Before I learned about financial independence, I was drifting. I didn’t know what I wanted out of life, and I didn’t think it was worth trying to figure it out.
When I graduated from college, I had unconventional dreams. I wanted to travel the world, do international development work, and help people achieve economic mobility. A few years into my career, I no longer believed that my big goals were possible.
I didn’t feel like I was qualified to do any of this, and I could barely make enough money doing it.
I graduated in 2009 into a period of economic downturn. Jobs were scarce. It was all I could do to find any job – let alone a job that would allow me to have an impact in the world I had hoped for.
I suppose my first couple of years in the workforce were “unconventional.” I did street canvassing for a charity in New York City for a year. This meant I was outside all day in the rain, snow, and heat trying to get random people to donate.
Then, I did a year-long AmeriCorps program in Newark, NJ. During this program, I worked in a nonprofit and received a living stipend. The stipend was 105% of the poverty rate for my county, which came out to about $11,000/year before taxes.
Once I finally landed a real job in a nonprofit organization, my perspective had shifted. I was no longer going after my dreams. Working in a nonprofit was the closest I’d ever get to them.
After this, my life became a conventional story. I worked 40+ hours/week and was always chasing the next promotion. This is what I was supposed to do, I reasoned. I never wanted to be in the same financial situation as we were in 2010.
Yes, I was working toward a cause. Yet, the recognition and extra income from the next promotion was the drug that kept me going.
I got to a point where I was working 50+ hours/week consistently in a toxic work environment. I was also commuting 45 minutes each way. I was completely exhausted, and I had disillusioned myself into thinking that it wasn’t so bad. Nobody really liked their work, did they? This was fine… for a job.
Hindsight is 20/20. Looking back, I see how bad it actually was. I started to experience burnout and severe anxiety from intense work demands. I became depressed. It was painful to realize how far off I had gotten from what I actually wanted out of life. It was even more depressing that I didn’t believe any of it was possible.
I didn’t know who I was anymore. I didn’t know what I wanted, and I didn’t believe it was possible to get there.
Financial Independence Re-Introduced Me to My Goals and Dreams
When I first learned about financial independence, I thought it would be the answer to all my problems.
I was burned out and exhausted. I had no idea what I wanted to do. I had a hard time answering this basic question from Your Money or Your Life, “What would you do if you didn’t need to work for a living?”
I was so burned out that all I wanted to do was take a break and sleep for a year. I also realized that it took a lot of mental energy to think about it because it was painful. It showed me how far away I’d strayed from what I actually wanted out of life.
Once I got past some of the pain and exhaustion, I was able to start thinking about what I wanted. I still couldn’t fathom wanting to do anything where I’d need to make an income. Maybe once I was no longer burned out, I would want to volunteer or learn advanced photography.
Financial freedom felt like it was all or nothing. I was either financially independent, or I wasn’t.
I thought the only path was to stay in traditional employment for the next 10 years until I could retire. Then, I could do the things I wanted.
Financial Freedom isn’t All or Nothing
In the summer of 2018, I began to have severe anxiety and panic attacks. It wasn’t until we started looking at the specifics of our situation that I realized financial freedom is incremental.
I knew that we had always prioritized saving, even when we were only able to save a small amount. We lived within our means. We did everything we could to not take on debt, even for undergraduate and graduate school. I know we were doing “well” financially, but I wasn’t really sure what that meant. It all still felt like monopoly money to me.
I was faced with two scenarios:
- I could quit my job, take time off, and find another job after I had improved.
- I could take a leave of absence and apply for disability insurance through my employer.
By looking at our financial situation with new eyes, I realized two important things.
- We had 9 months of expenses saved in our emergency fund. This meant that we could both quit (or lose) or jobs, and we would be able to cover our expenses for almost a year without digging into our investments. This was unlikely to happen because Corey enjoys (and is quite good at) his job.
- We were already saving about 50% of our income. This meant that I could quit my job, and we could live on Corey’s income indefinitely until I was ready to go back to work. We wouldn’t be adding more to savings, but we wouldn’t actually be drawing out of our emergency funds or investments either.
