Since it is the Fourth of July, a rant on independence seemed appropriate. After all, it was my overwhelming desire for Occupational Independence that got me into consulting in the first place.
When I started my consulting practice, I was NOT Financially Independent (FI) — which I define as being able to quit one’s job and live off one’s investments. That came later. But the consulting practice put me on the path to FI.
There are two ways to achieve FI – save/invest more, and spend less. When your investment proceeds equal or exceed your cost of living — viola — you have become FI.
That doesn’t necessarily mean you quit working — but it does man you no longer need to do so. It happened to me after about ten years in my own business. One day, reviewing my finances, I realized I was there. Trust me, it is a great feeling!
With a wife, two kids, and a mortgage I had been locked into a job like so many others. As an engineer, the job was good and paid well. But having grown up less than affluent (my dad died when I was a teenager) I had learned to be frugal. For somewhat similar reasons, so had my wife.
No, we were not paupers. We lived in nice houses, but they were always less expensive — and ostentatious — than many of our peers. We drove decent cars, but most were used — and we drove them into the ground.
We took fun vacations, but many were with a used tent camper — no expensive ski trips or cruises for us. (We did go to Hawaii and Disneyland a couple of times — on free frequent flyer tickets.)
We remodeled, repaired, gardened, and generally had a good time. Because education was important to us, we sent both kids to college, where they graduated debt free. Savings, scholarships, part time jobs, and state universities all helped there.
We did stash other money away. At first, it was not enough to become fully independent. But it was enough to make my own JumpToConsulting in 1987. I figured the start-up stash would last six months with no income, and a year or more with any business at all.
As it turned out, the stash was more than enough. As an aside, I had tried this once before, without enough stashed away. After three months, I threw in the towel and went back to work at a regular job. The second time, however, I was better prepared (and wiser for having tried the first time.) More details here.
Starting any business (consulting or otherwise) does focus you financially. Resources are scarce, and you can’t squander them. You carefully evaluate purchases, and you make tradeoffs. You do NOT waste money!
Incidentally, Warren Buffet did the same thing — even as a child he often traded spending a dollar today for ten dollars in the future. I guess he has done OK.
On a smaller scale, Mr. Money Mustache (a fellow engineer) retired at age 30 by following the same practices. Actually, he didn’t really retire – he now just does what he wants to when he wants to, but with no financial worries.
Hop over to his blog to learn more -- lot’s of good practical advice backed up with engineering data and mathematical “rules of thumb.”
- I particularly like his Rule of 752 — save a dollar a week today, and in ten years you will have $752. For monthly expenses, use 173.
- Another rule – save 50% of your income – and retire in 17 years. Better yet, save 75% and retire in 7 years, which is what MMM did. Yes, it is doable – you just need to do it. (Kind of like dieting… down 20# here in the last six weeks… perhaps a future post?)
Finally, consulting is just one of many paths to achieve FI. By being financially prudent, living beneath your means, and stashing away as much as you can, you too can become Financially Independent.
Happy Independence Day! Start today, and you’ll get there a day sooner than if you wait until tomorrow!
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