Retire Early Archives - That Girl On Fire

A lot of folk say that financial independence doesn’t follow a linear path. That the stages of financial independence change.

I disagree, because actually, if you look at common themes in people’s finances across the spectrum, the trends are clear.

Personal finance is of course, always personal, but the “stage” we find ourselves in at any point in our life is often one of only five others. This starts at being completely dependent on others and ends at being completely financially independent from anyone.

Everything in between is where you make your money mojo.

Bear in mind, some people never move out of the first couple of stages, or sit comfortably somewhere in the middle anticipating a traditional retirement at 65. Some people get to the later stages, but fall back after major life catastrophes, and a small handful reach the holy-grail state of eternal passive income and are financially set for life.

Whatever your current stage, it’s not too late to progress it. Once you understand where you sit, the reality sinks in and you can start looking at where you want to be, moving out of the stage that doesn’t suit and into one that looks a bit better on you. Here are the stages of financial independence, from dependence to abundance, surviving to thriving.

Stage 0 – Dependence

Baby, you were born this way. This is what I’d call the newborn state, where your basic existence is funded by others – their financial generosity feeds you, clothes you, keeps you warm and well and covers your everyday needs. This is usually your parents, or carer – but shockingly, adults also fall into this category. It’s called debt; a lifestyle funded entirely by creditors, where you spend more than you earn and your income (if any) barely touches the repayments. If that life line was cut off, you’d sink.

Stage 1 – Solvency

The next in the stages of financial independence is called solvency, where you’re up-to-date on your bills and meeting your financial obligations as and when they come in. You don’t depend on handouts or credit, you’re not creating anymore debt with your lifestyle choices and by all accounts, you’re earning some sort of profit through your income – you’ve got some disposable cash. If you’re actively paying down debt – even if it’s a minimum repayment – you are paying down your bills so you are considered solvent (amazing work – this is the first step to building real, lifelong wealth).

Stage 2 – Stability

Stability is achieved once you’ve hit some basic financial goals – like being personally debt-free. Note that this is debt outside of that which is typically considered to have growth potential, like a mortgage, a business loan or student debt (this is still a priority to pay off but not as urgent as consumer debt). And if you’ve got some basic savings to cover an unexpected event, as well as continuing to support yourself with your income, you’re stable.

Stage 3 – Agency

You’re completely debt free! Congratulations. This is one of the most important stages of financial independence. You’ve paid off all debt, including a principle mortgage and you’ve got enough FU Money in the bank to walk away from anything at any time (my advice is to have this in your arsenal, anyway). You’re a free agent, not tied to anyone or any workplace entity to dictate your decisions. This is the last stage in the “surviving” category – from here, it’s all about building wealth. In my humble opinion, you can (and should) start this building wealth ASAP. It’s never too early to start investing.

Stage 4 – Security

So you’ve been diligently investing in a broad range of asset classes and now, your passive investment income (income you do not actively work for) covers a basic standard of living. Simple food, keeping that roof over your head (either rent, or because you’ve paid off your mortgage like in the third stage of financial independence – covers basic fixtures, repairs and annual home and contents). Maybe also medical expenses, new clothes when the old ones tatter, the bus fare to town. Not much more, but you could do this indefinitely.

Stage 5 – Independence

Those magical words – financial independence. This is where the standard of living you’ve become accustomed to, and those creature comforts you love, are both serviced by your investment income. You don’t need to work if you don’t want to. You’re living well above the poverty line in a modest and comfortable but fulfilling way. As you’ve probably been investing for a while, this way of life is not new and something you’ve grown happily accustomed to.

Stage 6 – Abundance

Although I write a lot about financial independence – financial abundance is really the goal with money, at least for us. Your passive income pays for everything, and then some… you can travel, build a passion business (with no expectation or need for it to become profitable), you can give wealth away to others, you can make guilt-free luxury purchases… the list is endless. You’re earning far more than you need so a huge chunk of that income is disposable. Ah-mazing!

