Yes, You Can Achieve Financial Independence

In the midst of our rush to earn money, our scramble to save for retirement, our focus on frugality, it’s easy to lose sight of why we’re doing this. What is the goal? What is it we’re trying to accomplish by getting rich slowly? For me — and for many others — the answer is Financial Independence.

Your Money or Your Life defines Financial Independence as “having an income sufficient for your basic needs and comforts from [sources] other than paid employment”. Financial independence implies freedom. It’s the condition of having saved enough money that you can do whatever you choose. Whether you elect to keep working doesn’t matter — you have enough saved and invested to follow your dreams.

But is Financial Independence just a pipe dream? Is it something only for the lucky and the strong? No, says James Stowers in his book, Yes, You Can…Achieve Financial Independence. It’s a goal that anyone can fulfill as long as she’s armed with some basic knowledge, as long as she makes smart choices.

The keys to accumulating wealth

Stowers starts with the basics. The first chapter of his book covers the history of money. (A little like this, but with a different focus.) The next few chapters briefly cover sources and uses of money, the dangers of inflation, and the extraordinary power of compounding.

Some readers might argue that this information is too basic, but I disagree; a firm grasp of these fundamentals is the foundation upon which Financial Independence is built. Stowers ends this section by offering four keys to accumulating wealth:

  1. Start investing as early as possible. It takes significantly less money to accomplish what you want, and you have more time working for you.
  2. Be determined to save on a regular basis. It is an easy way to accumulate wealth.
  3. Begin investing with the largest possible sum you can. You will have more money working for you over a longer period of time.
  4. Reach for the highest rate of return you believe you can safely receive on your money over time. Each additional percent is important. The higher the rate, the less money it takes to accomplish what you want.

Financial Independence is built upon these four guidelines.

Confronting your financial challenges

“In order to save money, you must fight to keep from spending it,” writes Stowers in the book’s second section. He encourages readers to set goals, to prioritize wants. “Since money can be spend only once, you need to decide which wants are most important. To do this, it may be helpful to place a value on each of your want.”

Exercise: Pull out a piece of paper and list your wants. These can range from a new house to a hot tub to a trip to London to a new blender for the kitchen. Next to each item, write why you want it. (You might want a hot tub, for example, because it would allow you to relax with family and friends.) When you’ve finished, take another piece of paper and re-order the list based on how important each want is to you. If a trip to London tops the list, are you still willing to delay it by spending $40/month for that gym membership you rarely use?


The challenge is to balance the present and the future. “Money has no value unless one has time and good health to enjoy it,” Stowers writes. He asks readers to know themselves and to make decisions based on their temperament. “If you have to be poor,” he asks, “would you rather be poor now or at retirement?” By planning carefully and investing wisely, you shouldn’t have to make this choice.

Planning for Financial Independence

After covering the basics of saving and estate planning, Stowers describes the path he recommends to Financial Independence. He believes readers ought to save early and often, making regular scheduled investments in the stock market through the use of mutual funds.

An entire chapter of this book — 40 pages! — is spent exploring the historical returns of the Dow Jones Industrial Average, and what theoretical investments in that index would have returned. This one of the best sections I’ve read in any personal finance book.

1-year, 15-year, and 30-year returns of a $10,000 one-time investment in the Dow.
Click an image to open a larger version in a new window.


Using actual historical data from 1897 to 2003, Stowers makes the case for stock ownership. He clearly demonstrates that, over the long term, the U.S. stock market yields an annualized return of about 10% (assuming dividends are reinvested). These 40 pages are fantastic. I return to them again and again whenever I hear people fretting that the stock market is just too risky.

Market risk is not the greatest danger to your savings — inflation is the greatest danger. The value of your retirement erodes at a rate of roughly three or four percent every year. The stock market has always recovered from even the steepest declines.

