If you are here, and are new to the concept of FI/RE, strap in. The goal of this entry is to cover at a very high level what Financial Independence / Early Retirement is. This is intended as a bit of a high level primer, for those of you new to the concept. It should also be said that Financial Independence and Early Retirement, are two completely different things. They definitely are in the same park, but really are playing different games.
What this is not, if you are someone who knows about FI/RE and is looking to discuss advanced concepts, then I would recommend checking out some of my next posts. Once we all have a similar vocabulary to work with, those conversations will be much more valuable.
Financial independence (FI from here on out) is the concept that you are free of the need to fill a financial burden. Let’s think about 99.9999% of all people in the world of working age. You wake up at some time because you have to get ready for work. You head to your job, whatever that may be, and then you work. According to a recent Gallup poll 70% of Americans (85% overall!) are not actively engaged in their jobs. However, job satisfaction does not change the fact they have bills to pay (rent, mortgage, cable, internet, food, kids, and the list goes on).
Unfortunately, the average american household has $5,200 in savings . This amount in savings means, if something were to happen to your job (or perhaps your significant others job, or both!) you could only afford to live while searching for a job for a very limited amount of time. This not only takes away your ability to take your time to find the right job, at the right price away, but dramatically increases stress and risk. For example, if you have 2 jobs lines up:
Job A: Offer in hand 30k/yr and moderate benefits
Job B: No response yet, 40k/yr and great benefits
You may very well be forced into taking the first one so you can put food on the table. If you were FI, you may be able to wait until the second job responds even if waiting would mean you lose the first offer.
FI is the ability to take that pressure away. Let’s consider another example. If you have a few lines of passive income, some good retirement investments, and perhaps a side hussle, and that same circumstance happens, you may very well be able to survive for years without NEEDING to find a job. That is the true meaning of FI, the ability to not have to rely on an employer to provide you with the ability to survive financially.
Early Retirement (ER, but in this contexts is normally referred to as Retire Early RE here on out) is almost the ultimate FI goal for some people. This is the ability to completely stop working and live the retired life. The most common way for this to become a reality is when your network, crosses a certain line, and you can safely withdraw (aka, SWR - Safe Withdrawal Rate) from your retirement funds without worries of running out.
RE is different to each person. I am 30, and quite honestly, I do not intend to truly RE anytime soon. I do not think I have the right mindset for it, I need something to keep me motivated and moving forward (like this blog!). There are a number of factors that need to be considered when it comes to RE, one of the more important ones being health care costs but that is for another time.
What Drives Me to FI
Personally, I am in IT/IS and who knows. Right now, I really enjoy it - I like the challenge and ever changing landscape. However, that may not always be the case. If I wanted to get into renewable energy research, I would have to take a pretty massive pay cut to do so and that makes sense, I have no experience in it. However, if I had more than enough income in passive investments to cover that gap, I become empowered to do whatever I want, even if it does not make financial sense.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.