Financial Independence Has Nothing To Do With How Much You Earn!

Five actionable steps that will get you closer to financial independence than a higher paycheck ever could!

It is not the man who has too little but the man who craves more that is poor. (Seneca)

Life is too short, yet most are determined to waste it. A simple example is financial independence—everyone wants it, but nobody wants to do what it takes.

However, if you’re in the middle class and want to make a change but are overwhelmed and don’t know where to start, then this post is for you. You’ll be able to kickstart your journey toward financial independence with five actionable steps that don’t require a degree in investment or betting the farm on cryptocurrencies.

My wife and I did not inherit money, land, apartments, or anything else of much value. When I started my first job two decades ago, our account had a negative balance, and my wife was pregnant.

Today, we have two kids and own multiple apartments, including one vacation home in a popular sunny getaway. We achieved all that on a single income and some more or less tough decisions we made early on.

As mentioned, investing in the stock market or being lucky with Bitcoin was not one of them.

I’m talking about actionable things everyone in the middle class earning 50k or more can implement and see immediate results.

If you want a head-start in financial independence and be ahead of 99% of your peer population, follow the white rabbit and read on…

Disclaimers: 1) If you’re not in the middle class, this post may still help you get control of your situation and slowly improve it, but if you’re thrifty already, it may or may not improve your knowledge. 2) If you’re looking for a get-rich-quick scheme, you should search for another post on Medium (there are plenty of them). What I suggest requires getting your hands dirty, making tough decisions, and rejecting consumerism.

What is financial independence?

Financial independence can be defined as having saved up enough money never to have to work again for a paycheck, but it could also mean earning enough passive income.

In both situations, you would have enough money to cover your regular spending and maintain your desired standard of living — INDEFINITELY.

The FIRE (Financial Independence Retire Early) movement states the above as its objective. In addition to financial independence, FIRE followers aspire to retire well before the “regular” retirement age (whatever that may mean in your country).

The fallacy of common financial wisdom

Let’s address one thing from the get-go — you will never attain financial independence if your approach is based on common financial wisdom.

A common misbelief is that you must earn more to reach financial independence.

The biggest issue with common financial wisdom is that there’s no defined upper limit. How much money is enough to retire for the rest of your life? When should you quit your 9–5?

The other problem is our greed. The more we have, the more we want. The more you work, the less time you have for yourself — so you treat yourself to “nice” things.

I can assure you here and now that you’ll never have “enough money” if you follow common financial wisdom.

We need to rewire our brains and how we think about wealth. The bad news is that it’s not easy, but the good news is that it’s achievable.

Let’s look at an example based on the following assumptions:

• Family A living on an annual voluntary budget of 50'000 USD
• Family B living on an annual voluntary budget of 25'000 USD
• Both families earn 70'000 USD, the median middle-class income in the US in 2021, and both parents are about 35 years old.
• We’ll use a FIRE calculator to see how long each family would have to save until financial freedom.

The first family, let’s call them the Joneses, would need to save their surplus of 20k for 31 years before they would be financially independent — at the age of 66.

The second family, let’s call them the Adams, would need to save their surplus of 45k for 11 years before they would be financially independent — at the age of 46.

This admittedly oversimplified example demonstrates that the definition of “financial independence” is a personal matter that depends mainly on one's annual expenses.

Financial independence is defined by your standard of living, not how much you earn.

Now that we’ve clarified that financial independence is achievable let’s examine some actions to help you achieve it.

1. Take stock of your current financial situation

You need to know where you are before defining where to go. The first step is understanding how much you spend per year.

Various tools are available to create a budget. In its simplest form, it’s an Excel sheet where you list your income and expenses.

At this stage, you don’t need to be very detailed about the type of expense. It’s more important to know how much you spend. If you can’t check how much you’ve spent over the last 12 months, multiply your expenses this month by 12.

You won’t have an exact number, but it’s not about exact science. In fact, being too detailed can become cumbersome and potentially derail you from your goal.

Now, the fun part starts. You understand your annual expenses well and can compare them to your yearly income. The difference is your current saving potential.

The remaining four actionable steps will help you increase your saving potential and reduce the time it takes you to become financially independent.

2. Do more yourself

Admittedly, this sounds too simple to be effective, but it was one of our most impactful steps. Mainly because it impacts two aspects of your life—your finances and your health.

Eating out or having food delivered was impacting our expenses immensely. Even if we went out for dinner only once a week, it cost us an average of 500 USD monthly. An annual expense of 6k USD!

Year after year, we spend $6k USD eating out—depending on where you live, this could be much more.

So, we invested in a bread machine and a Thermomix®, which cost 1500 USD, but given the amount of money we saved each year, it was a worthy investment.

