[Live Free MD is a blogger and a WCI forum participant. He made a forum post about the concept of gradual financial independence recently and I asked him to expand it into a guest post. We have no financial relationship.]
Most participants in the WCI community have some idea what their “Target Number” is for financial independence. This number is probably very large and will not be obtained for many years. A recent WCI forum discussion showed that this financial independence number ranges from 2-10 million for most physicians and other relatively high income professionals. One usually arrives at this number by projecting their yearly expenses during “retirement” and then multiplying it by 25 (for a classic 4% withdrawal rate) or 33 (for a more conservative 3% withdrawal rate).
Financial Independence is a Process
Although it is important to have a goal number in mind so that you have some idea of what you are shooting for, in reality, financial independence is not a number. You do not work full blast for 15 years, reach your number, pop the champagne cork, and then collapse on the couch without working a single additional day in your life. Rather, the path to financial independence occurs gradually over time; it is a process, not a destination. You could think of financial independence being a continuum, ranging from 0% financially independent (net worth several hundred thousand dollars negative owing to student loans) to 100% financially independent (your ultimate goal number).
In the process of obtaining financial independence, you will be able to make positive changes in your life that reflect a greater degree of financial comfort. These changes don’t happen all at once. Rather, you can start to incorporate these positive changes as your net worth gradually increases. This breaks down the large FI number into several small goals with rewards along the way. It is much easier to stay motivated if you are accomplishing the smaller more manageable goals on a frequent basis, rather than simply looking way out into the future at that huge FI number.
The journey to financial independence and the goals along the way will look different for each person, but I wanted to give you an idea of what it looks like for myself. I have broken my path to financial independence down into several net worth goals, and each net worth goal is accompanied with a reward in how I choose to practice medicine and some of the bucket list items that I want to accomplish in life.
The path starts out with me over $400,000 in debt immediately after residency. At that point, I was financially DEpendent. This was not the time to expand my lifestyle or give myself some freedom; this was the time to buckle down, live like a resident, and charge. During this time, I worked hard, took call, didn’t take any vacations, and gave a half dozen presentations throughout the community to expand my practice. I recently paid off all my loans, 2.5 years after residency. In case you’re wondering, this is how I did it. Going forward, here are my net worth goals and the rewards that I plan for with each goal.
My Financial Independence Timeline
Net worth of $0 (worthless)
I recently rewarded myself with a change in practice that involves no call and no weekends. The freedom begins. I still plan to work hard (some of you in heavy call specialties may laugh at this), live like a resident and not take any more than 1 week of vacation per year. I also recently started a blog to connect with the FI community and expand my skills beyond medicine.
Net worth of $500K
I plan to increase my vacation time to 2 weeks per year, and my wife and I will take one nice vacation per year. We still plan to keep to a goal budget of 50-60K per year in total spending.
Net worth of $1 Million
I plan to increase my vacation time to 4-6 weeks per year, and attend some specific conferences to expand my skills (both business and technical skills,) to start molding my current practice into my “ideal” medical practice. My wife and I will also save up for a down payment on a home (we are currently renting).
Net worth $2 Million
At a 3% withdrawal rate, we should be able to support our modest $60k/year lifestyle without additional income. Time to bust out the bucket list (you have one of those, right?). For me, my bucket list involves taking a season off to race cyclocross nationally, climb Denali, invest in real estate, develop an iPhone app, learn how to play the piano, learn how to kite surf, teach a high school course on personal finance, and write a book. It’s all possible when you have some financial freedom.
Net worth $3 Million
I hope to have my “ideal” medical practice set up, which will generally involve seeing the types of patients I find most rewarding and dropping burdensome administrative tasks, which may mean that this is a cash-based practice.
Net worth $5 Million
The ultimate FI goal, but remember, this is a process. We may never reach this number. Or, if we do, this may give us the freedom to further expand our lifestyle. At a 3% withdrawal rate, 5 million should support 150K per year in spending. Hopefully, I still enjoy medicine and will continue to practice, but at this point it will be completely on my own terms. I would only plan to work in medicine for around 20 hours per week at this point, with the rest of my time devoted to outside pursuits, including family, continuing my athletic endeavors, and lecturing around the country on topics I feel strongly about, including preventive medicine, exercise, obesity management, healthcare reform, and financial acumen.
Toward a Life of Freedom
This timeline is certainly a work in progress, but I hope it demonstrates that financial independence is not a number; it is a journey. Enjoy the adventure and make sure to reward yourself along the way. You can gradually mold the life you have into the life you want, in pursuit of the ultimate goal which is a life of freedom, security, purpose, contentment, and contribution.
What do you think? What does your financial independence timeline look like? What freedoms and activities will you gradually incorporate into your life as you get closer to financial independence? Comment Below!