How young can we achieve this? According to a U.S. LIMRA Secure Retirement Institute study, less than 1% of people will achieve retirement before the age of 54. Closer to home (ABS research), 8% will achieve it between the ages of 45-49 years, with presumably a smaller percentage any younger. Hopefully, though, that’s changing.

So where do you sit in all of these stages of financial independence? Where would you like to be? What would best reflect your financial goals? I’d love to hear about them.

In the vein of sharing (and because we all love a little nosey into someone else’s stage), hubster and I are getting closer and closer to Stage 4. With the compounding benefits of our investments (that lovely interest on the principal sum as well as the accumulated interest already earned), will hopefully reach Stage 6 within the next decade.

Now, wouldn’t that be a nice place to exit stage left?

To start off our financial independence story, I’m going to take you back to a smaller version of me.

Still as curly-haired, still as gappy-toothed, but much less wrangled by the world. I would read books widely and voraciously (thanks for making reading such a big part of our lives, Mum), and had a particular penchant for books about magic, mystery and grown-up women kicking ass.

On the latter side of things, this usually came in the form of stories of young women entering the workforce for the first time.

They were well-educated, worldly, ambitious, strong-minded and unafraid to take risks and meet challenges head-on. Mostly, they were university grads, working an internship in a fabulous company – climbing up the career ladder to success, perhaps falling in love en route, wowing their boss, befriending the “uncool” colleague, and sparring with a major competitor (always female… why?!).

I wanted to be her. Not her, as a person, but what she represented. I wanted more than anything to work. I was hungry for professional grandeur. I was a diligent student, I enjoyed learning, I enjoyed the routine and the discipline and as someone who, despite a rebellious streak, tends to want to please people inherently – working was the perfect environment.

So, I studied hard, thought long about what I wanted to do, and eventually got my degree with a number of other voluntary professional achievements that would bolster my graduate applications.

As I turned out, I wouldn’t need to apply for much. I was offered a job with an events company right before I finished Uni – which was hell on earth, and I left within the month. Imagine being thrown to the wolves with zero training to organise a huge national conference, and then being asked two weeks into the job why no-one was signed on as a speaker yet. I bowed out pretty in a pretty undignified way from that gig.

Enter stage left the little voice in the back of my head: “Imagine having to feel that anxious for forty years?”

Be quiet, I told it. That’s not a good example, it wasn’t the right job. You don’t even want to work in events. That’s not what you studied. It was a stop-gap.

Next, a job as an editor that came after a writing internship. Difficult work, difficult people (that’s high-fashun for you) but rewarding. And there’s that little voice again: “Wow, I can’t believe you have to work this hard for forty years.” Again, I silenced it. Not a good example, remember – I won’t be here much longer. I’m cutting my teeth writing and I’ll overlook everything else for now.

Then, a dream job. Amazing boss, a revolutionary startup in the technology sector, an opportunity to build a team and solve a genuine problem to improve the lives of other people.

And what a ride it was for the next two years (I often credit this job to most things I know about leadership, growing ideas, communicating well and pivoting well from bad or stressful situations). Follow that by a few different roles within another startup, all with great learning experiences and relationships of its own.

But still that voice. “People die at 70, you know? Like, the time you’re supposed to retire. People die. You never know. Crazy that we all just accept that, right?”

Yeah. Right. Actually, yeah! Right! Cue emotional breakdowns in my living room at 10pm at night if I wasn’t too exhausted by the workday, sobbing into my husband’s arms. To me, there was just no other option. You work. You work. You work, says the robot. You must work until you’re old. And I didn’t like it, nor understand it. Something about it turned my stomach.

As a little bit of background, my husband and I had been good with money up to this point. This is not a typical story of being terrible with it, living with the silent marriage-ruiner; unsecured and personal debt, and making bad financial decisions.

Since we’d been together, we’d be saving routinely and often. By the stage of said emotional breakdowns, we had just moved into the home that we had bought in Sydney’s inner-west fringe (with a 20% deposit) during the peak of the property market in 2017, we were salary sacrificing for super, we had a nice little share portfolio ticking away, we had paid for our second-hand, but very nice Mazda CX7 in cash and were also about to cash-flow our new kitchen, and some of our wedding.

