There are a few ways to summit a mountain peak. For adrenaline junkies, climbing is the way to go. For the less adventurous, finding a driving path and slowly winding up is preferable. As a cautious risk-taker, I find myself in the latter camp as getting to a peak in one piece is important to me. But, one thing I’ve learned after taking so many nausea-inducing trips is that on the journey up there are always many subviews that tend to be as breathtaking as the final destination.
Similarly, I take the slow, scenic view up on my journey towards being financially independent. On the route, I’ve taken advantage of all the subviews to sustain my motivation.
But, unlike winding your way up a mountain face, the road towards financial independence isn't as clear as stopping in carved-out scenic parking lots. You have to carve them out yourself. Let's take a journey down the road and I’ll share how I’ve gone upon carving out stops that have kept me in steady pursuit of my goals.
The status quo
The amount of content out there on achieving financial independence is never-ending. From FIRE literature to David Ramsey, we have pundits, bloggers, and self-gurus outlining all the ways to become financially independent. We have questions, they have answers.
All these answers revolve around what you can do and how to do it. They have strategies on how to buy your first investment property, get started as an FBA wholesaler, or build an e-commerce empire.
What they tend to omit, and what the self-help genre readily picks up on is that attitude you need to keep going as you do it.
Get disciplined, find your why, and find your tribe.
All this advice is good to get started - but, what both misses is that besides an attitude and what you need to do, you also need the ability to measure your progress. You need a way to orient yourself, reflect and decide to keep going, stop, or pivot.
This is what I call financial independence leveling.
An origin story
Remember when you were a kid and played Mario, or if you’re even younger, think of your experience with Diablo. As you conquered one threat or another, you’d level up and on your way there, you’d notice your strength growing. Win after win you got closer to your goal and ultimately came out victorious.
Like your days playing video games, financial independence leveling can be thought of as a way of progressing and evolving in an orderly and explicit way.
Instead of moving from one kingdom to another, the levels you’ll be focused on are based on your financial independence goals. These levels are milestones you hit and can reflect on as you make progress on your journey.
In developing these milestones, one variable is paramount to keep in mind - the amount of passive income you need to sustain your lifestyle. A secondary variable in this equation is your nest egg. It’s not critical to know this when you start, but getting a grip on it at some point will give you a more regular variable to track progress against.
With these variables down, levels can be broken down rather easily.
Take for example my levels.
Based on my wife and I’s preferred lifestyle, we believe we need approximately $180K/year to achieve financial independence. This number is not wholly contingent on passive income as it includes the potential for stock shares and dividends (this is why you should calculate your nest egg), but for illustrative purposes, let’s say the $180K/year is based solely on passive income.
Being that $180K is equal to $15K/month, we’ve broken down our passive income goals in this way.
Level 1: One of us can retire early with no unforeseen expenses - $5k/month
Level 2: Both of us can retire early with no unforeseen expenses - $10k/month
Level 3: Both of us can retire with foreseen expenses - $15K/month
In creating these levels, there are a few things to keep in mind.
This is not rocket surgery - you don’t need to be exact. Being approximate is fine as long as you have these numbers in mind and what they mean to you.
Though not rocket surgery, calculating the amount you need to sustain an enjoyable lifestyle is important. This amount can be based solely on passive income, but can also include gradual withdrawals from investment accounts or other streams of revenue.
I included foreseen and unforeseen so that I am clear with myself that if I did want to claim an early victory it comes with the potential risks of unforeseen expenses and such. Unforeseen expenses are impromptu vacations or unplanned updates to our home; historically, we behave in this way because though we plan long-term, our mid-term plans are flexible.
Benefits of this approach
Framing your journey of financial independence as a leveled path will help you sustain motivation over a long period of time. By checking progress and marking milestones, you’ll be able to see that your work is leading somewhere.
I also encourage reflecting on each milestone. This will give you an idea of the optionality you have so that you can stay in pursuit or pivot your tactics to achieve your ultimate goal.
Getting started is challenging, but once these steps are done, you’ll know what you need to hit begin using
Assess your lifestyle behavior and target retirement budget - What do you spend monthly? Where do you spend? What are some large-ticket items you need to consider now and later (buying a home, having a child)?
Calculate your nest egg pre and post-retirement - based on your budget and passive income, how much do you need to withdraw from a retirement or brokerage account each year?
Calculate your passive income - how much are you generating now or will be in the future?
Combine your nest egg withdrawal amount and passive income to get your monthly number - this is what you should work towards.
Break down your monthly goals into achievable milestones or levels
If you’re daunted by these steps, don’t be alarmed, they are truthfully a lot.
In the coming weeks, I’ll share more of my frameworks, tactics, and learnings so you too can feel confident on your journey towards financial independence.
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