Ready to declare financial independence?

When will you declare your independence? Your financial independence, that is.

What is financial independence?

Ah, financial independence — the freedom to work only if and when you want to (because you no longer need the paycheck you earn from your job).

Even typing the word “freedom” makes me sit up a little straighter.

I am sure you can think of amazing things to do when you no longer need to punch a clock.

Still want to punch a clock? Think how rewarding you will find your job if you want to work but don't have to.

How can you become financially independent … more quickly?

  • Spend a lot less than you make and invest the difference in something
  • Earn more at your traditional job, keep your expenses low and invest the difference in something
  • Work more hours at your day job or side job and invest the difference in something

See the common thread there? No matter how you do it, you need to widen the gap between what you make and what you spend — and then leverage that gap so it explodes into something more.

Review the basics of personal finance

If you are reading this personal finance site, I assume you know how to spend less than you make (also known as cutting your expenses). But just in case you need to sharpen your personal finance skills (and I know I do!), here are a few ideas:

Improve your financial situation

In just 30 days, you can cut your monthly expenses and improve your overall financial situation. But once you slash your expenses as much as they can be slashed, it is time to look elsewhere. That gap is just begging to be widened. So?

  • Earn more. Earn more at your day job. By asking for a raise, you can increase your income without ostensibly increasing your hours or your responsibilities.
  • Get promoted. And of course, you can always try for a promotion. You can also work more hours, if possible, at your current day job.
  • Get a second job. Or you can always pick up a second job, even just a few hours a week.

If I were playing a record for you, this is where I would drag the needle to stop. Music over. Let's talk.

The problem with spend less, earn more, work more

Once you have widened the gap as much as you possibly can, you are probably doing something really smart with the extra money. But what if your attempts to pay off debt or build savings or whatever have totally burned you out?

You worked 60 hours a week instead of 40. Or you picked up extra stressful responsibilities (along with the extra moolah) in your paycheck. Or maybe, you just really miss your weekly dinner out.

Whatever the reason, you're working as hard as you can and financial independence is still out of reach. You're tired.

What if you could do something different to widen that gap? Something that puts your efforts on steroids? Something that ignores the relationship between hours spent and money earned?

Scalable income — six sources for sustainability

In order to maximize your income-earning potential, find a way to earn money that is independent of the hours you put in.

Why? When you only have 168 hours per week, you can't work all those hours. You can't even work half of those hours sustainably.

What do I mean? Here are some examples:

  1. Rental properties. When you use your gap to build savings for a down payment on a rental property, you can earn the same amount of money from rent, no matter how many hours you put in each month.
  2. Income from investments. Investments take some time to build up before giving you significant monthly, scalable income — but this income source is the most hands-off method I can think of.
  3. Laundromats or vending machines. In addition to rental properties, you could own laundromats or vending machines. While not completely hands-off, they do earn money for you even when you aren't present.
  4. Royalties from inventing something. While most of us don't think of ourselves as inventors, maybe more of us should be. My very hard-working-but-otherwise-ordinary brother-in-law owns a spray-foam insulation business. He noticed that a modification to an existing tool would improve their product. After meeting with a local tool-and-die maker, he now has a product that he ships all over the world. Is there a similar need in your area of expertise?
  5. Royalties from selling something. The Internet has leveled the playing field for many things. Can you leverage your current experience to create online courses, e-books, or how-to guides to help others learn what you already know?
  6. A business you own but don't run. After you have established a business and have found a great manager, you may be able to step back from the day-to-day operations of running the business yourself. This, again, scales your efforts.

The pros and cons of scalable ways to earn money

All the ideas I have mentioned so far take time. This is Get Rich Slowly, after all. If this were easy, everyone would be doing it. But here's what I see as the pros and cons of investing time to build scalable sources of income.

