Today’s post is by DJ. You can read more about him after the post.
Whenever a casual acquaintance asks me a question about my 401(k), investing, or pretty much anything having to do with money, it becomes pretty clear, very quickly that I have a lot of experience in this area.
Sometimes they’ll ask: “How did you learn so much about money?”
I like to tell them simply “It’s my hobby”.
Financial Independence As A Hobby
To be more specific, making “money” your hobby is not always about gaining as much of it as you possibly can. That would be hoarding. Instead, there’s a more fundamental and fulfilling goal at work here: The act of one day becoming completely financially independent.
This is has been, in my opinion, one of the best hobbies I can pursue. It’s something that will not only enrich my own life, but also those around me and possibly those for generations to come.
“But how can this be a hobby?” you might ask.
Consider for a moment about what a hobby really is. Hobbies are the things we do to fill our time. They are something that we enjoy and get some sense of satisfaction from.
Some hobbies don’t do much to enhance our lives. Like the time I’ve mastered the video game “Street Fighter II” in middle school. Or like other times when I get caught out in a binge-watching vortex of some TV show season on Netflix.
Other hobbies can have a tremendous amount of positive influence on our lives.
- An athlete who perfects his body and improves his health.
- An author who writes a book.
- A student who goes on to achieve a degree or eventually a doctorate.
I put the pursuit of financial freedom in this category because of all the great things that can come from it.
What sort of benefits?
Making Employment Income Irrelevant
For starters, there’s the eventual possibility that your employment income will become irrelevant. Rather than be tied to a job because you absolutely need the money to pay your bills and live, all of that will go by the side once you’re financially independent. From then on, you’ll work on only the things you want to work on.
How is that possible?
It’s thanks to the way that retirement planning works. You’ll be able to theoretically live out the rest of your life using the passive income that is generated from your nest egg. Those monetary withdrawals will constantly replenish themselves with the gains you make every year from your investments.
You’ll create the ultimate money-making machine to which you will be the direct beneficiary of its output.
Puts You In Control
The pursuit of financial freedom is also something that is that YOU can control. Not anyone else.
No one can take this endeavor away from you. It’s not a project that can be assigned to someone else, and it’s not something you can be deemed unqualified for. Anyone can do it!
You Decide How to Get There
Much like how a person who chooses to lose weight will eat differently and exercise more, how you decide to pursue financial freedom is completely up to you.
They are many roads that will get you there. It’s up to you to select which one is the best fit for you, your lifestyle, and what you’re willing to do to get there.
Exercise Your Creativity
We tend to think of only artists and dreamers as being the creative types. But make no mistake – reaching financial independence can also demonstrate a great degree of ability to be creative.
It’s all too easy to follow the worn-out wagon-wheel paths of daily life. To really make a difference with your money, you have to know you have to be willing to do things differently. You have to THINK differently.
That takes commitment and discipline. That takes thinking outside of the box. That takes trial and error to find out what worked and what did not.
There is a definite “art” to be coming independently wealthy.
The Chance to Succeed
Many of us do not find the fulfillment and sense of conquest that we inherently are looking for in our daily jobs. We get passed up for projects that we wanted to pursue, or left in the shadows when it comes time for a promotion.
Improving your financial success is a position that anyone can apply for. There are literally millions of openings! The only barriers to success are those that you create yourself. Remove them, and nothing will stand in your way.
How Do I Become Financially Independent?
The simple answer is that you may be closer to achieving financial freedom than you think.
The Simple Math
For example, if you think it takes a couple of million dollars to get there, then this is the first misconception.
The simple math to financial freedom is that you really only need about 25 times the amount you plan to live off of every year. Save up this amount, and there’s a good chance you could be set for life!
However, it doesn’t have to end there. Like many interesting topics, there is more to gain out of the pursuit of financial independence the deeper you are willing to go. These are valuable bits tricks that you can use to optimize your plan and help you get there sooner.
The Safe Withdrawal Rate
For example, that 25 times projection that we just mentioned comes from something called the 4 Percent Rule safe withdrawal rate. This is the notion that a retiree can make a 4 percent withdrawal based on the initial portfolio value every year for the next 30 years with inflation adjustments with a high degree of success.
However, as I’ve come to learn from many great financial gurus, there are many ways that you can go about improving upon the strategy to safely use an even higher safe withdrawal rate. That means being able to do more with less, which again then gets us closer to our goal.
Refining Your Target
On top of perfecting your withdrawal strategy, deciding how much it is that you will need in order to cover your living expenses that could have a big influence. Keep in mind that this number could be vastly different from how much money they’re currently earning right now.
There are a number of early retirement bloggers who write about exciting and fulfilling lives living off of less than $40,000 per year. While that number may or may not work for you, the important thing to understand are the implications of your decision. Every extra $10,000 that you think you’ll need in order to achieve financial freedom means saving up an extra $250,000 more in your nest egg.
Is all that extra effort to save up a quarter of a million dollars really worth the price of your freedom? It’s a very important question to ask yourself.
You can find out a lot more about these topics along with a ton of other useful tips inside my latest book “Early Retirement Solutions: How Much Money Do I Really Need to Retire & Achieve Financial Independence?”, available both in ebook and print formats. Please feel free to check it out along with my other books on my author page at Amazon.
What does building financial what does the pursuit of financial independence mean to you? Aside from the pure monetary gain, what do you get out of it, and what do you feel you are building towards?
About the author: DJ is the guy behind the early retirement blog My Money Design.com. He is also building up his latest endeavor 1000 Ways to Save.com, a website that is devoted to individually coming up with over one thousand easy and creative ways that we can all save more money towards our goals. Feel free to connect with him at either of the sites.