Building Financial Independence

‘A woman must have money and a room of her own if she is to write fiction’

Virginia Woolf, A Room of One’s Own

When it comes to building financial independence so that you can live the creative life you crave, there are three main resources I found crucial along the journey: Your Money or Your Life, Mr. Money Mustache, and Early Retirement Extreme. Of the three, the book Your Money or Your Life by Joe Dominguez and Vicki Robin is the most accessible, and the best place to start. MMM is a kick-ass guide to financial independence with a big community, and ERE is a more academic take on the early retirement movement.

Your Money or Your Life outlines the three pillars of financial freedom:

  • Cache. The skill set you have which saves you money. This may include the ability to cook. To grow your own food. Perform maintenance on your car or computer. Cut your own hair. Or even, skills you can swap with others. Some of your artistic skills may fall into this category.
  • Cushion. Saved money to act as a safety net or an emergency fund. This may be a few months’, or even a few years’ worth of expenditure. You can rely on your cushion if you lose your job or if your investments suffer.
  • Capital. The money you have invested to provide an income. This may be in assets like real estate or shares.

No matter what kind of financial independence you seek, everyone can start building.

  1. Begin with your cache. Make a list of the skills you have now – skills you might often overlook even. Think of how you might swap them with people you know for things you might need, and save money that way. Next, make a list of the skills you’d like to have. Now brainstorm ways to pick up these skills for free. Check your local library, YouTube tutorials, or even free courses.
  2. Once you’ve built up your cache, you should find that you’ve freed up some cash. Begin by devoting this to a cushion. Open a savings account (one that pays a high interest rate so it also starts to give you a bit of investment income!), and save as much as you can. Pay yourself. You are buying your freedom, a dollar at a time. Every time you save money by not buying something, or by doing it yourself, put the equivalent in your account. Decided to make a 10c coffee at home instead of spending $4.95 on one at a cafe? Transfer $4.85 to your account. You’ll be surprised at how fast it will grow. Look for an account with an app attached that will let you do this easily.
  3. Once you’ve built up a cushion with a least 3 months’ expenses in it, you can start looking to invest for your future by building some capital. How you should invest will depend a lot on how much you have to spend, what your life stage is, your ultimate freedom goals, and the markets and laws in your country. Do some research and get some advice.

“Money is something an artist must master”

Jeff Goins, Real Artists Don’t Starve

Want to super-charge your savings? Your Money or Your Life is essential reading – and contains essential activities.

How much of your life are you spending?

One key activity involves questioning all your expenses. Work out how much they cost – in terms of your life. Every dollar you spend cost a certain amount of time (that is, life) to earn. That’s time you could have spent relaxing, with your family, or on your art.

What do you really earn?

Work out how much you really make per hour. That is, once you’ve taken into account all your work-related expenses and time use. Start by looking at how many hours you REALLY work. You might ‘only’ work 40 hours a week. But you might spend 10 or 20 hours commuting, getting ready for work, stressing about work-related matters, taking phone calls or emails, doing overtime, and so on.

How much are you paying to work?

Then work out how much it costs you to work. That is, how much you spend on transport. Special clothes or makeup. Childcare. Eating out more than you would if you weren’t working. Now, take that figure away from your paycheck, and divide what remains by the number of hours worked. You may find that you earn a lot less per hour than you thought.

For example, you might earn $20 an hour after tax, 40 hours a week = $800. Sounds great. A $10 coffee and cake or magazine is thus ‘only’ 30 mins work. But you might spend $15 on transport each day. $15 extra a week on personal appearance. $60 extra on work lunches.

Even these ‘modest’ amounts add up to $150 in costs per week – meaning you ‘only’ earn $650 – or $16.25 an hour. This means, that coffee cost you not 30 mins of your life, but almost 40.

Worse, if you spend 30 mins a day getting to work (and 30 back), an extra 15 mins getting ready for work above your weekend routine, and an extra 30 mins of your day worrying about work-related matters or dealing with extra work stuff like phone calls and emails (including on weekends) plus one hour of overtime per week, you’re not really spending 40 hours a week on work. It’s more like 50 hours a week. That means you’re only earning around $13 per hour.

