Financial Independence: The Stage You Are At Makes All The Difference

Have you ever heard financial independence advice that just seems 100% wrong for you? It could be that the advice is intended for someone at a different financial stage in life. I claimed my financial independence around 4 years ago but it is only now in retrospect that I think back on different stages of financial independence that I have gone through.

I now understand that I would give different and sometimes even totally opposite advice to others depending on which stage of financial independence they are at. For example I might push you to spend less if you are in debt and/or saving to get your financial freedom. However, I might actually push you to spend more if you are comfortably beyond financially independence (FI) but still practicing frugal habits that limit and no longer serve you. I might tell you to forgo happiness in the short term in the beginning but tell someone who has reached FI to make it your primary focus. I might tell someone who has just reached FI to enjoy not working but tell someone who has been FI for years to get back to work. Let me explain…

But first a disclosure. This article and everything on this site represents my opinions and experiences alone. It is for informational purposes only. While I strive to offer good information, I make no guarantees of any kind and am not a financial professional. Moreover we all only get to live one life which biases us to that experience. It is up to you to make your own personal financial decisions based on your personal situation.

Three Stages Of Financial Independence

Getting to financial independence (early stage) may be the biggest endeavor that many take on and is the most written about stage. This is for good reason. Getting to financial independence can be transformational in providing options, security, and empowerment. However, for me things changed quite a bit once I got there and went through actually claiming my independence and enjoying some victory laps for the accomplishment (middle stage). How I looked at earning, budgeting, spending, investing, working, happiness, and adventure had to change substantially as I entered this middle stage of really claiming my FI, celebrating it, and understanding what to focus on now that I had an entire workweek open to allocate how I saw fit.

Now after 4 years of this experiment living outside the maze, I find myself in what feels like a later stage that I’ll call post FI fulfillment. My finances have improved substantially. I am taking what I learned from that middle victory lap stage and building something with priorities that again look very different from what I would suggest to someone in that middle stage. This realization motivated me to share the following table. If you have been FI for awhile, I would really love to hear from you in the comments to understand how this compares to your experience or even get a glimpse of what to expect going forward from here if you are an OG in the FI community:

How Everything Changed

Through Stages Of Financial Independence

Financial Independence In The Beginning

For my entire life, I had been trying to get ahead.  When I started my career in my 20’s during a recession, my partner and I saved over 50% of our pay because we wanted to get ahead financially.  We didn’t exactly know why but we had a vague sense that more money would mean more freedom, more flexibility, and more security.  I took on as much responsibility as I could at work and I pushed for greater roles and more direct reports regardless of the money.  This meant more stress and hardship for me.  However, I was building!  I had a correct assumption that compounding my skills early was even more important than money and that by doing the job and getting the results, the money would follow.  I was in the early stage of getting to financial independence.

Financial Independence Early Stage: Getting To Financial Independence

If you are into financial independence blogs and podcasts but always skip the lifestyle stuff and focus only on the investment and money making strategies, hacks, and stories, you are probably in this early stage. In the early stage you are building your financial freedom. When you first start to take control of your finances there may be a rush of excitement. I would urge you to make progress and at the same time not burn so hot that you burn out. In time your excitement will give way to the tempered reality and disciplined journey of working to accumulate wealth.

In the beginning, it is hard to focus on happiness or living your best life when you worry about getting fired or paying the bills. You may feel like others have the power and you do not. Early in this stage, money is like oxygen. When you don’t have enough it is all that you can think about. Getting out of debt is an emergency at this stage. That debt is the miracle of compound interest working against you and you need to flip it to working for you by saving and investing. Saving enough to cover an unexpected car repair or having a safety net for next months rent starts to get you some of that power. It builds incrementally with finances.

Advice For Getting To Financial Independence

Stage one of the financial independence journey is unfortunately where most people stay for most of their lives.  Hustling is hard, investing feels complicated, and spending less is really hard in a consumerist capitalist machine that is doing everything it can to push you to spend and make you feel like ludicrous consumption is normal.  However, the way compounding works makes it super important to make earning more, spending less, and investing the difference a top priority as early as possible in your life.  

