Financial Independence - The first Step

A world with increasing economic disparity and uncertainty certainly urges one to think about means to a secure future. Security can take many forms and is very personal. Though, in a capitalist economy, it is often financial. One of the many manifestations of this sentiment is Financial Independence. I am one of the many that are on this journey towards financial freedom and would like to share my understanding and experience, or a lack thereof.

An apt point to start would be to define Financial Independence. My definition of Financial Independence is to do what I want, when I want, without worrying about the financial consequences. A fundamental step towards achieving my goal is to decouple the time that I invest in an activity from the money that I receive in exchange, simply put, not depend on my job for (all) the money that I earn. You could argue that everyone works towards financial independence, so what’s all the fuss about? And you would be right. Most socio-economic systems are built with Financial Independence in mind with the moment of financial independence being retirement. Placed in this context, my goal is to achieve financial independence earlier than the moment set by most socio-economic systems. This is sometimes also referred to as F.I.R.E - financial independence and retire early - but I don't expect to sit back and relax on a beach for years on end, ever. Hence the retire early is less applicable in my case.

As mentioned earlier, FIRE is quite personal and need not necessarily be about money. A good portion of it, for me, is about the flexibility that is brought by emancipation from a full time job. Allowing time to focus on other aspects of life which may not be as financially rewarding — activities that give me energy — be it spending time with family, entrepreneural ventures, hobbies, traveling the world etc. While looking for ways to structurally define what I wanted to achieve, I came across several classifications of FIRE. These classifications provided a sense of direction and a feeling for the level of dedication needed to achieve each one.

Lean FIRE

As the name suggests, Lean FIRE is characterised by a simplification of ones lifestyle to achieve independence. This is often a financial choice, as living a modest life is fairly inexpensive in most cases. People working towards Lean FIRE sometimes prepare for the low-key lifestyle by saving viciously and being frugal while earning, avoiding a drastic lifestyle change at the 'moment of freedom'.

Fat FIRE

Fat FIRE is the opposite of Lean FIRE. It is characterised by maintaining a highly comfortable & luxurious lifestyle post giving up a paycheque. Expenses are often high and require higher savings. Therefore, Fat FIRE often comes at the cost of reaching independence at a later moment.

Slow FIRE

The situation with Slow FIRE is quite different from the two listed earlier. Here, the intention is to use the additional freedom gained along the Financial Independence journey to live a happier and healthier life, not targeting early retirement. This is typically for persons who are already in a fairly comfortable position pre-retirement; who would like to make their lives increasingly stress-free. This could be giving up a promotion or taking on a less stressful job later in the career. Most people involuntarily fall into this category as work takes a lower priority over time.

Coasting FIRE

Coasting FIRE is, in a way, a combination of the types seen before. It focuses on frugality and saving up a great deal during the early years of earning and stepping off the gas to achieve partial financial independence. Then continue working at a lower capacity, usually in fairly stress free jobs, allowing the saved amount to grow over time.

Of the types of FIRE listed above, Coasting FIRE was the one that resonated the most with me. Which, incidentally, is the first step towards early retirement. Having ascertained what I wanted my retirement to look like, the next steps are to establish a timeline and explore ways to achieve my goal.