Because of my early career experiences, I lived with a scarcity mindset. Having this level of financial security was unfathomable to me until I sat down and put numbers and timeframes to it.
Ultimately, I decided not to quit. While I could quit, I decided to make use of the disability benefit provided by my employer. I took 6 months off of work and received 60% of my salary from disability insurance. This allowed us to continue working toward our financial goals and have no money stress while I was recovering.
I wish I hadn’t gone through this experience of burnout. At the same time, I am happy that it opened my eyes to our financial situation and the ways that money can provide freedom before FI.
While unpleasant, I learned a lot from the situation. I learned that I could use my financial freedom to make my life better now. I didn’t need to wait until I reached full financial independence.
Stages of Financial Freedom
Armed with this new realization, I spent a lot of time learning about different ways people are using financial freedom in their lives now. From these countless stories, I’ve realized that there are 5 common stages of financial freedom.
1. Debt Freedom
People define debt freedom in different ways. I define debt freedom as having no debt beyond a mortgage payment. Our monthly mortgage payment is lower than what we’d previously paid in rent (and it has a low-interest rate). So, we have decided to not focus on paying it down quickly.
Debt could include student loans, medical debt, credit card debt, etc.
The great thing about being free from debt is that it can dramatically reduce your monthly expenses. In 2017, we became debt-free beyond our mortgage. We had a loan that we used toward our down payment for our condo. When we became debt-free from this loan, we reduced our costs by about $9,000 per year.
When you don’t need to reserve a certain amount of money each month to pay down debt, you don’t need as much money to live on. More money can then be funneled to savings, or you can choose to make a lower income.
2. F-You Money
F-you money is when you have enough cash on hand in an emergency fund or liquid investments to:
- Allow you to walk away from a toxic situation (job, relationship, living situation, etc.), or
- Give you the confidence to go after or ask for what you want
F-you money can allow you to walk away from a toxic work environment or an abusive relationship. It can allow you to negotiate for flexibility or take the risk to become an entrepreneur.
The important thing to know about f-you money is that it must be combined with a feeling of freedom. If you don’t understand your financial situation and how much freedom it can provide, you will never feel like you have f-you money.
This was true for me. I needed to understand what having an emergency fund and a high savings rate meant for our lives.
Only then did I start to feel the power that f-you money can provide.
3. Coast FI
Coast FI is when you have enough invested for a comfortable traditional retirement if you don’t touch it until then.
When someone reaches coast FI, this means that they only need to cover their actual costs of living until they retire.
When you reach Coast FI is based on your age and the amount of money that you expect to need in retirement. The amount of money you need to have invested to be coast FI is actually much lower than I would assume.
For example, you know a 30-year old who spends $40,000/year who would like to retire at 60. This person only needs about $160,000 invested at the age of 30 to be considered Coast FI. That means they could find a job they enjoy or reduce their hours because they would only need to make $40,000/year.
Obviously, these numbers differ depending on your age and your time horizon.
If you would like to understand your own Coast FI number, sign-up for our newsletter to receive your free FI Milestones Calculator.
Corey and I reached Coast FI in 2019. We haven’t scaled back to cover only our costs of living since we would like to reach FI and have the ability to retire early in our 50s. Reaching coast FI allowed us to start making shifts. I started working part-time (3 days/week). This allows me to focus on my health, passion projects and having a balanced life.
Corey could also scale back work at this point if he’d like to. He currently enjoys his work and wants to keep working full-time for the foreseeable future. We aren’t yet taking advantage of the full benefits that coast FI can offer.
After reaching Coast FI, you can also continue to build up your investments, like we are doing. This could allow you to live a semi-retired lifestyle. We define semi-retirement as a period where someone only needs to cover part of their cost of living with active income.
