Can I really quit my job and be financially independent?

If this is a question that has popped up on your mind and you have done some searching on the internet about this, you are probably familiar with some of the things I am about to explain. But many people don’t even ask this question because this never even occurred to them. I was one of them. I had always believed the only way to go was to work till I was 60-65 and then hope to retire. That’s what I saw my dad and every other person in my family do. Why would I ever question what I considered nature’s law? 

Let us back up a bit and first explain what we mean by being financially independent. If you have been reading my articles, you have heard me allude to this. Today, I want to break this down simply. Being financially independent means you have enough money saved within your portfolio to fund your living expenses for the rest of your life. Whoa! Having enough money saved for the rest of my life? That sounds daunting and impossible! Well, today I want to explain at a conceptual level and a framework to think about this. My idea is to help you connect the dots between all the articles I have written. 

What does it mean to be financially independent?

The below graph explains this in a basic manner. When your passive income (the blue bar) equals or exceeds the expenses (gray bar), you are now financially independent. 

A lot of people tend to be in the middle bucket (financially strong) where your traditional income from labor (meaning you exchange your time for money by working a job) is equal to or more than the expenses (gray bar) but have little to no passive income. Some of the stability is defined by having an emergency fund (the orange bar). If you are in the first situation where you are barely financially stable where your expenses are equal or even lesser than your income, you need to double down on reducing your expenses, increasing your income or both.

I was someone who was fortunate to have a high enough income to exceed my expenses but as I mentioned, I had no concept of generating passive income. The only income I knew or even considered was income from my W2 job. And to make things worse, I just put all our savings in a checking account….that generated 0.1% interest!! If you are groaning inwardly reading that, I hear you – just thinking about all that lost opportunity makes me want to kick myself! 

So how do you generate passive income?

In my article on creating wealth, I talk about this. You generate passive income by buying income producing assets. That’s it – there is really nothing more to it. I would encourage you to read that article (‘Creating long lasting wealth’) to understand the sources of passive income generated. So I won’t rehash those topics here. But needless to say, you need to take the excess of your income from your labor over your expenses (a.k.a savings)  and invest them in income producing assets so that one day, those assets will generate enough income to cover all your expenses. 

Why on earth do I care about being financially independent? 

This is where personal finance gets really personal. The reasons and motivations for becoming financially independent are personal to you. Let me explain my motivations for becoming financially independent and see if that resonates with you. 

• At the basic level, I want financial security. I don’t want to be in a position where I am let go from my job and I am struggling to make ends meet. You may tell me that’s why we have emergency funds. That is true – emergency funds help cushion these types of emergencies but my worst nightmare is to be laid off when I am in my 50s when I am struggling to find another job and I would rather not be working. For those in the corporate world, this probably sounds familiar. At that stage, I don’t want to be looking for a job because I need to make ends meet. Unfortunately, I have seen many people in this position despite earning high incomes. In short, I don’t want to be dependent on my W2 income to put food on the table and keep a roof above my head.
• Looking beyond financial security, I want to be able to choose what to do with my time. I want to be able to work only if I choose to. Does that make me sound entitled? 🙂 Not really – I want to create choices for myself so I can stay happy. Don’t get me wrong – I love my job today but will I feel the same way 5-10 years from now? What if I want to do something different that pays a lot less money? What if I just wanted to take a bunch of time off and just travel the world? 

There are many different reasons and stories out there for what drives people to become financially independent well ahead of their standard retirement age. Some of you may have heard of a growing community of people called FIRE (Financially Independent, Retire Early). This is a community of people who I have been following very closely over the last few years. They espouse 2 things – driving their expenses down with frugality and creating enough income producing assets to have passive income to cover their expenses. Most, if not all of the folks in this community don’t actually end up retiring in the true sense – they just end up doing non-traditional work that they enjoy without any worry for the income they make from it. While there is a fair amount of criticism about these folks, I tend to focus on taking away the good things from them. 

So in effect, this is a deep reflection question. For me, this was a big turning point in my life when I started asking myself, “Do I dare even believe I can become financially independent?” to a point where I was able to create a roadmap to get there. 

Financial independence is a journey

Let me first clarify that financial independence is a journey – you don’t jump from being financially stable to financially independent overnight. It’s not a linear or a step change. Depending on where you are at in your financial journey, it may take some time. Your financial habits are going to determine how easy or difficult this journey is.  

For me, I had to start with understanding how much money I need to retire? My article on how much money do I need to retire helps understand how to think about this. Then, I had to work backwards to understand how much money I would need to save to get there. I systematically worked on cutting my expenses to increase my savings (refer my article on ‘Lets Marie-kondo those expenses’), and then started thinking about what can I do to start investing the savings (refer my article series on ‘Where do I invest my money?’). With the help of my financial advisor, I have now created a roadmap that will help us move toward becoming financially independent well ahead of my turning 60, assuming no major setbacks during that time. Let me say one more thing – you hear about a lot of people who have become financially independent in their 20s and 30s and while I feel I wasted a lot of opportunity when I was that young, I certainly have no regrets that I started on this journey relatively late in my late 30s. So what I want you to know is that it’s never too late to begin on this journey. 

Some of my favorite bloggers and podcasters have chronicled and offered a framework to think about the different stages of financial independence. I encourage you to check out these links below that helps underscore that this is a journey. 

One thing I do want to say here – if you are excited by all this and want to start working toward this, but wish to see immediate results, you will be disappointed. While there may be some low hanging fruits to capture, wealth is not built overnight. It is built slow and steadily over time. The financial independence journey is definitely a marathon and not a sprint. 

• Do not get seduced by get-rich-quick schemes. Do not try and make quick money by investing in speculative and volatile assets. If you take a pragmatic approach to investing, you will make enough passive income over time. 
• Don’t go overboard on the other hand in cutting your expenses so much that you get miserable. Some of these are rooted in habits and they take time to build. Speaking from personal experience, for eg. I was a spender and I could not walk into a Target or Costco without buying at least 4-5 things that I did not really need – pure impulse purchases.It took me some time to get conscious and deliberate about not doing that. On the other hand, my wife and I had some serious conversations about what we valued and hence wanted to spend on and what we did not care about.  

Concluding comments – financial independence is not the end but a means.

Ultimately, don’t ever lose sight of the fact that financial independence is simply a tool for you to create more time and mindspace to do things that bring you joy. So don’t get so obsessed with getting financially independent that you forget what it means to enjoy your life. Or be the person who was so hyper-focused on becoming financially independent that they reached the other side and asked, “Now what?”. Without getting too philosophical here, just remember life is not about money. Having lots of money does not guarantee happiness. But not having enough money can create a lot of unhappiness. The key word here is ‘enough’. You need to decide how much is ‘enough’ and think hard about what you want to do with your time and talents. 

Thank you for reading this article. I hope this has motivated you to question your status quo and ask some reflective questions. I wish you luck on your financial journey.

Disclaimer:I am not a financial advisor and all the information in my articles are from my personal experience and are for informational and educational purposes only. Please consult with a financial advisor or CPA for professional advice.