“FI” stands for Financial Independence.
Everyone has their own definition of FI, but most people would agree that you are financially independent if your passive income is enough to cover your expenses.
That means that if your expenses are $5,000 a month, you would need $5,000 in passive income to reach financial independence.
Watch this video to learn more about FI:
There are 3 main pillars to FI:
1. Save More
If you are like most people, you will need to aggressively reduce how much you spend when you begin your journey to financial independence.
Start by creating a budget and tracking your income and expenses. Then, see what you can do to decrease your expenses.
Be as frugal as possible. If you want to reach FI quickly, you’ll need to keep as much of your money as possible. Learn how to decrease spending everywhere, including monthly bills, groceries, retail, and taxes.
You might want to read our post “How to Save Money When You’re Broke | 9 Methods” for some more ideas.
Here are some expenses that can kill your dreams of becoming FI:
Housing – The biggest expense for most people.
You want to lower your housing expenses as much as possible. For some people, that may mean moving somewhere with a lower cost of living, moving to a less expensive home, or house hacking.
Vehicles– If you have a vehicle payment that is sucking the life out of your wallet, get rid of it! Trade it in for a used car that is fuel-efficient.
Some people trying to achieve FI will even get rid of their vehicles altogether and use public transportation, if possible.
Consumer Debt– Carrying balances on credit cards, car loans, or payday loans is going to be an asset to other people, not you! Pay these off as soon as possible!
2. Earn more
Next, you need to continually work to increase your income. The amount of money you can earn is limitless. If people who make millions a year can still find ways to increase their income, you can too.
One way to increase your income is to manage your resume like it’s a business. Learn new skills and take classes that will increase your financial IQ and your value on paper.
Also, if you are applying for a new job soon, negotiate a higher salary when you are offered the job. Then, continue to negotiate as you gain value and experience.
You can also earn extra income by working overtime or by starting a side hustle. A side hustle is basically another job that you work at part-time.
Every day there are more opportunities to make money from a hobby or a side hustle.
If you are on the journey to FI than you want the widest gap possible between your spending and earnings.
What to do with the money you save and earn:
This is going to be different for everyone depending on where you are in your FI journey. Most people are either going to use it to save up an emergency fund, pay off debt, or invest.
3. Invest Wisely
If you just let your money sit in a box under your bed, you are going to lose out on money. Keep in mind that every year inflation increases. That means that every dollar you save today is going to be worth less tomorrow.
You have to invest your money and make your money work for you.
Some investments to consider:
- Tax-Advantaged retirement accounts (401k, Roth IRA, HSA, etc.)
- Stocks, Bonds, Exchange-Traded Funds (ETFs), Mutual Funds, Index Funds
- Real Estate
Invest in accounts that will benefit your future goals. Sit down with an expert that can help you decide which investments are right for you.
Is “FI” the same as “FIRE?”
If you just discovered “FI,” you will probably soon be hearing about “FIRE.” Generally speaking, “FIRE” usually stands for Financial Independence & Retire Early.
There are a massive amount of people who are trying to “FIRE.” Instead of retiring in their 50’s & 60’s, the FIRE community wants to retire in their 40’s, 30’s or even 20’s.
Everyone’s “FIRE” number is different and there are many factors to consider when coming up with the amount of money people need to retire early.
Generally, the amount of money people try to save to “FIRE” is 25x their annual expenses. For example, if you spent $50,000 a year, you will need to have a net worth of about $1,250,000 to retire early.
Retiring early is, of course, a personal choice.
Personally, we don’t know if we want to retire early yet. We once heard someone refer to FIRE as “Financially Independent & Re-evaluate Everything,” which is what we will do when we hit FI.
We just don’t know if early retirement will be for us but we will certainly consider mini-retirements. And of course, just having the option to retire early because of being FI is amazing in itself.
You see, financial independence is also a philosophy of living in addition to a number. FI allows you to have more options for your life and you can make those life choices without having to worry about financial survival.
Does financial independence sound impossible? It’s not. Family and FI was created to help you manage your money and achieve your financial goals.
We’d like to personally invite you to subscribe to our blog. Fill out the form below to join us on this amazing journey to Financial Independence!