Financial Independence Early Stage Spending: 

You can cut more than you think without it impacting happiness.  In fact frugality can be fun and should be your virtue in this early stage.  Frugality can teach you what you actually need versus what you think you need:

• THE VIRTUES OF FRUGALITY
• HOW TO SAVE OVER $100,000 WITHOUT GIVING ANYTHING UP
• MY TOP 80 WAYS TO SAVE MONEY RANKED
• INSANELY EXTREME FRUGALITY

Financial Independence Early Stage Earning: 

Now is the time to maximize your salary and maybe even do some rental properties or other side hustles.  Every dollar you make today can mean 2 dollars less that you have to make in ten years due to the magic of compounding. Hence I am a big advocate of front loading your financial independence stash.  

Financial Independence Early Stage Investing:

Investing may be even more important for building wealth than earning more or spending less for the average household.  At this early stage, I would offer that the first few years do not look that impressive until the compounding really takes off.  Early on, you have plenty on your mind so maybe consider keeping your investing simple with something like total market etfs and an emergency fund in an interest yielding bank account or other liquid fixed income instrument such as a bond or t-bill ladder.    

Financial Independence Early Stage Budgeting:  

Early on, a budget is critical. It is the tool that will allow you to build the habits and awareness so that you do not need a budget in the future.

1. Understand what you spend in a year and where you spend it.
2. Identify opportunities to spend less and set goals.
3. Periodically review how well you are sticking to your budget and iterate back to #1.

The better you get at this, the less you will need this process in the future. It will become habit in time.

Financial Independence Early Stage Working:

There is a cold hard truth to numbers when it comes to building financial independence. If you do not have a sufficient surplus between income and spend to invest, you simply will never get to FI. I made my FI from the surplus on a high paying career together with side hustling and investing. I know too many friends that lament how little they get paid or how little society values some professions versus others.

We don’t get to live in the world that we would like. We get to live in the world that is. I would offer that it is worth taking an early look, a long one, and a hard numbers analysis at what your life and finances will look like versus other life goals and passions around working. Be careful of the sunk cost fallacy if you find yourself in a low paying job. Actually run your numbers and look ruthlessly at your alternatives. You get what you work toward be it money or other factors. At the same time, if FI is one’s goal, it is possible to get to FI in a decade or so if sufficiently motivated. It can be done even if maintaining a lower paying career or starting from a less than perfect place. For most, this involves maximizing pay and side hustling.

Financial Independence Early Stage Happiness:

Generally, I believe that money should not be used to try to buy happiness but rather that money can prevent some unhappiness. It turns out that while expensive experiences can be fun, we acclimate quickly and living upper class doesn’t actually change your overall contentment or feelings of well being. My take away from this research is that rather than splurging on $15 drinks or fancy vacations in your 20’s, you are generally better off living modestly and saving money into investment accounts so that you can compound and live financially independent at a middle class level later in life.

On one hand I recall being very happy in my early stages building toward FI as life possibilities were opening up, I was building my career, my family etc. On the other hand, in retrospect I see that having the freedom and power to make work optional brings more net happiness long term than yolo-ing in my 20’s or early 30’s may have provided.

Financial Independence Early Stage Adventure:

We all change over a lifetime. For example, most elderly folks are less excited to backpack around the world in their 70’s than someone in their 20’s would be. If you wait until you are 35 with 2 young kids, that time to sleep in hostels around Europe has passed. Hence there are some things that simply need to be done at the right time in life if you are going to do them at all. Does this conflict with building FI? I don’t believe so. It is important to remember that money is a tool but life is the goal.

When I was 27, I left my job and backpacked around the world for about about 7 months. Is this at odds with what I said in the happiness section directly above? I don’t believe so. In the early stages, I did lots of adventures in life. However, I did them creatively and frugally. This trip around the world cost my lady and I less than $30K total (or $15K each back circa 2007). We also had informal discussions with bosses about returning to jobs upon our return and we had already jump started our savings within our first 5 years of working saving over half of what we had earned each year. That savings is and was power. While many adventures can be deferred in the early stages of FI, some simply can’t and shouldn’t be. Do them responsibly and get compounding!

