A Financial Independence Primer

This blog has a tagline Tech and Financial Independence, but so far I have only posted tech and programming-related articles. Over the next months this blog will focus on the Financial Independence part of the equation.

What is Financial Independence?

Financial independence (referred to as FI in the community) is the state in which you no longer need to work for money. That is, your current assets (money, investments, businesses, etc) are enough to sustain your cost of living until the end of your life.

Early retirement/retire early (RE) involves accumulating assets fast enough to be financially independent prior to the standard retirement age. People aiming for early retirement generally reach it in their 30s or 40s, and is achieved by having a high savings rate, typically 50% of their income and above.

Financial independence and early retirement (FIRE) are closely related, but these are two exclusive concepts. You can be financially independent even though you did not retire early, but you cannot achieve early retirement without being financially independent first.

Why do I want to be financially independent?

The reasons for this are tied to what your goals are and what aspects of your life are important to you.

  • Would you like to travel the world?
  • Do you like to contribute to society (through charity, establishing a foundation, etc)?
  • Do you want to leave an inheritance for the next generation?

All of these things involve financial planning. For goals that involve giving to the community, this is especially important. You will not be able to help others unless you have helped yourself first.

How do I become one?

Based on the definition, your assets needs to be able to support your lifestyle and all the expenses it will incur. Note that these assets have to be liquid (that is, you can convert it to cash if needed), and/or has to provide (mostly) passive income. If you are a salaried employee, you cannot count your monthly salary towards this as the availability of this income depends on your employer and market conditions. Also, if you hold stocks or options of your company and you cannot sell them or convert them into cash, then you cannot count them as assets as well as those are illiquid.

Most types of assets that you can use fall on these categories:

  • Paper assets – stocks, bonds, funds, and other related form of investments
  • Owning a business – income that you earn from businesses may not really be “passive” as it still requires some amount of time and effort to manage, but you can still have an estimate of the amount of income that is guaranteed on a regular basis
  • Real estate – rental income that you earn every month with minimal effort, plus the value of the property that appreciates over time
  • Commodities –  gold and other precious metals that you can barter and trade
  • Retirement Accounts/Pension – In the US, they have 401ks, IRAs and the like. In the Philippines, we can consider SSS pensions and the (hopefully) upcoming PERA law. This is closely related to the Paper Assets category.

Money and Evil

Perhaps one of the most commonly misquoted sayings from the Bible is that money is evil. The Bible does not say that money is evil, but rather the love of money is the root of all evil.

“For the love of money is a root of all kinds of evil.” (1 Timothy 6:10)

Money is a tool, and a tool is not inherently good or bad until you use it for a specific purpose. Referring to the Parable of the Unjust Steward, we will see a similar theme:

The master commended the dishonest manager because he had acted shrewdly. For the people of this world are more shrewd in dealing with their own kind than are the people of the light. I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings.

No matter your beliefs, we all know that we can take nothing from this world. The Bible teaches us to use our material possessions wisely by helping others and spreading good to the world.

Money and Happiness

Money does not buy happiness. However, money can buy you time, and happiness requires time. As an exercise, think of the things that make you happy. Perhaps your list can include:

  • relaxing by the beach
  • reading books the entire day without worrying about anything
  • spending time with your children
  • traveling with your partner
  • planting and growing a garden without worrying about what to eat

To accomplish these, you will need time, which we normally do by consuming our limited vacation days from work or waiting for a holiday. More often than not, we also look forward to the weekends to do things that make us happy as the rest of the week is already consumed by work.

How will money help us on these things? By buying time, you will be able to free up your schedule to do the things you enjoy, like:

  • hiring a babysitter or a daycare to take care of your children while you and your partner travel or go on a date
  • delegating your common and menial tasks to other people to free up time to spend with your children
  • negotiating a 4-day workweek with your employer so you have an additional day of the week all for yourself
  • building up your assets so you no longer need to work for money, and thus you free up your schedule for doing things that you love

Do what you love, and you will not work another day

If you genuinely love your work right now, then you are very lucky indeed! If you are enjoying your time while working, you may feel like you no longer need to plan for the future. The thing is, even if you love your work, there may come a time when your work will “no longer love you” or that your work will disappear altogether.

No industry is permanent; what may seem like a lucrative career now may no longer be desirable in a decade (most likely even sooner). As you grow older, your capabilities also get limited, which in turn affects the happiness that you derive from work. Therefore it is important to plan ahead financially whether you love your work or not.

Is it possible for me?

You may ask, “But I will need a lot of money to support my needs! I will not be able to accumulate this.”.

Are you sure?

First you need to be clear with yourself if your possessions really provide you happiness. Gadgets that become “obsolete” after one year, cars that you do not need, subscriptions to services that you do not utilize, do you really need them to be happy? Figure out what really makes you happy and prioritize your spending accordingly.

Financial independence requires that your assets be able to support your lifestyle expenses. Have you considered reducing your expenses so that the amount that you need to be financially independent is lower?

The goal may seem daunting, but you should realize that financial independence is not a single goal, it is made up of several stages that you can achieve one by one. We will expand on these concepts on future articles.


Hopefully this will give you an idea on what the goal of financial independence is, and get you fired up in thinking on how you plan to achieve it.

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