Trivia: According to Stowers’ numbers, the worst one-year period for the Dow ran from 01 July 1931 to 30 June 1932. It lost 68.92% of its value. Would you have bought stock then? If your goals were long term, that’s exactly what you should have done. The best 30-year period for the Dow ran from 01 July 1932 to 30 June 1962, during which time it offered an average annual return of 14.34%.


Stowers is a vocal proponent of stock mutual funds. I agree with him. However, I’m a fan of indexed mutual funds, a topic given short shrift in this book. (Stowers is a believer that a well-managed mutual fund is the individual investor’s best option.)

Becoming Financially Independent

Reaching Financial Independence isn’t easy. It takes time and work. “You cannot accomplish your goal of achieving Financial Independence by wishing,” writes Stowers. “It takes doing. It takes being committed to and being absolutely determined to act.”

The final section of his book provides strategies for cutting expenses and building income. Despite his wealth (or perhaps because of it), Stowers is a fan of simple frugality. He’s thrifty. His tips include:

  • If you and your partner both work, try to live on only one income. Invest the other.
  • Save an emergency fund, but don’t make it too large. Stowers likes a small (one-month of expenses) emergency reserve, with everything else invested in mutual funds.
  • Never borrow money, except to buy a home. If you use credit cards, use them only as a convenience, not to borrow.
  • Pay yourself first. Every month, invest some portion of your income for your future.

Stowers believes that finding more money to invest is the best way to reach Financial Independence. And one great way to find extra money is to cut back on your existing expenses.


Yes, You Can…Achieve Financial Independence is informative without being dense. It’s accessible without being condescending. Its advice is solid. The book is filled with investment advice, but it gives equal time to thrift and savings. Best of all, it asks as many questions as it provides answers. It prompts the reader to think, to evaluate his priorities. Its message is that yes, you can achieve Financial Independence, but you can’t get there overnight, and you can’t get there without setting goals and making sacrifices.

Though I think this book is fantastic, I’m not convinced you should just buy a copy without having seen it. It features a strange mix of simplicity and complexity. I like the combination of a simplified history of money followed by a detailed statistical analysis of stock market performance. You may not.

I’m not sure why this book hasn’t received more attention. It’s been around in various editions for fifteen years, but I’d never heard of it until I stumbled upon a copy in a book store. Maybe the book has some fatal flaw that I just can’t see. Personally, I think it’s an excellent choice, especially for recent graduates, or for those intimidated by other personal finance books.

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There are 33 comments to "Yes, You Can Achieve Financial Independence".

  1. Chris says 15 December 2008 at 07:10

    If that piece of trivia is correct, I would say that’s some pretty compelling evidence to get into the stock market right now!

  2. vilkri says 15 December 2008 at 07:32

    I agree. Inflation risk is one of the mos important but hidden financial risks. Many people are not aware of it due to “money illusion”. “Playing it safe”, i.e. not investing money in risky financial instruments, is probably one of the riskiest long-term strategies.

  3. jim says 15 December 2008 at 07:54

    “Confronting your financial challenges” is one of those “easy to say, hard to do” things. It’s difficult to prioritize the long term for the short term (coffee today vs. ten coffees in retirement) but if you are able to overcome that, you can do yourself some good.

  4. matt @ Thrive says 15 December 2008 at 07:55

    Nice profile, JD. There are some great books out there that just never received enough attention that I hope pick up again as this becomes a more mainstream issue. My personal pick is by some folks I know and have worked with, and you even profiled it when it came out:

    Ahead of the curve, as always. *grins*

  5. Bill M says 15 December 2008 at 08:00

    Agreed, the only thing that paces inflation these days is good solid blue chips with little or zero debt loads.

    And taking it slow is the best way to reach financial independence.

  6. Sheila says 15 December 2008 at 08:15

    Not really ready to only have a one-month emergency fund at my age and with this economy, but I like the other thrifty tips.