Let’s talk this through with an example. Let’s say someone has $1,000,000 in their investment accounts. This would allow them to draw down $35,000-$40,000/year without depleting their assets. If their total expenses were $50,000/year, they could choose to supplement their investment income with $10,000-$15,000 of active income. They would likely want to earn a bit more than this so that they don’t need to withdraw a full 3.5-4%. This would allow their portfolio to continue growing so that it could cover their full expenses in the future.
Someone could fairly easily generate $10,000-$15,000 per year through a side hustle, walking dogs, or doing a fun part-time job.
We’d love to be semi-retired someday. We’d love to run our own business and have it cover our full expenses while we are coast FI. If we could scale back later and live a semi-retired lifestyle, that would be ideal.
5. Full Financial Independence
This is when passive income from investments can completely cover your cost of living. At this point, you can choose to retire and no longer work for income.
We eventually want to reach full financial independence so that we no longer need to work for money. I’d like to reach FI by our 50s because there are so many unknowns later in life.
If we kept our life (and savings rate) the same as it is right now, we could reach full financial independence in 8 years. It’s unlikely that we won’t make changes to our lifestyle between now and then. We aren’t racing to the finish line since we enjoy our current lives now.
Lifestyle Design Options Available at Different Stages of Financial Freedom
There are so many lifestyle design options that are available to us along our journeys to financial independence.
Let’s talk through the options at each stage. Within each stage, I will share the options available. Please note that each option discussed is also available at the later stages. Depending on your situation, some of the options might also be available earlier as well.
1. Debt Freedom
Once you become debt-free, there are so many options available to you.
- You can find a job that you’d enjoy more.
- You can more confidently negotiate flexibility at work, such as working from home.
- You could also decide to quit a side hustle. If you had a side hustle that was helping you pay back debt, you could choose to quit when you no longer needed the income.
2. F-You Money
Once you have a certain level of savings, there are many more options available to you.
- You could take a mini-retirement or a career break.
- You could transition to entrepreneurship, self-employment, or freelance work.
- You have more freedom to pursue creative endeavors that could have a more irregular income. If you have a buffer you can sustain both a windfall and a draught for periods of time.
- You could become a digital nomad. Remote work, self-employment, and entrepreneurship all support this lifestyle.
3. Coast FI
Being Coast FI can provide you with even more options. At coast FI, you could decide to reduce your income to only cover your expenses. This could allow you to work part-time like I do. It could also allow you to work for only a part of the year.
My favorite example of someone who is Coast FI is Michelle who writes the blog Frugality and Freedom. For the last several years, Michelle has worked for part of the year and she travels the rest of the time.
Being semi-retired provides you with even more options. At this point, you can scale back work even more and spend time doing only the things you enjoy.
For example, I have a friend who I met at my Choose FI local group who is planning out her semi-retired lifestyle. She has enough investments that she could cover her entire lifestyle except for $10,000/year. She is toying with ideas such as walking dogs for 5 hours/week or doing some other consulting work or side hustles. This would enable her to spend the vast majority of time doing things she loves, like hiking, skiing, and making an impact on the world around her.
5. Full Financial Independence
When you reach full financial independence, you have the option to retire and never make another dollar. Surprisingly, this is the only lifestyle design option that is not available in any other stage.
Most people, including my younger self, assume that you need to be FI before you can do many of these other things (nomadic travel, work part-time, start a business, etc.). This just isn’t the case.
If you want to read more stories of people living their best lives before FI, check out our Slow FI interview series.
Why You Should Design Your Life Before Financial Independence
There are many people who have gone down this financial independence path before us. I want to make sure I listen to the wisdom that these people want to pass on to us.
Here is what she told me, “I’d go more slowly and use all my vacation time. I would say yes to once-in-a-lifetime trips we could have afforded but skipped to meet aggressive savings goals. Everyone pursuing early retirement seems to understand that time is in limited supply. But, we sometimes act as though only future time is precious and current time can be squandered in the interest of saving.”
Carl, who writes at 1500 Days, calls his approach to achieve to FI a “death march” and urges his audience to take a slower path.
