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How to Achieve Financial Independence Without Retiring Early

ACHIEVING FINANCIAL freedom doesn’t have to be a goal reserved for extreme personal finance obsessives.

Instead, individuals can use this financial concept as motivation to boost savings, reduce spending and create a financial safety net.

Financial independence is often associated with the FIRE movement, which stands for financial independence, retire early. In this movement, practitioners save and invest with the goal of quitting their jobs and careers well ahead of traditional retirement age. But even if you don’t want to quit full-time employment or adhere to the more rigorous frugal- and investing-related practices of FIRE, you can still learn some solid financial habits.

Specifically, achieving financial independence can protect individuals against unexpected layoffs or give them the option to scale back on work and care for family, among other benefits.

“It’s not necessarily about retiring early,” says Shawn Okumura, certified financial planner and firm principal at Transitions Wealth Advisors in San Jose, California. “It’s about having financial choices.” For example, Okumura says, financial independence can give his clients the opportunity to step away from a stressful, high-paying job or ease into consulting work instead of the 9-to-5 grind.

Define Financial Independence for Yourself

What does it mean to be financially independent? It depends whom you ask.

Some FIRE practitioners define financial freedom numerically with what’s called the “25x rule.” Essentially, you’ve reached financial independence once you’ve squirreled away 25 times your annual expenses. For example, if you spend $50,000 per year, you’ll need $1.25 million saved in a retirement account to be financially independent, according to this logic. The lower your annual expenses are, the less you’ll need saved to be financially self-sufficient. Related is the “4 percent rule,” a guideline that shows that drawing down 4 percent from your retirement account can help extend your savings throughout your lifetime. (Some early retirement advocates suggest paring these benchmarks with reduced spending or even a side hustle.)

But for others, the definition is less numbers-based. “The goal should be aligning your time and your money with what you like and what you value,” says Roger Ma, certified financial planner and founder of lifelaidout in New York City. “That doesn’t necessarily mean you need to accumulate 25 times your annual (spending) to do what you want to do.”

Consider Spending

One way to approach financial independence is by aligning it with your spending habits. You can focus on spending money on what you value, says Jon Luskin, fee-only certified financial planner at Define Financial, a San Diego-based firm that works with retirees.

For some, reaching financial independence may involve having sufficient funds to spend on what is important to them – such as travel and exercise classes – while not spending on what doesn’t bring happiness – for example, a car payment and mortgage.

“I like the aspect of questioning your expenses and asking yourself, ‘Is this bringing value to me, or does this spending align with my values?’” Ma says.

If you are considering the idea of tamping down spending in order to reach a level of financial independence, track your spending and audit your expenses to see which are worthwhile and which you can nix. Okumura recommends testing out any extreme frugal lifestyle before making permanent decisions about your employment or financial life. “If you think you’re going to spend $X amount per month (in retirement), great,” he says. “Live on that for next six months, and see if you can hold to that.”[ 

Be Flexible

While it would be nice to hit a certain retirement savings goal, spending reduction milestone or lifestyle change to suddenly become financially independent, experts note that financial freedom can be a moving target.

After all, a major change to the tax code, a stock market downturn or an unexpected illness could upend the careful planning you’ve done, especially if you’re planning to draw down your investments. Your goals may change as your family grows, your spouse or partner shares his or her own financial goals or your career shifts over time.

Keep in mind that financial independence can mean different things to you over the course of your life, and it’s OK if the definition changes. The good thing to take away from the FIRE movement is that saving, investing and reducing spending early in life can have a powerful impact on your financial health in the future. Says Okumura: “The younger, the earlier people start planning, the better they’ll be in the long term.”

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