[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.
Live Free MD and his spouse at Banff NP on a trip between SLC and AK (3 of my favorite places in the world incidentally)
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!
So true that this a process and also that we all have to tailor it. We’ve always taken 4-6 weeks vacation since residency, even at negative 350k worth. Life can be too short and for us travel has always been a priority. We’ve always traveled though (met in Peace Corps) so we just can’t fathom less time off. Regardless we are still on track for retirement and FI. But totally get others have different priorities.
I agree that FI is definitely a continuum. A related concept about the balance that you are seeking on your various stages is that when you get to the last stage you may realize that work is not so bad after all! I am currently around 2/3 to FI and have made many changes to my life and career and all of these small changes have led me to be in a position where I can finally say “I can do this forever no problem”. Probably if I had made those changes from the get go I might have never thought about FI anyway since a lot of my desire for FI was to be I independent of my job because I found it stressful. Of course when you are starting out you also don’t know exactly what type of career setup will optimize your happiness, it takes time to figure out.
Yes indeed. As my net worth increases, I find I enjoy my job more and more. Not necessarily because the job is getting better, but because the NEED to work and produce slowly decreases.
Thanks for the post and I laud your ability to charge hard, save, and LBYM. My net worth is below 1mil but I am trying to enjoy life a little more now (ie more vacations, some nice dinners) with my increased income in practice. This of course means less is in my retirement savings, but who knows if I’ll be around in 20 years (mid 30s now)? God forbid you or your partner has an accident or terminal illness in 10-20 years from now- would you rather have a lifetime of memories or a few million in the bank? For me its the former, and I still think I will retire comfortably. To each his own, and again, I am impressed by your discipline.
Wanted to throw out there, WCI often says don’t live in high cost area (like Boston where I live). But, had I not lived here in recent years, I would have missed 50% appreciation on my condo in 4 years. I cashed out 2 months ago in an off market deal (no realtor fees) and rolled the proceeds (tax free) without needing additional funds – into a single family home and locked in a 7 year ARM at 2.75%. My old home in rural New Hampshire was just sold by the person who bought it from me 7 years ago for 5% less than what he paid me.
Add to this – we still kept my wife’s smaller condo in Boston and rent it out.
She paid $340k and its worth over 500K now! We bank 6k a year after taxes and expenses.
Yes timing was perfect and its an exception to the rule, but living in a high cost center can have its benefits.
JustSayin
There’s no doubt that owning a home in a time and place where real estate appreciates rapidly is a good idea. The tricky part is predicting those times and places in advance.
Agreed – helped me make up for lost time.
I’ll add – I am a firm believer that deals exist in any market – just takes patience and time to learn the market. Furthermore – spending extra time researching for best mortgage rate is a worthwhile investment especially now as the upward trend is likely to continue.
Great post. I approach FI very similarly. I have a number like everyone else, but it’s more about the steps/stages in getting there. Extra call, no vacations etc until debt was paid off. Then no more extra call and taking the Mrs. on a European vacation (albeit still on a PoF style budget). Next will be less clinic hours and more/longer vacations as net worth grows. FI will mean part time work and likely more travel and pleasure then actual time at the hospital.
I’m convinced that if you start kite surfing you will reduce your FI number much quicker.
Nothing comes close in the sports spectrum to the joy of kite surfing 🙂
Haha, nice! Maybe I’ll start those lessons this summer. I hear the learning curve is steep.
I love kite surfing. Like wakeboarding except you have to drive the boat at the same time.
Embedded in your post, and tied in to your topic, I really like the idea of goalposts along the way. I never thought of it that way at all, but it feels like a good way to keep things in perspective. We passed more than one of your checkpoints, if I can call them that, without any thought about it whatsoever… we just have kept building, slower or faster as the rest of our life allowed for. However, when our cars finally gave out, and with our NW in pretty good shape, we both opted for more expensive cars. 18-19 years ago we paid $45K for both our cars. This time we loosened up the purse strings a bit. Granted, we live where it snows, so we put more emphasis on safety, but ended up spending $75K on two new cars. Proportional to our wealth, the $75K is definitely much less, and we really do enjoy the vehicles… our first vehicles were workhorses, no flair or style (nor AWD/4WD, and both base engines)… these are actually fun to drive, and should last pretty well. However, some things are a long term drag, and if I’d had my druthers, we’d have bought a smaller house. A wealth map of the type you lay out might have worked better as a plan over time. I think the hard part is understanding all the places your road may deviate from the ‘plan’, which of course should never be rigidly adhered to, rather used as guidance. I might lose my job and have trouble finding one that pays as well… or I might get paid more. I might get semi-forced into retirement. Health or family issues could derail the plan to work that last ten years. Having a baseline would help you understand what has changed, and give you some headlights into what you need to think about next.
Great job surpassing multiple goalposts. I agree that this plan is a rough roadmap, and I’ll likely update it every year of so. Ten years from now it will be interesting to look back and see what actually materialized.
It is great to have your goals and guideposts laid out into the future. But I would bet that your goals and ideas will evolve with time.
I am financially independent, can do whatever I want, have the 8 figure net worth, yet I still work part time. I am always questioning what the next chapter of life will look like.
I still like to see patients as it gives me a sense of contributing my skills for the benefit of others, of society. Somehow I need that to make me feel like a worthy person. And I still like making money even though I don’t need it. Somehow that also feels like a benchmark that what I am contributing has value.
On the other hand, I get to do lots of fun stuff. I take amazing international trips with my spouse about twice a year. I mountain bike in the woods with my gang to start my days on the right foot, usually about 6 out of 7 days each week. And I work in the hospital, currently about one day a week with patients, and about 2 days a week doing administrative stuff. I think I will probably keep working part time until I get too old to work. It gives my life an anchor and meaning.
While I don’t have an 8 figure net worth, I can relate to continuing to want to work (and earn) on my own terms while doing all the fun stuff too.
Sounds like a fantastic life. I agree that it is important to continue to contribute (perhaps even more so!) even after you become financially independent.
Congratulations! I agree that at some point it becomes more about meaning and service to others than it is about the money.
I’m a good deal older than you (62)and not in as lucrative specialty. Take the vacations. And better yet, take one protracted midweek day for yourself and your family. My dad was a physician and all good things in our family happened on Wednesday’s when we were more important than anything else. Call was harder then. He couldn’t step away from the phone even to go mow the grass or play catch. Cell phones are liberating My kids feel the same way. Wednesday’s are our happy days. Birthdays are mobile and can be celebrated on the closest Wednesday. Boating is less crowded, parks are empty so a mid day cookout is possible. Also take the piano lessons and do t stress out about how much you practice. If you can’t get an hour a day, enjoy 15 minutes. Music is so helpful for self care.
I’ve done job sharing for years. It isn’t as fast to FI but the process for family worked better for us.
You will get there. Sniff a few roses along the way. Medicine is a great hobby in later life. I also entertained myself mentoring medical students.
I agree that medicine is a far better hobby than job.
What a great post! I’m curious how things are going along for you…how closely have you followed the path you outlined for yourself 2 and a half years back? And did you take the advice that most of the comments alluded to… with a little more downtime than you’d initially projected?
Thanks for reviving the post. It is interesting to go back and read this almost 2.5 years later. I would say that things have gone reasonably well but not exactly according to plan.
We have reached lean FI, but I have spent much more time than I expected trying to build my practice (hence the lack of new blog posts over the last 2 years). Overall, my income has been lower than I expected and I have taken much less vacation time than expected.
My goal now is to continue to shape my ideal practice. As time goes on, I am focusing more on purpose and fulfillment.
Thanks for the update!