Pros of Investing Time

  • Investing time up front can pay big dividends later
  • Allows you to be paid independent (or somewhat independent) of the time you put in

Cons of Investing Time

  • Investing time up front takes, well, time before you earn big dividends later
  • Acquiring the skills (whether it's through your day job, current business, or taking classes and doing research) also takes time

Your first steps to financial independence

So all of these activities still take time, but all journeys start with the first step. What is the first step in your journey to financial independence? Here are some ideas…

  • Pay off consumer debt first
  • Build your savings account
  • Research your method(s) of achieving financial independence

Continue the journey

Once you've determined the path to take, it is time to take action. You may fail, but you may also succeed. Always measure your actions and estimate your return on investment when working to determine whether these actions will help meet your goal of financial independence.

Years ago, I read something that stuck with me:

We overestimate what we can accomplish in one year and underestimate what we can accomplish in 10 years.

Where do you want to be in 10 years? If you want to be financially independent, even if you aren't there yet, you can almost certainly be well on your way to your goal. Just get started.

If financial independence is one of your goals, are you trying to scale your income using one of the methods above? How far do you have to go to reach financial independence, and how do you avoid burnout?

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lmoot
lmoot
5 years ago

I am definitely aiming to go the long-term rental property route. For several reasons: – Potential to earn me additional income now – Potential to earn me a decent return later (when selling) – I enjoy it. It’s fun, engaging, and it provides lots of hands-on learning opportunities. Which I crave. Of course I want financial independence, but it’s not the overall goal for me. I want to live a happy and fulfilling life in the present, and I try to make decisions along the way that that increases my chance of becoming financially independent in the future. I won’t… Read more »

Whitney
Whitney
5 years ago

I think most people would take a pay cut for financial freedom. Being able to control your workload is an amazing thing

Will @ Phroogal
Will @ Phroogal
5 years ago

I bike to work each day. I gotta say, it’s one of the best things I’ve ever done for my well-being. I’m in better physical, financial, and mental shape. It’s definitely helping me plan for early retirement!

Bryan@ Just One More Year
[email protected] Just One More Year
5 years ago

I have the same definition for financial independence: “the freedom to work only if and when you want to (because you no longer need the paycheck you earn from your job)”. Also, the freedom to find what my true work is and pursue that dream. My approach to scale my income has been multi-faceted and a work in progress for years. I see my independence relying on rental income at first with a mixture of savings. Then we will draw on some IRA and 401k accounts which will lead to a couple small pension funds. Finally sometime between 67 and… Read more »

lmoot
lmoot
5 years ago

Awesome! You’re my idol 🙂

Dave
Dave
5 years ago

Another idea for saving (serious) cash: ditch your smartphone! Seriously – ‘dumb’ phone plans can run as low as $39/mo (and these still include free minutes and texts).

lmoot
lmoot
5 years ago
Reply to  Dave

And they tend to last longer than a lot of smartphone models, mostly due to non-touch tech(which isn’t very last longing) and replaceable batteries etc. Also, when you lose or break it, you lose a camera, GPS and computer. You’re more tempted to purchase apps you “need”. I prefer to have decent quality of each of those items seperately, versus having to sacrifice one for the other in a packaged smartphone where you don’t really get to choose what camera or GPS or computer you get. Seperately they last longer, and if one goes kaput I only have to shell… Read more »

Jeff
Jeff
5 years ago
Reply to  lmoot

Whenever someone makes fun of my flip-phone I ask them what their bill is and then chuckle that I pay half to a third of what they pay. Besides I HATE touchscreens and rarely would having internet on my phone come in useful anyway considering how much of the day I spend near a desktop computer.

Dave
Dave
5 years ago
Reply to  Jeff

Jeff – I do the exact same thing. Frugal minds think alike, right?

Jen from Boston
Jen from Boston
5 years ago
Reply to  lmoot

“Like blackmail fodder worthy.:

Sounds like you have an extra income stream 😉

BD
BD
5 years ago
Reply to  Dave

I pay $30 a month for my “dumb” phone…9 dollars less than your estimate. So yes, “dumb” phones are definitely worth it. If I want to access the internet, I’ll use my computer, not my phone.