So my concerns weren’t about having enough money. In fact, it’s never really been about money at all.

Rather, it was the emotional weight of the longevity of work. It was the unknown of my future – what would happen to me, or my husband, my family, or even children we might have? Why wouldn’t we want to maximise our time and the hours in our day to enjoy the things we loved, now, rather than wait until “the golden years” later?

No-one could anticipate where we’d all be – and considering the known statistics on how people’s health and energy deteriorates by that age, being dependent on something external and out of my control to get there felt just so… illogical. But to my knowledge, there was no other way – and so I emotionally, and begrudgingly, just accepted it for many years. We had been saving and investing – but for a retirement we believed was out of reach for many decades yet.

When I first found out about FIRE (Financial Independence Retire Early), I remember the warmth in my body, radiating and heating upwards from my toes to my head. It was Mr. Money Mustache’s blog and it was a passing recommendation made to me from one of the smartest people I know; an old colleague, and now (along with his wife) a good friend.

I remember reading his words, his maths, his reasoning, and just… everything clicked. The rest of that day (sorry old boss) I got my hands of every piece of material I could about him. Every podcast, every interview, every TED talk, every everything. And that was Pandora’s Box. It was the tip of the iceberg in terms of what the financial independence, retire early community was putting out there. There were bloggers! Women! Like me! My age! My income! Doing it (or already having done it).

FIRE opened up a world of possibility that defied the typical ideas of working for the exchange of time for money. It gave people, like me, a sense of control and financial empowerment. It gave people a tangible timeline, it allowed them to find abundance in simple things, to shake off the consumerist coat they were sweating in, and find joy in their daily work – knowing it wasn’t going to be forever.

For many, it allowed them (as they wound down to their financial independence date) the opportunity to volunteer, travel and work to completely better the life or someone else, without fear of lack of a paycheck. It allowed them to spend more and more time with their children, enjoying the little developmental things their children did that they otherwise never would have been around to notice; or relish in those important final days in a parent’s, or a friend’s, life.

Some people decided to keep working. Some had the flexibility to take time off to search for a job they had always wanted to do, but had never had the time to apply or network for. Others started their business, knowing it might not be profitable for a year or even more, and not worried about that in the slightest. Some filled their days gardening, turning a hobby into something they could monetise, or even not at all. But that beautiful notion of choice is inherent in all of these.

And something I have come to believe that every human fundamentally deserves. Because sure, we technically can do all of those things outside of a full-time job. But when you factor in the commute, the energy-sapping day, the after-school routine, the random life admin you only have time for outside of office hours and weekends… how much time do you really have? Not opportunistically. Not “make it a priority and just do it if you’re that unfulfilled”… how much time do we really have?

In 2018, I started my copywriting and communications business, Wordy and Smith. And to say that starting a business is the best thing I’ve ever done in my career would be an understatement. It is absolutely incredible. I love my work, I love how I have total control of my time, who I work with and what I earn. But that little voice you read of earlier? Still there. Loud and clear.

So it’s also incredible in another way. It proved to me that I was on the right track, and that my feelings and discontent with work were valid. That I don’t want to be spending my time working, beyond another decade at the most – but at least I can really enjoy the journey to get me there.

How does my husband factor into all of this? He’s not quite as emotional as I am, but this is certainly something he’s excited for. Did I get him onto the financial independence bandwagon? Yep. Did he teach me a lot about money management on the way, though? You bet he did. We complement each other in a lot of ways, and we’re now completely dedicated to this journey. He might have taken a little longer than me to come around, but what matters is he’s here now – and he’s really excited for the future of being financially free (he even has a few business ideas he’s mapping out).

We didn’t start the FIRE, but you know what they say, FIRE always spreads with a spark.

Hopefully this is yours. Welcome to our journey to complete financial independence.

Tag Archive for: Retire Early

The Stages Of Financial Independence