🌻Why Financial Independence is EASIER to Reach Every Year

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9 reasons that aren’t compound interest (but also compound interest)

When I first heard of financial independence and the FIRE movement, I remember thinking: How is this FIRE movement stuff possible? If it’s so easy, why haven’t people been doing this for decades?
It never seemed tangible or possible to me. But the more I looked into it and started taking action; I quickly understood how the everyday person can achieve financial independence and retire early without major sacrifices day-to-day. I also realized
FIRE is gaining popularity every year because it’s getting easier to achieve every year.

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I found success in practice, but, more importantly, I found evidence in research. I’ll share that and more today. The facts should get you excited to get on the F.I. path because it’s easier than most people think. Plus, it will help you develop a positive relationship with earning money, saving money, and investing money

The reasons why financial independence is easier than ever to reach

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First, we must acknowledge humans have an innate desire to make progress and improve our lives. We want better lives for ourselves, our communities, and future generations. Further, in a capitalistic society, we are incentivized to create new things, solve problems, and do more with less. In doing so, we can be financially rewarded.
In recent decades we’ve enjoyed huge innovations and efficiencies, causing trade, capitalism, and technology to boom. Companies can market to more people than ever, earn more customers than ever, and thus enjoy higher profits than ever. This has led to increased wages over time.

Read also: The secret to success: it’s not what you think

Looking at my state of Washington, our minimum wage is $13.69 an hour and on track to hit $15 by 2023. 20 years ago, it was $6.72, less than half of what it is today.
Due to human innovation and incomes rising, the portion of our income used to pay for many essentials has gotten smaller over time. It has led to many smaller expenses becoming cheaper due to automation in manufacturing. Total output has increased dramatically in the last decade. That output plus innovation has pushed down costs of certain types of products — think TVs, furniture, clothing, computers, book, fast food, and more.
Transportation is most people’s second-largest line item annually, but it has never been easier to live without a car or share one with a partner. We also have excellent phone apps to help us find a nearby bus or rideshare. Some argue Ubers will even get cheaper when they are automated as self-driving cars.

Additionally, it’s easier than ever to live in a smaller space. For one thing, the size of the things we own has literally shrunk in many cases. We no longer own huge sound systems or bulky TVs. We no longer have bookshelves filled with encyclopedias and books, thanks to Kindles. It helps that minimalism, and clean aesthetics are trendy.
Don’t people find new ways to spend?
Yes, I fully recognize most Americans are good at spending money even when they can save money. Most aren’t willing to live without a car or in a smaller place. They buy a bigger house than they need. They pay for more expensive child care. They opt for higher-quality clothes. They pay for house cleaners. They send their kids to private school and so on. F.I. isn’t for them.

I’m not saying those are bad things to spend money on individually, but if you don’t focus on increasing your savings rate, reaching F.I. will not be easier despite everything I’ve explained so far. It may even feel more difficult.

Financial independence planning and a long-term perspective. Those motivated and willing to enforce willpower will find it easier to reach F.I. Not only are many smaller expenses coming down, your income ideally goes up throughout your career. If you’re able to save and invest the difference, you’ll enjoy compound returns. Speaking of…

Compound interest and emotional momentum

Let’s introduce the obvious: compound interest. Compound interest is when your invested assets earn money, then those earnings are reinvested, and it snowballs exponentially from there over time. If you commit to long-term investing in low-cost index funds and reinvesting dividends, you will make it mathematically more feasible to achieve F.I. most years.

When it comes to investment returns, momentum is everything. Beyond earnings and numbers, momentum also occurs on a human, emotional level. On the path to F.I., if you track your net worth, you will discover momentum as you see your net worth rise. It’s addicting. It’s motivating. I find myself setting more challenging goals, and I achieve more financial success, almost gamifying it.

I thought net worth zero was an amazing feat in early 2019 (I started at -$80,000 in late 2017). Then I blew past $50,000. Then I achieved 6-figures. Recently I passed $150,000. I have my sights set on a $200,000 net worth by the end of 2021. This isn’t a brag. I’m sharing to illustrate 1) The importance of tracking your net worth and 2) I’ve personally experienced it getting easier over time when the ball gets rolling. Track your net worth. It will also keep you motivated. I do this for free via Personal Capital.

If it’s not clear by now, you must invest. You cannot reach F.I. from savings alone. It’s practically impossible.

Read also: 10 must do’s if your are in financial trouble

Financial Education is Abundant

Access to education is the next reason F.I. gets easier every year. If compound interest, net worth, dividends reinvestment plans, or low-fee index funds are new terms to you, know that it’s never been easier to learn them. There’s never been more free content about the path to financial independence.
Those on the FIRE path are voracious readers and consumers of content in the FIRE space. More and more of us are content creators like myself, publishing content consistently in books, on podcasts, blogs, and YouTube (I have a channel!). That’s because we’ve discovered the magic that happens when you increase your savings rate and invest consistently.

