The 3 Simple Strategies to Achieve Financial Independence (FI)

What is "financial independence"? According to Wikipedia, "Financial independence is the status of having enough income to pay one's living expense for the rest of one's life without having to be employed or dependent on others." Although this may sound too good to be true, financial independence (FI) is a relatively simple concept to understand. With a little planning and a lot of discipline, nearly anyone can achieve FI.

At Joy of FI, we break down the Financial Independence basics into 3 Simple Strategies:

1. Set a Goal: To achieve Financial Independence, you will need approximately 25 times your annual expenses. If your annual living expenses is $60K, for example, you will need about $1.5M in assets to achieve FI.
2. Maximize Savings: Save at least 50% of your take home pay: Create a process to "pay yourself first" every month. If you receive two paychecks a month, it could be as simple as living off one paycheck and saving the second paycheck to invest.
3. Invest in Broad-based Index Funds: Invest your monthly savings into a broad based index fund (tracks the S&P 500 or total US Stock Market) then forget about it. Let the power of compounding grow your investments over time. Don't be concerned about the ups and downs of the market, you're in it for the long haul.

And that's it, there are only 3 basic strategies to achieve FI! If you follow these steps and save 50% of your income, you will be able to achieve FI in approximately 16 years. Save more and you can shorten the time to FI. For example with a savings rate of 60%, you can achieve FI in only 12.5 years! Remarkably, it doesn't matter how much you make...what matters is your savings rate and how you invest!

There's a lot of assumptions and math built into these calculations to achieve FI. The classic blog post by Mr. Money Mustache, "The Shockingly Simple Math Behind Early Retirement", is an excellent read for those who want to understand these concepts in more detail.

These three strategies are the basic foundation to achieve FI. It really is that simple and not complicated to understand. If you follow these strategies diligently you've solved the FI puzzle. Of course, there are many other excellent FI ideas but they are primarily tactics to help execute these 3 strategies. At Joy of FI, we'll examine many of these tactics in future blog posts.