The Tools for Declaring Independence

At first, our big financial goal was simply a matter of escaping a paycheck-to-paycheck lifestyle. After that, it was getting rid of all of our credit card debt. After that, it was buying a home and then becoming completely free of all debt.

Now, our goal is financial independence. In our eyes, financial independence simply means that we have enough money saved so that we no longer have to work for a living, allowing us an incredible amount of latitude in terms of how we spend our days. Additional income just gives us big perks or bolsters our savings, as we would be able to live with our current lifestyle for the rest of our days.

Neither Sarah nor I are lazy people. Even if we had the money, neither one of us could stand to sit around all day doing nothing. We both need something productive in our lives most of the time (vacations are nice, but nonstop vacation would bore me to tears after a while).

So, financial independence basically means that we would have the freedom to pursue virtually any productive path we wanted to pursue in life aside, of course, from things that would require enormous personal investment of funds. We would have the money in the bank to allow us to take low- or non-paying jobs in whatever areas we choose without infringing on our lifestyle at all.

I couldn’t suddenly decide to build a spacecraft in my backyard, for example, but I certainly could go back to school for classes in aeronautical engineering if that’s what I chose to do. We could work for volunteer groups, do freelance work – whatever we wanted to do. The biggest factor would be doing things that brought us personal enjoyment, not how much it paid. (That doesn’t mean we wouldn’t want to be paid for our work in many situations, of course.)

Here’s the real question: beyond some large amount of money in the bank, what exactly do we need to be able to reach financial independence? What can I be preparing to make this happen?

These are the tools that Sarah and I are simultaneously developing as we continue to live a “spend less than you earn” lifestyle in an effort to reach that level of financial independence.

Wise investment choices How should we invest our money if we reach financial independence? This is a topic we’re studying well in advance of our “independence point.” Our goal, of course, is to make sure that our money lasts through the rest of our lives when we do reach that point, but we’ll need at least some level of return on it in order to make it last that long. We also need to deeply understand our investments to know whether or not we’ll be able to pull this off.

In short, we need a fairly conservative investment philosophy, but not quite as conservative as what would be suggested in a typical retirement. How do we do that? Our plan right now is to use a handful of index funds, some for growth, some for dividends, and a larger share for retaining value and growing slowly (probably blue chip stocks and bonds). This is obviously more central for me than for Sarah as I write about personal finance (in part) for a living, so investments are something I look at.

Self-control Basically, self-control insurance that we won’t wind up blowing through our savings via lifestyle inflation once we retire. Without self-control, we would spend ourselves into a point where we might be really stuck in terms of our “career choices” once we reach financial independence.

This is a powerful psychological weapon that we hone as we make good spending choices right now. We have to have some degree of self-control to continue making forward progress and the more we hone our self-control, the stronger it becomes.

Areas of professional interest One of the big questions about this plan is what we’ll do when we retire. How will we spend our days? Neither Sarah nor I are wired to sit still for very long. We need big projects to work on and things to learn and skills to build to be happy. What kinds of projects will we dig into? This is a huge question that should be answered well before we decide that we have achieved “financial independence.”

For example, I have a strong interest in doing volunteer work, both in terms of actual physical volunteering in the community as well as writing some computer software for open source projects of a scientific nature (plying some of the skills I learned – and still keep somewhat sharp – from my earlier career). I also want to write a novel (or perhaps a series of novels).

A willingness to learn Answering the career path question sooner rather than later lets us devote some of our spare time right now to preparing for work in those areas. For example, if I wanted to become a computer programmer who focused on open source projects of value to the world, I might start working on computer programming in my spare time. If I wanted to become involved in a particular area of volunteerism, I could get started now in my spare time. I could start working toward a degree in my spare time, too.

All of this rests upon a willingness to learn. If I’m not willing to acquire new skills, the day I quit working at this job is the day I have a hard time finding meaningful work elsewhere that’s above an entry-level position. That’s not what I want to do, so I need to be willing to learn.

Thankfully, I’m a lifetime learner. I take online classes all the time on a huge variety of subjects from political philosophy to the theory of literature and from organic chemistry to the structure and interpretation of computer programs. I enjoy learning new things and building new skills; without that enjoyment factor, I’m not sure that this plan of financial independence would be as appealing to me (or as potentially successful).

An entrepreneurial mindset (at least to a degree) Living in a household where no one has a nine-to-five job and we live entirely off of the money we earn from our own projects and our own savings means that we need to be somewhat entrepreneurial.

There will no longer be an employer writing paychecks in exchange for our hours and our energy. We have to find people willing to pay us (in some fashion or another) for the things we choose to produce.

A healthy social network To get my foot in the door in whatever area I might yet choose, I’ll need a healthy social network. Sure, you can often just dive into volunteerism, but many opportunities in life are opened by one’s social network.

More important than that, a healthy social network provides lots of social opportunities and engagements, leaving you with as much and as little social interaction and friendship as you’d like.

A willingness to do things myself Not only does the choice to do things myself help with accumulating the wealth we’d need to become financially independent, it also helps with building new friendships because of the natural skills and willingness to try doing things that a D.I.Y. mindset cultivates.

This spreads all throughout life, from preparing my own meals from scratch to fixing plumbing problems in my house. The more things I’m willing and able to do myself without calling for help, the more self-sufficient I am, the less money I need to spend, and the less likely I am to face emergencies which can undo financial balance.

A willingness and ability to negotiate If there’s one aspect I need to work on, it’s this. Many of life’s prices and payments can be negotiated if you’re willing to do so (and take on the risk of doing so). You’ll never know, for example, if that person would have sold you the house for $10,000 less than what you paid, or if someone would have been willing to carry your product in their shop. The end result of negotiation is better prices on the things you buy and better compensation for your time and energy.

More than that, sometimes you have to simply make offers for things that you want. You can’t just sit back and wait for things to happen. If you have a book you want to publish, you can’t just let it dangle there like a wet noodle. You can’t just hope someone makes you an offer. You have to run with it. The same thing goes for almost anything you want in life, personally or professionally.

Many people aren’t willing to negotiate at all and, as a result, receive lower salaries and compensation as well as missing out on many other opportunities.

This is a Swiss Army knife of life skills. Many of them have already helped me on my path to financial independence and they’ll help even more as I move toward that finish line and, eventually, cross it.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.