So that coffee break costs you almost an hour of your life. You’ll have drained the cup and finished the cake before you’ve paid it off. Does it still seem as worthwhile? What could you achieve if you had an hour of uninterrupted time to write? To paint? To think?

For many of us, the situation is even more extreme. Working 60 or 70 or 80 hours a week is not uncommon. Nor is it unheard of for well-paid professionals to actually be trading every hour of their life for as little as $5 once all the demands on their time and money are accounted for.

Once you know your ‘true’ hourly wage, you can consider how much (in time) everything is costing you. Write down your expenditure, then how many hours you had to work for it at your real hourly wage.

Was it worth it? Finally, consider whether it’s aligned with your purpose in life. Is this expense furthering your goals – or holding you back?


Vicki Robin’s website has an amazing tool, the Life Energy Calculator, to help you work all this out. I highly recommend playing around with it for at least a few minutes – the results may surprise (or even horrify!) you!

How much is enough?

Your Money or Your Life also has a chapter titled ‘How Much is Enough’, in which the reader is encouraged to track every cent flowing in and out.
My husband and I did this solidly for a year, and at the end of every month, we added up all the categories (bills, charity, events, eating out, entertainment, groceries, health/hygiene, household items, non-work clothes, non-work transport and work expenses, were ours) and asked the following questions which Dominguez and Robin recommend:

  1. Did I receive fulfillment, satisfaction and value in proportion to life energy spent?
    After subtracting all of our work-related expenses, and after dividing pay received by the actual number of hours worked, we realised that, on average, we earned $7.82 per hour. So everything we spent was converted to life energy, and then evaluated purely on that basis.
  2. Is this expenditure of life energy in alignment with my values and life purpose?
    Thinking about how we spent not our money but our life energy at month’s end really helped us to evaluate which expenses we might trim. Some things, when you see how much of your time they took to earn, really aren’t worth it.
  3. How might this expenditure change if I didn’t have to work for a living?
    Finally, we considered whether we might not need to fork out for certain things (like daily train tickets or suits for work) in our free life of the future, and adjusted our planned future expenditure accordingly. Taking a $15 daily train ticket out of the equation, for example, and replacing it with an occasional $8 weekend ticket, meant lowering our planned post-freedom budget by around $3,500 – which meant huge savings in terms of how much we needed to invest. Which brings me to the next step…

The rule of 25

In the previous post, I hinted at a very exciting formula: the rule of 25, otherwise known as the ‘4% rule’.

The 4% referred to is considered the ‘safe withdrawal rate’ – that is, how much money, after taxes and inflation, you should be able to withdraw each year without touching the principal invested.

Simply stated, this means that if you multiply any annual expense you have by 25, you can work out how much you would need to invest in order to cover that expense from interest alone, in perpetuity (that is, FOREVER). Just like the free coffee example.

Check it out: Say you pay $9 a month for your cell phone plan, or $108 per year.

Multiply that $108 by 25, and we get $2,700.

If you save and invest $2,700, at a 7% rate of return (the average stock market return), you’d receive $189 – which, depending on what other income you have and where you live, should be enough to pay your phone bill for the year, with enough left over to pay your tax and a safety margin for inflation.

Why is this a big deal? After all, $2,700 is a lot of money. If you’ve got it, why not just keep it in a jar or under your mattress. You could pay a $108 bill many times with that. In fact, you could pay exactly 25 years’ worth of phone bills with that.

First of all, after 25 years, your supply would be exhausted. That might not be so much of a concern if you’re currently 98 years old. But if you’re sixty-ish and nearing retirement, knowing that you’ve got your bills paid for life, not just for the next 25 years, is important. Chances are, you’ll still be around in another 25 years, and wanting to use whatever amazing new phones we have at that point in time. This point is even more important if you’re looking to retire early. If you’re 50, or 40, or 30, or even 20, I’m sure you’ll be hoping to live a lot longer than another 25 years – and I’m guessing that you don’t feel like picking up a new job at 75.

Secondly, while the stock market, and even bank accounts, are far from fail-proof (stocks or shares being significantly less safe than bank accounts), if your money is earning no interest in an inflationary environment, you are also losing money.

In short, with inflation, things get more expensive every year. If your money isn’t earning more money to combat that, you’re actually going backward.

You can find more in my series on Enrichmentality:

“Money is coined freedom”


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