and freedom sounds much better than buying a bigger house and expensive TV subscriptions right?
It has been three years since my injury and my path to financial independence began. I have managed to save up a nice financial safety net. It has given me the confidence to start my own business and help other people gain freedom over their time. It has given me confidence to take more risks in my job. It has given me confidence to say no to unreasonable employer demands. I am not afraid of losing my job now. That is a very nice position to be in I must say. Knowing that I am not reliant on my employer. I even took off two months unpaid work after the birth of our first child.
I really can’t put a price on that.
I too hope that you can find the trigger in your life that will set you on the path to financial independence. The how is the easy part if your why is strong enough. It is the why that must keep us motivated as it is a slow journey. You won’t find any get rich quick schemes here.
Money should not be the final destination. Money is only the mode of transport that gets you to your FInal (deliberate misspelling) destination. Remember that we tend to overestimate the things we can achieve in the short term and underestimate the things we can achieve in the long term. Don’t underestimate your ability or sell yourself short.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here
What is your motivation for saving money? What tactics do you use to stay the course? Do you have plans for FI?