  7. JACK says 15 December 2008 at 08:27

    Out of curiosity, if you exclude the 90s and the 00s, what’s the case for the stock market’s annual average return? I’m just saying it’s a bit inconsistent of all of us to look at this time as the collapse of an artificial bubble yet still using that artificial bubble’s highs in our derivation of the average stock return.

  8. J.D. says 15 December 2008 at 08:31

    @JACK (#7)
    This book contains a number of graphs that address your question. (This edition was published in 2004, though, at the start of the most recent bubble.) I’ll scan in another graph or two and post them later. Check back here for links.

  9. Aman says 15 December 2008 at 09:24

    Nice post. Although I would agree with #6, a one month emergency fund is a little risky. There is an increasing number of unemployed and finding a job is getting harder.

    My emergency fund grows over time and is probably at the point where I can sustain myself for 5-6mths comfortably. While this “fund” is separate from my other accounts, its still in a high interest savings account and earning until I need it.

  10. A. Dawn says 15 December 2008 at 09:41

    Getting rid of consumer debt should be priority number one of the Financial Strategies.

  11. joejoeice says 15 December 2008 at 10:05

    If the magic number for financial independence feels too large (and therefore keeps you from working towards it) you can break that number into smaller parts. Think of setting up endowment funds for all of your different expenses. For example, a yearly newspaper subscription would cost me $220 a year. If I wanted to have the paper delivered for the rest of my life, I could buy that for $5,250. Once I have this much saved, I can pay for the $220 cost of the paper using the 4% interest that this money makes and never reduce the principle.
    Once I have this much saved, I can stop having to earn money for this part of my life. In effect, the newspaper fund can write the check to pay for my newspapers. I can move on to saving for other endowments. As more and more of my costs are paid for by these funds, I have more and more money left to save. It is sort of like the Ramsey snowball theory in reverse.
    It is important to note that this does not work within a 401k or IRA, but for those who are looking for an extremely early retirement, you can’t depend on these accounts for your early years of retirement anyway due to age requirements for distribution.

  12. Andy says 15 December 2008 at 10:21

    This post is so helpful … thank you. Achieving financial independence can be wonderful (we’re in the beginning steps of paying down debt) but having written goals as to why would help a lot. I can’t wait to have the debt paid and start building wealth. We have dreams and we’d like to achieve them. Seeing the goals on paper would help. We’re very excited about being financially independent in the future.

  13. Neil says 15 December 2008 at 10:28

    Some great tips! The key to financial independence in my books is to keep investing on a regular basis. When the market dives, like it has, invest a little more if you can afford it. Right now it’s Boxing Day at the Stock Market and has been for some time now.

    Take advantage of this and buy some value companies, or good blue chip mutual funds. You won’t regret it if you stick it out for the long haul.

  14. Francesca says 15 December 2008 at 10:32

    I have been reading your site recently and I am very thankful for arming us with truth. I recently took the road to freedom trail this year. I have paid off some credit cards and have some left to go. I have learned to create a budget and stick to it. As a single mom working as consultant with no 401K, I’d like to start investing in mutual funds. I have no clue how to pick one. I am doing the Financial Peace University course by Dave Ramsey and it’s great. I have looked at your book lists mentioned throughout various posts and plan to purchase or pick some at the local library. My question is: I have about 95K in student loans (don’t ask) they are in deferment status for now with various lenders – looking to consolidate. My priority beginning next month is to save 3 months worth emergency fund should something happen. I got laid off this year and it took me 6 months to find another job. Do I wait to pay off the loan before investing or start low. I will be 36 years old next month and make about 65Kyear. Any ideas and or suggestions will be appreciated?

  15. Andy @ Retire at 40 says 15 December 2008 at 10:43

    I agree, achieving Financial Independence is possible but it will take hard work to do it. There are many things which can contribute but the simple things like spending less and earning more are the basis of everything else. After that, move on to paying off your mortgage, high interest savings and stock markets.