My mantra is: Save and invest half, retire twice as fast.

There are entire conferences and camps run by money nerds dedicated to financial education. There are even celebrities in personal finance and FIRE spaces. Searches for “financial independence” have dramatically increased in the last 10 years, as has the amount of content being made. The FIRE is clearly spreading. Corny, I know, but it’s true. The community is quite large now.
Ironically, searches for “financial education” appear to be on the decline. I’d be curious to hear your theory as to why:

Passive Income
Passive income is everyone’s favorite financial topic and for good reason. It has never been easier to generate.

Technology and innovation have also made earning passive income extremely doable for anyone with access to laptops and the internet. Opportunities are endless online. The internet has truly been a game-changer for self-starting entrepreneurs or even the everyday person with an idea and willingness to see it through.

Past generations also side hustled, but that resulted in exchanging time for money. If you side hustle today and focus on creating passive income streams, you can earn a disproportionate amount of income relative to the effort put in. The sooner you realize this and take action, the sooner you reach F.I.

Passive income can dramatically take years off of your working life if you ensure that income will remain steady in retirement. With passive income, you may not need one million or two million dollars to retire. You need a steady income without having to put in consistent time. Of course, investing also contributes via the best form of passive income: dividends.

Geoarbitage

Finally, technology and the pandemic have made it easier to live in cheaper cost of living areas. Geoarbitrage is keeping your big city job and income but moving to a low cost of living area to work remotely. This can make a dramatic difference in a person’s savings rate very quickly.
Moving even an hour from the city can cut your cost of living. Moving out of the country might sound extreme, but if you commit to a low cost of the living country for 2 to 3 years and keep your big city salary, you might be able to save the equivalent of 10 to 15 years of savings back home. It’s never been easier to move to an area where everything is much cheaper — think housing, gas, parking, milk and eggs, insurance, and more.
The path to F.I. is not completely downhill
Some of you are thinking: F.I. sounds great, but it’s impossible in practice…
You’re not wrong. There are factors making it more difficult to achieve F.I. Let me address the speed-bumps.

The reality is our big-spending categories have gotten more expensive, such as health care, cars, houses, and insurance which makes up over 60% of most people’s budget.

Further, we collectively continue to up our consumption year to year. Since 1973, the size of newly built homes has increased every year, while the price per sq ft is about the same, so overall costs are up. Funny enough, household size numbers are decreasing, so simply want more and more.

However, you can learn to live with less (or rather, what used to be normal) to avoid being house poor. You can even rent. I do as a 36-year-old without shame. Again, you can also live without a car or share one.

Yeah, but… education prices are also rising. Yes, but these degrees are optional. If I knew then what I now know, I’d reconsider going to college altogether. I’d definitely not go to grad school.
If you’re already saddled with student loan debt, and I believe this is a real epidemic, I get it. That’s me too (thanks, grad school!). However, FIRE showed me the power of getting out of bad consumer debt as aggressively as possible. Then I learned about investing vs. paying off lower interest debt like student loans.

I’m not saying delay paying your student loans, but financial literacy and long-term goals can help you prioritize instead of giving up because of a debt situation. I learned the power of time in the market, and I found investing more exciting than seeing my large debt shrink at a molasses pace. I may pivot my stance, but the bigger point is financial education gives you a choice.

Finally, you could argue taxes are on the rise. True. But that’s nothing new. They always have been and likely always will be. If you’re using taxes as an excuse to not even try, well, you’re really missing out on the big picture and, again, time in the market. Also, look into tax-advantaged retirement accounts such as a Roth IRA or Traditional IRA. FIRE seekers actually aim to pay fewer taxes legally.
Financial independence is easier, but not easy…
I’m not arguing reaching financial independence is easy. I’m arguing it’s easier than it used to be, which should be motivating. There are reasons more and more people are not just dreaming of financial independence but actually achieving it. It’s because of all of these reasons:

Technological advancements
Increased salaries
Essentials have become cheaper
It’s easy to live without a car
You can live in a smaller space
Compound interest
Net worth tracking leads to mental motivation
F.I. education is abundant
Passive income opportunities
Geoarbitrage

If you’re intrigued by the financial independence, retire early movement, I’m here to say it’s more doable than you think. It’s never been easier. Combine all of the above with buy and hold long-term tax-advantaged FIRE movement investing strategies… and achieve magic. Once you get on the path, it’s nearly impossible to fail.
I’ve covered all of these strategies and a lot more on my YouTube channel in the past. I have dozens of financial independence videos you can watch via this FIRE playlist.
For those of you that are eager to disagree with anything specific or vent about why it’s impossible, I welcome that. But, I also challenge you to focus on the good and positive in the movement and the opportunities that we have. It’s not a cult. It’s a beacon of hope for many.

We’re pretty lucky to live in this day and age when you really think about it. I’m grateful for today. And excited about a financially independent tomorrow. For me… and for you.

CONTRIBUTED BY Frankie Calkins

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