The Levels of Financial Independence

04. February 2017

It’s been a long-ass time since the topic of financial independence was discussed here, and dammit I miss it! Being an ever-present theme in my life, I’d like to temporarily refocus my writing on it. In the personal finance sphere, financial independence (FI) is defined as the point in which passive income covers 100% of living expenses. At this point, you’re no longer obligated to trade time for money. That is, you’re no longer obligated to work in the traditional sense.

While financial independence by that definition is binary – you either have it or you don’t – a friend (let’s call him Tyler so I don’t have to continuously say “my friend” like a fucking nerd) recently introduced me to the idea of tiered financial independence. For example, Tyler’s first level of FI is 50%; this level is reached when all debt is eliminated. His levels increase by 10% from there – each level being characterized by a quantifiable figure and the associated benefits that this figure brings. Like any reasonable person, Tyler ends his tiers at 100% or the point at which all expenses are covered by passive income.

I took particular interest in the 80% tier. This is where you are debt-free and have 5-10 years of living expenses saved up. You’re starting to feel like a pretty empowered mother fucker as you know that you can handle any kind of financial emergency that comes your way, but beyond that, you have the freedom to give yourself a taste of what 100% FI life will look like.

This is the ideal time to start experimenting with some of those dreams and ambitions that you’ve been putting off until you’ve reached 100% FI. This might include turning a hobby into a side hustle or turning a side hustle into something bigger (Like a front hustle… Bad joke. Tyler said it, not me.) Maybe you’re convinced that you want to spend your 100% FI years traveling the world? Take a sabbatical or unpaid vacation and do just that. You’ll be amazed at the opportunities that are  available at work when your employer realizes you’re not fully dependent on your job. In general, this 80% level of financial independence is the time to figure what exactly you want to do for the rest of your life when money is no longer a concern.

The entire conversation I had with Tyler really struck a chord with me – albeit not an entirely positive one. I haven’t determined which of his levels of financial independence I’m at, but as its been well published here, my goal is to reach 100% FI by my 35th birthday and it seems that I’m right on schedule (if not a little ahead due to the recent stock market boom – but we all know that we can’t rely on booms or busts for long-term planning; we all know that, right?). By some misaligned logic, I have it in my head that I’ll be well-prepared for retirement when I’m 35. As if by simply reaching that age, I’ll know exactly what my FI life is going to look like, and I’ll be able to transition into seamlessly.

So, I challenged myself to consider the scenario in which I achieved financial independence tomorrow and was no longer obligated to work. And I damn near pissed myself. It turns out that FI is scary! It sounds silly, but planning for retirement — not the financial piece but the “where am I going to allocate my waking hours” piece — is something that most of us fail to do regardless of what age we retire at. The source of this problem is that we focus more on what we’re retiring from and less on what we’re retiring to (I wish I could claim this idea as my own but I’m borrowing from the rest of the personal finance world).

Why do I think I’ll be ready for “retirement” when I’m 35 but the thought of retiring tomorrow terrifies me? Is it simply because I haven’t mentally prepared myself for such a radical change? Is it because deep down I don’t actually want to leave my current job? Anybody who has both read my blog and talked to me in person has asked me some form of the question, “What are you going to do with your time if you retire at 35?” My response is always something like, “Listen, asshole, if you need a job to tell you the best way to spend your time, you’re in need of some deep self-reflection.” I walk away fuming mad as if they’ve just attacked my manhood. The reason this question provokes certain emotions in me is because I don’t have a complete answer. So my insecurities come out in the form of name calling and tears. This frustration is reinforced whenever I have a weekend with few commitments and I find myself watching Netflix. If I’m bored on a Saturday when I’m 26 (Did you guys know my age? I guess since this blog’s readership is made up mostly of my mom, the answer is yes), surely I’m going to miserable by the time the second week of retirement rolls around.

While I value freedom above nearly everything else, I need a certain degree of structure in my life. Remember summer breaks when you were in school? Me neither. I do remember that after nine-months of insane structure, you were given three months of insane freedom. And for the first two weeks or so it was the best! But soon the freedom faded into boredom. By the end of the summer you weren’t necessarily excited about going to back school, but you were excited for the return of some structure.  I predict the same will be true for retirement life. I won’t necessarily be itching to go back to my old job, but I will be itching for some structure. The art is choosing what kind of structure is best suited to make me happy.

The legitimate answer I give to that anger-inducing question is that I envision the largest chunk of my time being dedicated to raising my kid(s). And while I think this is valid, I can’t count on my fatherly responsibilities to occupy all of my time. At a certain age my kids will have school to attend, and I’ll find myself with eight hours away from the little hell raisers (that’s a thing that Dad’s say, right? Shit, I’m going to be good at this!). At another point the kids will have their own personal agendas occupying their non-school hours. And at another point they’re going to leave for college. Presumably. There’s a fair chance that college isn’t a thing at this point or my kids will be too dense to get into one. Nevertheless, it’s not in my best interest or that of my future kids to expect that raising them is going to occupy all of my time and be the sole driver of my fulfillment.

I recognize that I’m getting to the point where I need to take Tyler’s experimentation phase more seriously. Because I don’t require the income from my job every single week of the year, I can take time away from work to explore what I want to retire to more thoroughly. Maybe a three-week trip overseas is necessary. Maybe I need to pursue one of my many ideas for side-hustles more seriously. Maybe I need to finally determine how many days it would take me to kill a keg by myself.

The idea that this all comes back to is simple – when I have unlimited time, how can I best spend it to maximize my quality of life? Figuring this out as soon as possible is a priority of mine, and probably should be for everyone. Certain things I won’t be able to completely validate until I am truly free from obligatory work, other things I can start experimenting with today. Actually, maybe I’ll adopt a kid to see if being a dad is something I’m into. Just kidding. I’ll get a dog.*


*Getting a dog to see if you like the idea of having a dog is not okay. If you’re not sure, foster one for a week. If you’re still not sure, the answer should be clear. Sorry for the rant, but there are few things that get me more fired up than bad pet ownership.

4 thoughts on “The Levels of Financial Independence”

  • 1
    Lizzy on February 5, 2017 Reply

    Great post!!

    Thank you for your “rant”. Regarding pet ownership. I couldn’t agree more!

    • 2
      Markie on February 5, 2017 Reply

      Thank you for the feedback! 🙂

  • 3
    Barrett on February 13, 2017 Reply

    Very well written article. It is definitely something that a LOT of people seem to forget, is what are you retiring to? I’ve recently had a lot of free time while I’m getting a business up and running, and it’s a weird feeling getting up and thinking “now what?” .

    • 4
      Markie on February 13, 2017 Reply

      Thanks a lot, man! Many of us are laser-focused on leaving obligatory employment ASAP so we maximize our freedom, yet we don’t know what we want that freedom to actually look like.

      I’m sure with starting your own business, you experience significant peaks and valleys with your free time. 🙂

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