  16. Jay says 15 December 2008 at 11:15

    While investing is important to keep ahead of inflation with any savings you have, I can promise you that almost everyone in North America has debt that is at an interest rate higher than inflation, including mortgages.

    Paying that debt down gives you a guaranteed return on investment that is greater than inflation.

  17. rmummy says 15 December 2008 at 11:30

    Interesting that you give this book such a strong recommendation for its section on stocks, considering that it is four years old. I’ll have to check it out at my local library….Thanks

  18. AJ says 15 December 2008 at 12:46

    It should also say it is okay to borrow money for school. It might be obvious, but hey it should say it.

  19. Frank says 15 December 2008 at 13:02

    These plans assume that we will get a certain rate of return over time. The more I observe about our world and the history of the markets, the less confident I am in the markets. Sure, over 100 odd years the market has grown, but there have also been some long stretches when it has fallen. If the 20 or 30 years you have to invest happen to overlap one of those periods, you’re screwed. It doesn’t matter what happened in the twenty years prior or what will happen in the twenty years future. Sure, eventually the market may recover, but that doesn’t do you much good if you’re retired now, especially now. I reckon a lot of people have just seen their 20 years of frugality and smart investing get erased by mass greed and mass stupidity, huge forces beyond our control. I’m not so sure I want to spend my life investing in an asset that can disappear overnight. I have no confidence in the stock market. And no confidence in real estate. If you’re willing to tolerate a lot of risk, you may be able to take advantage of the irrationality of the market. But when it comes your time to cash in, you better be darn lucky that the market is up.

  20. RenaissanceTrophyWife says 15 December 2008 at 13:50

    Thanks for the balanced review– I’ll have to leaf through a copy at the library.

    I agree with your call on the indexed mutual funds; there are very few fund managers out there worth the fees that individuals pay– meaning, you’d be better off saving yourself the sure 1-2% in fees rather than betting that the manager can increase your returns by more than that.

    To me, financial independence is about having the freedom to live a modest, fun, lifestyle, while maintaining peace of mind that I am on track to take care of my family (future kids and even retired parents) down the line.

    I think that it’s possible to start working towards that goal even at a young age. For example, students should at least make the effort apply for financial aid/scholarships to reduce their educational costs. Working a part-time job is another reasonable option, if the curriculum isn’t too demanding. Honestly, an investment in your education can be one of the best things you do for yourself, whether that’s in the form of an official degree or just a pile of free books from the library– nobody can foreclose on the knowledge inside your head.

  21. Shawn says 15 December 2008 at 14:29


    I love your blog and I heard you on Investtalk on Friday. That was awesome.

    I really liked hearing you on the program. One of my favorite blogs and favorite radio program all together.

  22. David Beers says 15 December 2008 at 16:33


    Been reading the site for a while. I have a question that seems to run right in line with this post. So far, I’ve been following Ramsey’s Baby Steps. I’m working on paying off my student loan debt. I’m 22, make about 45 grand, and am about 11,000 in debt. Should I be throwing all of my extra money at my debt, or should I be trying to put some away in a roth and then pay some of my debt off at the same time? Which path is better?


  23. Frugal Bachelor says 15 December 2008 at 16:36

    “Save an emergency fund, but don’t make it too large. Stowers likes a small (one-month of expenses) emergency reserve, with everything else invested in mutual funds.”

    This sounds like advice straight out of 2004, when the only direction stocks could go in was up. What if you put all your emergency money into a DJIA Index Fund when it was 14,164, and then your transmission & furnace both go out the day it hits 7,882?

    Answer: you’re forced to sell low.

  24. Generation Millionaire says 15 December 2008 at 17:49

    I am a believer in having 6 month emergency fund. I realize that is not an easy task – however making small changes everyday and having a goal – makes it much more attainable.

