Why You Should Reach Financial Independence

Financial Freedom

Oh Financial Independence – our biggest long-term goal. Peter and I are in our 30s, and as more and more airline and cruise deals keep popping up, the more of the world we want to see. How will we do that if we’re employed full-time right now? Well, we can’t. Except we vowed that we will, in the future.

The thing is, we both refused to leave our jobs and just travel the world full-time and become digital nomads right now. We love our city and state too much to actually leave it for longer periods of time. So, we decided to stick it out with the Financial Independence technique (otherwise known as FI). With FI, you make the decision and the steps now but won’t reap the rewards until a few years later: some people manage to get it within 2 years, other people take as long as 20 years. What matters is what you are working your way towards a big goal by making a few sacrifices now for your future.

Sunset in Tennessee
Sunset in Tennessee

What is Financial Independence?

 

It’s the ability to earn enough passive income to cover your day to day expenses simply put. Otherwise, you can also earn more than what your basic necessities are – and basic necessities being a place to live in, food, water, electricity, mobile phone, internet, and the list goes on. You ultimately decide what your necessities are. We also want to be FI in a way that covers our travel lifestyle too, and we know there’s going to be more travel happening to us in the future, and of course more expenses, when we have children.

Why do we want to become Financially Independent?

 

We get it: having a steady stream of income is great, however we want to explore the world more and be able to live in different continents for a few months at a time before returning home to the United States to manage our businesses (once they take off and make enough for us to cover our expenses, that is), visit family, see our dog, or just decompress in our house. That is just one of the main reasons why we’re doing it. We want to make more use of our time in ways that does not constrain us. My main issue right now is seeing some of these airline sales but not being able to jump in on them because of our 9-6.

Don’t get me wrong, I am eternally grateful for my job. After all, I managed to become an expat because of it, but we can’t all work forever, can we?

So, if you want to become financially independent too, begin with WHY you want to become financially independent. In our case, we want to travel a lot, but we still want to work too – either on our businesses or remotely for somebody else. We don’t have to be financially independent to work remotely or freelance for someone else, but having more control of our time is what drives us to reach our goal if in case we don’t find remote agreements in the future. I like to side-hustle, mainly because I like to generate more income so why not do it full time?




So, the question you have to ask yourself is: Why do you want to become Financially Independent?

 

Once you find your own personalized answer to that question, then you can work on the steps on how to become financially independent. An additional idea — Peter and I are married, but we don’t have kids yet. We want to be financially independent as soon as we can to spend more time with our kids (in the future). I don’t want the hassle and the worry of constantly dropping them off at day care (and paying for it) while I am out there slaving away trying to earn more money. In theory I can stay at home with my (future) kids, but that might  just lower our income stream (not significantly as that will probably give me more time for side hustles instead of being tied to a job).

Financial Freedom
Ruby dreaming of FI at the Grand Canyon

How to become Financially Independent

So, you’ve identified the Why – now is time to go through the how. I won’t tell you exactly how to become financially independent as every scenario is different per person. However, we are sharing the steps on how we’re planning to reach financial independence.

1. Saving more than what we earn

 

Simple concept right? Everybody knows that. However, by saving more than what we earn, we can take advantage of tax deferments such as maximizing our 401k and HSA accounts as well as having an ample amount in our Vanguard funds and emergency funds. This excess fund can be used to start a business or make new investments. For the past three years, we have been travel hacking, which means we are using airline points & miles as well as hotels  points + cash back to get more travels for not a lot of money. We don’t currently have sponsors that take us on trips so we have to make do with what we have. We also *gasp* use coupons on our day to day lives like grocery shopping and utilize our local thrift store! We don’t keep up with the Joneses and frankly, we don’t need to!

2. Starting a business

 

As I read Kiyosaki’s books, I learn that employed people earn less and less the more they work. Business owners on the other hand earn more and more with systems that they develop for their business and work less and less (because they hire more people). Starting a business takes a lot of hard work: motivation and time wise. We try to treat this blog as a small business, but sadly we don’t put enough time and effort in it to make it become the success that we hope it would be. Hopefully I can motivate myself more and more to do it!

3. Investing

 

This is what I’ve been focusing on for the past two years (aside from travel hacking) – investing for our retirement. When I was younger and read Robert Kiyosaki’s Rich Dad, Poor Dad, I knew I don’t want to work forever. I want to make money work for me, and what’s the fastest way to do that? Investing. Peter and I currently invest in Vanguard mutual funds, and since I recently got localized in my current job, I can now reap the benefits of working in the US. We plan to maximize our 401k and HSA plans, which are tax deferred (while the HSA is tax free if you use it for medical expenses) – which is excellent. One of the biggest expenses we pay for during our lifetime is well, taxes, and the less tax I pay, the more I can keep in my pocket to invest for my financial future. It’s a cycle too: the more you invest, the more money works to make more money (but to be honest they’re lazy little bastards who just work very little sometimes), thanks to compounding interest.

We have also started dabbling in on Real Estate Investing. We bought our house last year because buying a house (we got a 15 year mortgage) costs less than the rent we were paying to our apartment complex. Truth. We bought in an area that we think is going to be up and coming, and so far our gamble paid off. We decided to rent our spare room out on AirBnB (we used to have roommates to save on costs), which we then turn around and put the money on additional principal for our mortgage (we’re trying to get rid of our Private Mortgage Insurance).

We also took a step further and decided to buy a rental property – using some of the money we got as wedding gifts, and also some from our savings and AirBnB earnings. The market is a bit over inflated right now, stocks wise, so we decided to diversify. We closed on the house a few weeks ago (article coming later), and now we’re looking for a tenant to hopefully stop us from paying our expenses.

Investing does get taxed too, but not as much as active income (i.e your currently employment), and you can keep putting some money in your investments and watch it grow. It’s amazing.

Required Reading Materials
Retire Young, Retire Rich is a great book if you want to learn about FI

In Summary

 

Financial Independence gives you more freedom and your time back to do as you please. Gone are the days when you have to wait for your retirement age (anywhere from 60 above) to actually stop working. For us, deferring travel plans until we’re 60+ does not really make sense as you won’t be able to enjoy as much attractions or do adrenaline filled adventures. We just don’t want to go do crazy roller coasters or hike Machu Picchu when we’re that age because we might not have the stamina to complete what we have planned. We might also not have enough time on earth to actually do what we had planned to do — as we all know, we don’t know when our time will come.

Once you start focusing on Financial Independence, the rest will follow: saving money will become easier, investing will not be too risky, and your mindset will change.

My next post will be the steps we are doing to reach financial independence. Because well, how else will we be held accountable if we don’t post it on the interwebs?

If you’ve stuck it out this long, thank you. And may the odds be ever in your favor!


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Comments

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    1. Peter Prokaj

      Thank you! Since we’re doing real estate as part of our FI goals, our conservative estimate will be between 14-20 years, depends on when we can pay our current property and the investment property.

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  2. Mr Crazy Kicks

    Great breakdown. It took us years, but we managed to reach FI by maximizing our savings rate, and taking advantage of tax deferred retirement savings accounts.

    Looks like you are well on your way, and have a great plan! Good luck on your journey 🙂

    1. Peter Prokaj

      Thank you! We’re doing a bit of the savings rate, tax deferred retirements & Real estate. We’re trying to diversify as much as we can just to cover all our bases!
      Thanks for visiting 🙂

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      Ruby Escalona

      Thank you! We’re doing the retirement accounts too so while that’s cooking in the oven and won’t be touched until we’re 60, we have other investments we’re doing that can hopefully pay for our expenses once we are retired 😀

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