Achieving Financial Independence With DiverseFI.com
Doc G is a personal finance blogger and medical doctor from Chicago, Illinois. On his excellent blog DiverseFI.com he writes about personal finance, achieving financial independence, as well as about big life issues such as making your dreams come true, motivation, and how to be happy.
In this episode of the Good Life Guys we discuss life in general, and specifically the thrilling topic of achieving financial independence with DiverseFI.com.
What Is Financial Independence?
Financial Independence, or FI for short, simply means having enough wealth saved and ideally intelligently invested to allow you to work when you want to and on your own terms, or even to choose not to do any paid work at all.
And it’s not as tall an order as it first sounds. Everybody can achieve FI if they spend less than they earn and save the difference. The only question is how long the journey takes…
Once a person has enough saved that they can live off 4% of the entire sum of their savings each year, then numerous studies show they will never run out of money. This is because the stock market, and therefore their intelligently invested savings, on average rises by 6% yearly. So your portfolio never runs out!
So, for example, if you can live off £20,000 a year, then you need to save £500,000 to be officially FI. If you save and invest £20,000 a year and let compound interest do its work, you will have approximately £500,000 in 15 years. Bingo!
Obviously, it’s no easy task for most people to save £20,000 a year. This is where frugality comes in. Being frugal means to be careful with your money and to not spend it on things you really don’t need.
The Joys Of Being Frugal
We live in a world in which we are being marketed to all the time. We are constantly being told that we need to spend all our money (on junk) in order to be happy, and worthy, and not a loser!
But everything we buy takes us further away from FI. A change of mindset is needed. Instead of thinking of money as a means of buying things, think of money as a means of buying freedom.
The more you can do without, the more you can save and invest. And the more you can save and invest, the quicker you can reach the glorious tipping point and become financially independent.
Even if reaching full FI seems impossible to you, it is not a binary thing. We can all become more or less financially independent.
Being up to your eyeballs in debt and desperately in need of every last penny of your next paycheck is being extremely not FI.
Having no debt, an emergency fund of 3 months living expenses in your current account, and a gradually growing investment portfolio of a few thousand quid certainly won’t allow you to never work again. But it will afford you much more freedom to work on your own terms and crucially, it will make you sleep much more soundly at night.
Frugality is a skill you learn and develop. It’s a muscle you train. Being frugal so you can save and invest more in order to be freer and happier is incredibly worthwhile.
Side Gigs And How To Be Productive
As well as being frugal, it also helps to increase your income. A great way to do this is by setting up a side gig or two.
What are you good at? What do you enjoy doing? How can you monetize your skills? There are lots of great books that tell you how to set up side gigs.
Do I Have To Be Rich To Achieve Financial Independence?
You do not need to be rich to reach Financial Independence. You need to earn enough, be frugal, avoid the hedonic treadmill, save and invest wisely, and let time work its magic. Financial Independence is a way of being. Start now!