Seeing as Wikipedia helped me so much during my final year at University, it would be wrong to not go to them as a first port of call when asking ‘What is Financial Independence?’. So in their wise words;
“Financial independence is the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income and/or cash flow from dipping into the assets that is at least as great as their expenses”
Translated to simple terms, Wilipedia is telling me that Financial Independence is having large enough pot of cash (investments and/or assets) that you can live off what it earns you.
For me, it’s a bit more than that.
It’s about creating freedom and creating choice in my life. Living frugally has certainly made me realise what I actually enjoy. I used to think I wanted new fancy clothes every month to wear to posh resteraunts where I could sip champagne and talk about the low MPG my new German sports car will get me.
Having being funnelled into the frugal life it has taught me I do not want these things.
I want to take life easy. Have time to wander to small cafes with my future wife and sip tea while reading. Spending time with friends and family at my home or theirs with home cooked meals. Exploring the world by staying away from the big chain hotels and tourist traps by staying in the smaller, personal places and seeking advice of those that live there. I could further explore my hobbies and any interests and develop more along the way. All the while exploring inside myself.
That all sounds so much better than crunching numbers at a desk and playing with spreadsheets (Although I do love a good spreadsheet which you will find out).
So, this big pot of cash I need, just how big does it need to be?
The common rule of thumb is that you will achieve a safe withdrawal rate of 4% from your final lump sum. That means if I know how much I’m going to spend, I can work out how much I need.
I’ve been tracking spending for some time now so excluding any payments that I shouldn’t need my average spending over the last 14 months is £1,364.94 per month or £16,379.24 per annum. Before tax, that’s an annual income of £17,655.09. I will go into detail of what I actually spend in the near future.
If I multiply this by 25 and my magic figure of £441,377.20 pops out.
Wow. That’s a lotta dough.
That’s my usual reaction whenever I read about those achieving FI, always thinking you must need to be a high earner to reach that target, always thinking that’s not possible for people like me. But then there’s all these inspirational blogs that tell me I can.
So that’s why I’m here, to be spurred on by this fantastic community to help me prove to myself and the world that it can be done.
In my next post I will got into my budget and what my savings rate it, giving me the date when this will be achieved.