The smell and feeling of waking up to fresh bread in the morning are hard to describe. And the taste of homemade bread with only a handful of ingredients of your choice is unbeatable.

The Thermomix® opens up a whole new world of cooking possibilities and recipes. Even if you have two left hands, you can create a five-star menu using fresh ingredients—with guaranteed success.

If you want to know more, check out this post about how Thermomix® has changed our lives forever:

Fixing broken things rather than buying new ones or having them fixed by someone else was a fantastic way to cut expenses — with the added benefit of learning new skills.

Since embarking on this journey, YouTube has become my new best friend. Whenever something was broken, I would look up a tutorial video on how to fix it. Anything from a kitchen appliance to electrical wiring to replacing the battery of my 5-year-old laptop to repairing my bicycle.

If there were no hope of repairing something, we would think about buying a new one — but more on the topic of buying further below.

3. Shed money wasters

We all have nice-to-have things, like subscriptions, that we don’t use very often but keep for the odd time they may come in handy.

This could include inexpensive magazines, newspapers, and online content subscriptions. However, it could also include software subscriptions, which are likely much more expensive.

Now, the tough one — we have to look at our beloved entertainment subscriptions, which we’re not eager to shed.

Don’t worry. I’m not suggesting adopting a Spartan lifestyle. But do you really need a premium Netflix account? And what about the additional Disney+ and Amazon Prime subscriptions?

While canceling them will not make you rich overnight, the 5-year cumulative savings across the entire range of canceled subscriptions can make you smile.

We’re slowly moving toward bigger-ticket items like car leasing and maintenance costs, mortgage interest rates, and bank account fees. It makes sense to regularly review and reassess these items to ensure you’re getting the best deal, as they significantly impact your annual expenses.

Regarding your car(s), reconsider if you need one (or many) motorized vehicles. If you have multiple cars, you have a luxury problem that requires rewiring your thought patterns if you’re serious about reaching financial independence.

There are also times when you need a car—whether for commuting or grocery shopping. In those scenarios, consider pooling services or buying a bicycle trailer. But more on that in the section below.

4. Use pooling services

In many countries worldwide, it’s now possible to rent cars on an hourly basis. You pay for the actual time you use the vehicle and each mile/kilometer you drive.

A similar option exists for e-bikes, which allow you to get faster from A to B in a big town than driving a car. Although many big cities are not bike-friendly, that is changing slowly.

The other alternative is to use public transportation. In Europe, public services are available 24/7; during the day, the bus, tram, or subway may run as often as every 7 minutes.

We live in a country with all three options above, so we sold our car. Since then, we haven’t had to worry about gas, servicing, changing tires, insurance, road taxes, tolls, etc., because all of that is included in the hourly rate for the car.

There is so much more on this topic, and every city has its offerings. Our children, for example, are using libraries instead of buying books. And if the library doesn’t have the book they want, we look it up on eBay.

Using eBay or Craigslist is another valuable suggestion, which we’ll examine in the next section.

5. Buy what you need, not what you want

This one sounds obvious, right?

Yes, but advertising agencies use psychology against us when designing their ads. They don’t just promote new things; they make us believe we need them to be happy.

And who doesn’t want to be happy? That’s why resisting ads and not being influenced when buying something is an uphill battle.

To help us resist the urge, we set up the following rules:

• We sleep over buying decisions for a few weeks, consider alternatives, and, if we still want something, seriously consider buying it.
• We make a list of reasons (at least five) why we need it to ensure it’s not for single-time usage, and if it is for single-time use, we consider renting or borrowing it.
• Once we’ve decided to buy it, we look for second-hand offers on eBay or Craigslist . This works particularly well when buying electronics. When the latest generation is in the stores, the previous generation—still very good—is all over the place on second-hand portals.

We’ve recently discovered an online portal where you can borrow stuff from private people or offer something yourself (check out this blog page for options).

It’s a good way to make money with your camera lens, chainsaw, bike trailer, beamer, and anything else you don’t need daily.

There are also portals offering cars, campers, motorhomes, and boats, which you could search for a cheap but adventurous family vacation in the mountains or foreign places.

Summary and critical take-home messages

I hope you’ve enjoyed the article and were able to take away something new for yourself.

Here is the key take-home message in a single sentence:

Financial independence can’t be achieved by earning more but by reducing expenses.

When you realize that your expenses determine how much money you’ll need to save, you can get creative and reduce them as much as possible.

However, don’t become an extremist. The aim is not to live on an annual budget of 5k USD but to set a limit where you can live a good life and are not a victim of smart advertising or a slave of your day job.