Dianecy
Dianecy
5 years ago
Reply to  BD

Don’t be too hasty to slam smartphones. We pay $101/month including tax for FOUR smartphones with unlimited talk, text and data. When I compare, I find that just the tax on most plans more than covers the cost of purchasing the phones. My family uses three of the smartphones and the fourth was sent to a dear friend who is struggling financially. The peace of mind we are able to provide for her is priceless, but cost us very little. Our bill actually went down a couple of bucks a month when we added the fourth line. All we had… Read more »

lmoot
lmoot
5 years ago
Reply to  Dianecy

I can definitely see the value of smartphones when you can share a plan. Plenty of friends who try to convert me by saying their plan only costs x amount per month, but then immediately admit that it’s only because they are sharing it with their family. Well, my entire family doesn’t use smartphones (and barely any cell phone except for emergencies), and I’m single, so I’m SOL on that front. I would question the value however since even people who would prefer to keep their smartphones past the 2 year contract plan may not have the option due to… Read more »

Jeff
Jeff
5 years ago
Reply to  Dianecy

Family plans are nice if you have a family that can all agree on the same provider, if you’re single you’ll easily pay over $100 just on your own dataplan. As for other providers, I’ve found that many of those smaller one don’t worth a damn once you get outside the suburbs or even outside the limits of a major metropolis. That’s fine if you never leave the city but if you travel frequently enough you’ll need one of the big guys with the huge network. Slam Verizon all you want for their flaws but network is not one of… Read more »

Vanessa
Vanessa
5 years ago
Reply to  Dave

My current prepaid plan is 1000 minutes for $100 that are good for a year. But everyone texts (and assumes that every else texts) so I’m going to have to “upgrade” to more expensive prepaid plan with unlimited minutes/texts. Texting will be much easier on a smartphone. I’m researching used iPhones on eBay.

Em
Em
5 years ago
Reply to  Vanessa

My smart phone plan is unlimited everything and under $30/mo. It uses wifi when I’m connected. Republic Wireless is who I have but there are others.

Vanessa
Vanessa
5 years ago

“I am sure you can think of amazing things to do when you no longer need to punch a clock.”

Actually, I can’t. I have no spouse or kids, no desire to travel, no hobbies. Financial independence sounds great in theory, but maybe there’s a part of being dependent on a paycheck that gets me out of bed every day.

lmoot
lmoot
5 years ago
Reply to  Vanessa

Would you be curious enough to have the time to search out things that are meaningful to you? Or to discover or foster a hobby? Just because you don’t currently have those desires, doesn’t mean you can’t search for them. Soul-searching can be a time-consuming endeavor so time may be the ingredient needed for you to find something other than your work. However if you are one of the few who gets total fulfillment from work, then so be it….it might still be nice to have a back up though in case you are one day unable to work, or… Read more »

freebird
freebird
5 years ago
Reply to  Vanessa

Same boat here, I can’t either, relying upon some level of workload to get through the hours of the day. But I did reach financial independence years ago and wouldn’t trade it for anything. My line of work is technology so even if we want to work till full retirement age, the unpredictable ups and downs of the business and some level of bias against the middle-aged may prevent us from reaching this. And that’s not even considering possible health issues (our own or among close family members). FWIW my path was #2, I’m not cut out to be a… Read more »

Lisa Aberle
Lisa Aberle
5 years ago
Reply to  Vanessa

Everyone is different, Vanessa, so don’t feel any pressure. Who knows?! Maybe someday you’ll find a job in which you can make an AMAZING difference in people’s lives, but the pay? Not so amazing. If you’re financially independent, you can take opportunities like that.
Either way, it’s okay.

Mike in NH
Mike in NH
5 years ago
Reply to  Vanessa

Vanessa, I’m intrigued by your comment. Let me start off by saying being intrigued and judging are completely different.

I know you don’t have any hobbies, but what are your interests?