  25. Alison Wiley says 15 December 2008 at 18:41

    Good post. Financial independence is a definite focus in my household. (Being middle-aged seems to sharpen this focus, I’ve noticed.) One of our techniques is keeping Christmas simple, without spending a lot. Here is my short piece on celebrating in a spirit of solvency:

  26. quinsy says 15 December 2008 at 18:59

    Francesca #14, and David #22:
    You should post your question in the Forums (there is a link at the top of this page), and include more specific information like what the interest rate on your loans is.

    If you are looking at it from a completely logical point of view, you should put money towards whatever will give you the highest return on investment. So obviously it makes a big difference whether your loans are at 2% or 5% or 10%. If at 2%, you should pay them off as slowly as possible (this is less than inflation). If at 5%, you can arguably go either way on investing or paying them off or doing both at once. If at 10%, you should not invest until you pay off your loans because there is no way you’ll make 10% on any other investment. Do you see what I’m saying?

    If you are looking at it from a psychological perspective (or the Dave Ramsey snowball perspective) then there are numerous other possible answers to your question. Anyway you’ll get better answers if you take your questions to the Forums.

  27. JE Gonzalez says 15 December 2008 at 19:55

    I have always been naturally frugal even when I was little. Usually when I blew my cash, it was on expensive educational things that helped me gain knowledge in my interests. Nowadays I see people trying to save up and be frugal, but frugality is something that you have to embrace for a lifetime. If my income rises dramatically I’ll always remember what happened to Mike Tyson.

    I was wondering about this idea for financial gains. Invest in a large expensive home, and vacate it for 5-7 years while being frugal in all other things and sell the house with appreciated interest and use that money to buy a smaller house and put a downpayment on Commercial Real Estate. Is this a good idea?

  28. retire rich says 16 December 2008 at 00:37

    nice article. is the stocks is the best investment when we face recession like now? thanks

  29. plonkee says 16 December 2008 at 01:51

    Stowers could be right that a well managed mutual fund is an investors best option. However, I reckon the key words there are *well managed*. Not only am I not convinced that there are any/many, but I’m also not convinced that I’ll recognise one if I see it.

    As a single person, that tip to only live on one income and save the other, is probably my least favourite. It sort of rubs in that not only do I not have any of the perks of having a partner, I also get to pay more for it too. Never mind 🙂 .

  30. Caleb says 16 December 2008 at 04:16

    I like the idea of breaking down your financial philosophies into simple terms. Mastering basic financial philosophies can change your financial situation within months. I’m keen on the idea of “getting rich slowly”, but I’m speaking of your general financial direction, when I say “change”. You become “rich” subconsciously, as soon as you decide to move in that direction, even if that movement is slight and seems insignificant. Saving just $10, when you are accustomed to saving nothing, can do a real number on your financial ambition.

  31. HollyP says 16 December 2008 at 06:25

    Thanks for another book recommendation.

    It would be interesting to do a side-by-side comparison of the recommendation in this book (to invest in the stock market) versus the recommendation in Your Money or Your Life (invest in Treasuries, theoretically 100% reliability and just enough income to keep pace with inflation). The first time I read YMOYL, I thought they were crazy investing in just treasuries. After this year, that advice is looking a bit smarter.

    One of the primary hurdles between my family and financial independence in the medium term is the cost of college in 2020 for two kids. Even living the frugal lifestyle, once we’ve maxed our 401k’s and put money in the college fund, there is nothing left to put down towards FI before 67.

  32. Shawn says 16 December 2008 at 12:29

    You never know with the fed lowering the interest rate to 0.25% we might have to have our emergency fund in gold if we can inflate our way out of this economic downturn…. 😉

  33. Laurence @ says 23 December 2008 at 14:42

    Great post! It is so important for people to outline their goals for life and their finances. Once this is done, it is so much easier to plan.

    The concepts that you present are so intuitive and basically “common sense”, but it still takes a while for people to incorporate them. Your point on the power of compounding is so critical. It would be great if these principles were taught to our youth as early as possible so they have the best chance for success.

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