Robert, the writer behind Stop Ironing Shirts, reached financial independence in 2019. He wishes that he’s slowed down his career to focus on his lifestyle when he’d reached Coast FI. He now recommends his readers to take a more balanced approach.
Joel, who writes at Financial 180, retired early in 2017. After 16 months, he decided to go back to work. When he wrote about that decision he said, “It wasn’t ‘work‘ I hated with a passion. It was lack of a work-life balance. It was mandatory unpaid overtime. It was the lack of control I had over my time and stress levels. I didn’t hate work in general; I hated my specific job… I should have quit sooner.”
There are many lessons we can learn from the wisdom of those who have gone before us:
- We will never get our lives back exactly as they are today. I will never be 32 again. If you have kids, they will grow up fast and they will never be the same age as they are again. The situations of our friends and family may change. We need to live every moment to the fullest, so we don’t miss it.
- Our lives are not guaranteed. Imagine spending 10 years pushing hard toward financial independence. During this time, you let important things in your life (family, friendships, mental health, etc.) suffer. What if you were then diagnosed with a terminal illness? You wouldn’t be able to enjoy the fruits of your earlier labor. Would you have regrets? We don’t know what our future holds, so it’s important to balance saving for the future with living a full life today.
- For most people (after getting past burnout), their ideal lives include meaningful work. After decompressing from burnout, many early retirees realize that work is part of their ideal life. Some go back to work for employers. Some do work for themselves. Many continue to make an income. If I could make an income doing things I enjoy, I’d regret not transitioning sooner.
These are only a few of the reasons why we should design our lives while we are pursuing financial independence. Don’t wait until you’ve reached FI to figure out what you want.
You Can Both Pursue FI and Live a Fulfilling Life
The most amazing about saving money toward financial independence isn’t that we then can use the money to retire early. Instead, we can use the financial freedom we gain along the way to live happier and healthier lives, do better work, and build strong relationships.
Some people believe that saving for the future keeps you from living an awesome life now. In reality, it’s the opposite. Saving for the future is what allows me to live an awesome life in the present.
To Live a Fulfilling Life, You Need to Know What You Want
A big thing that holds a lot of people back from living a fulfilling life is that they don’t know what they want. Don’t wait until you have reached FI to do the work to figure it out!
If you do, you might miss out on opportunities to live your ideal life along the journey.
Over the last two years, I’ve gone through a path of discovery to figure out the core things I want from life. They are:
- Location Independence. I want a home base, but I also want to have the ability to travel for months at a time.
- Teaching/Mentoring – I’m a learner at heart. My learning process isn’t complete until I can share what I’ve learned with others. This brings me a lot of fulfillment.
- Balance – I want to ensure that I focus on staying mentally healthy, have time to relax, and build strong relationships.
- Creativity – I want to have the time and energy to focus on creative outlets like writing.
After a lot of reflection, I realized that I do not need to be financially independent to incorporate any of these into my life. In fact, I have three of them already.
Because I have reached Coast FI, I work part-time in a nonprofit. This allows me to have the balance that I want to stay mentally healthy and build strong relationships. It also provides me time for creative endeavors, like this blog. I also have the opportunity to share things I’ve learned through my blog, my coaching business, and my day job.
The only goal I haven’t yet reached is location independence. I don’t need to reach financial independence before I can achieve location independence. I am working to build up my own online business that I can do from anywhere. Another option I have is to negotiate a super flexible work arrangement. This might allow me to have longer stretches of time off to allow for extended travel.
How to Design Your Life: What Do You Want Out of Life?
Knowing what you want doesn’t happen overnight. For me, it was a 2-year process of reflection and exposing myself to new people, ideas and lifestyles. I’m sure my vision will also continue to evolve as I experiment and learn more about what I want.
If you are struggling to figure out what you want, I’d encourage you to download my free guide: Top 6 Questions to Figure out What You Want. I’d encourage you to use these as journal prompts and/or use them as a discussion starter with your partner or a trusted friend.
I’d love to hear from you! Where are you on the financial independence continuum? How could you live the life you want along the way to FI?