You can’t say you don’t have any, because you are commenting on a personal finance blog – so there’s at least one 🙂

Vanessa
Vanessa
5 years ago
Reply to  Mike in NH

I don’t have a lot of interests but I do find almost everything interesting. I know that doesn’t make sense. I could watch a documentary on just about anything. I watch a lot of tv, listen to a lot of podcasts, read a lot of blogs. The only common theme is that I can do them all from home and they require no action on my part. Last spring when the Universal Sports channel was still part of my cable package, I watched nearly all the marathons: Boston, Paris, London, even Tokyo. I said heck to the time zone difference… Read more »

Alexander @ Cash Flow Diaries
Alexander @ Cash Flow Diaries
5 years ago

After you cut your cable bill, you can also hack your internet bill. If you are no longer on a contract with your internet provider, you can call them and tell them you are going to cancel it, they will lower your payment for free with no additional contract every time to keep you. I do this every 6 months. Works like a charm!

Jeff
Jeff
5 years ago

Depends on how many other competing ISPs there are in your area and how well your provider knows about them. If there is little competition and they know it then they won’t yield much on the bill.

Dianecy
Dianecy
5 years ago

Duh! I forgot to mention that my cool off-brand cell provider requires NO CONTRACT and so far, it works virtually everywhere. Prior to FIRE, I made my living as a traveling sales rep, so yeah, except for one place on Hwy. 1 near Monterey (CA), and a couple of dead zones on the 5 north of the Grapevine, I always have a decent signal.

Cautious
Cautious
5 years ago

One thing that concerns me very much is healthcare. Even if I could quit do to financial independence, healthcare would probably prevent me from taking the leap. Health insurance and health care cost is something to consider no matter what your age. Anything can happen and treatment is so expensive it could wipe out a major portion of savings and possibly create a lot of debt. I’ve seen many suffer this way both young and old. Scary. Something to consider and plan for no matter how healthy or young you are.

Oussama
Oussama
5 years ago

Hi Lisa,

This is a nice post. When I first started to read the post, your were talking only about the earning gap. Something hard to do, but certainly not the way to financial independence.
It’s only with investment that income will grow. And you said it.
Keep the great work!

Fred
Fred
5 years ago

I am curious about suggestion #3: Laundromats and vending machines. I have considered investing in both and read mixed things about them. Anyone with any experience in either and whether they are worth the investment of time and money?

Frank
Frank
5 years ago
Reply to  Fred

I second this comment.

I have seriously looked at laundermats twice, but failed to pull the trigger as I couldn’t get sufficient revenue documentation.

I did pull the trigger on a vending machine business. It just goes along almost breaking even. I wish I had not gotten into the business and should sell it. However, the learning has been invaluable.

I would really like to hear about anyone’s experience with laundermats.

JB
JB
5 years ago
Reply to  Frank

My father owned laundromats when I was growing up. It sucked. Even in high traffic, high population areas the businesses didn’t turn a big profit. There’s a lot more maintenance than you would think and chemicals…ugh, the chemicals. There’s obviously big differences between full service and coin-op laundromats and each has its pros and cons. I’d say the best thing that ever came of his businesses was that he met a lot of people

Darcie
Darcie
5 years ago

Seriously? No one suggested no cel phone at all? If I am not at home or at my desk at work I am BUZY, leave a message!

@vanessa – dare to dream girlfriend!

lmoot
lmoot
5 years ago
Reply to  Darcie

Many people use their cellphone as their main/only line. Depending on your plan it can often be cheaper (especially when you factor in free long-distance). I’ve never ever had a land line…not since living at home as a kid.

Rocky
Rocky
5 years ago

Lisa,
Great post. I think it’s important that you highlight both sides of this issue; saving and adding income. Sometimes it’s just not possible to save enough to make a difference. Very often, you need to increase the income side of the balance sheet.

It is also good of you to emphasize the hard work part of this discussion. The hours can get long, especially with starting a side business, but the rewards can be huge. Just the confidence boost it gives as well as the lessons learned along the way.

Again, great post!

Harry King
Harry King
5 years ago

To reach financial freedom, you need to have clear goals to track to become successful. You need to have more than one source of income aside from what you currently have. Move your money. Invest to something where your money can grow. Have a do-it now attitude, a positive mindset, and a desire to become successful.

Yoamoeh
Yoamoeh
5 years ago

I pay $34 max, usually $20-something, using a smartphone with Ting. I think the problem is more the providers, not the phone itself. Of course, I always get older models, so there’s that 😉

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