Financial Independence Middle Stage: Financial Independence Victory Lap

What happens when you have enough to make work optional under the 4% rule or similar guidance? Congratulations, you are financially independent! For many, the claiming of financial independence can be transformational. I started this site as I began this victory lap stage.  My mission was to no longer work for others for money but instead work for myself for happiness.  The first few months were recovery and discovery.  It felt like a weight had been lifted.  I did all of my to do lists that had been piling up.  I had time for more hobbies, time to spend with family and friends, and even time to do some straight up adventures from my “don’t call it a bucket list.” 

In direct contrast to someone in the early stage working toward FI, I would recommend shifting your primary focus away from money and making happiness and self improvement a more primary focus in this middle stage now that money is working for you. Why? Because common sense and much research indicates that an endless desire for more cash means you will never have enough.

For me, I looked closer at the link between money and happiness to try to understand the stories that I told myself about money. I also looked at habits, tried life experiments, started meditating more, and got to know myself better. I believe that getting financially independent in that early stage or at least getting a nice FU money cushion (if taking a coast FI sort of slower path), is really important for creating a safe space to do these things in this middle stage. Stage one was hard and I built lots of habits. These habits carry into stage 2. Some habits need to be updated.

Financial Independence Middle Stage Spending:

You worked hard to understand your post FI money needs and amass wealth in that early stage to get to FI. Stick to this plan in this middle stage. One of the biggest threats to FI in this stage may be lifestyle creep from trying to keep up with the new Joneses that you compare yourself to now. Avoid this habit because it just creates an endless cycle of hedonic adaptation, more consumption, and more adaptation. Be diligent about living with your own scorecard and within your means.

At the same time, the middle stage is your victory lap. Experiences offer a better happiness return on investment than things. You have saved for some adventures and things you have always wanted to do. Do them and do them within budget.

Financial Independence Middle Stage Earning:

Your earning spigot doesn’t shut off at an arbitrary number.  Consider keeping going the areas of your income with outsized return vs. effort and/or the parts you enjoy. Just because you are financially independent does not mean that you stop applying yourself. Since we live in a capitalist society (in the USA), applying yourself sometimes yields income even if it is not your primary goal.

Financial Independence Middle Stage Investing:

Keep compounding.  Remember that the most likely case of the 4% rule guideline leads to 2-3 times more wealth over time.  Optimizing your portfolio can be really worth it at this stage.  For example 1 hour of moving your $200K emergency fund from a checking account into high yielding savings account can mean $1,000s more per year. Small tweaks can be worth it at this stage.  Monitor your investments for sequence of returns risk because the first 10 years are important for long term success.

If you have taken the time to become an educated investor on your way to financial independence, this will pay off with occasional investing opportunities when the market is behaving irrationally over the remainder of your life. You can sit there compounding in simple index funds for years. However, over the decades there will be opportunities Warren buffet has a great quote about how investing is like being up to bat in baseball but you can take infinite pitches without striking out.

If hall of famer Ted Williams “waited for the pitch that was really in his sweet spot, he would bat .400,” Buffett explains. “If he had to swing at something on the lower corner, he would probably bat .235.”

“The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them.”

The point here is that there will be times where markets are irrational. There will be times where you can get a sub 2% mortgage rate such as mid 2021. There will be times where you can buy a rental property for far less than it would cost to build such as in St Petersburg Florida after the 2008 housing collapse. Being in the powerful position of financial independence empowers you to do nothing watching pitches for years with your money in broad market ETFs such as VTI. It also allows you to take a swing every once in awhile without risking your FI.

Financial Independence Middle Stage Budgeting:

Over time you rely on your budget less and less.  Your habits have likely replaced your process and you don’t need a budget.  Do periodic spending reviews as needed.  Make sure additional spend while taking your victory lap is planned for.

Financial Independence Middle Stage Working: 

If you love your job or trade then by all means keep doing it. However, understand that American culture has a deep puritanical root in the idea that work is inherently valuable and is itself moral. Largely this is BS. It is the product of the work and the purpose of work that matter. Since financial independence makes career type work optional, you may want to step away from a job for awhile to get perspective as to what you actually want now that the biggest incentive for most to work their jobs has been taken care of. For me, this was my “victory lap.” It has also been my last 4 years as chronicled on this website to date. To see what I worked on, just read all the posts in order up until this one 🙂

I should also mention that in this middle stage, I kept doing work of high value that I love. For example, I put my rental properties under management but would still do some hands on repairs from time to time when it would save me thousands of dollars to do so. I like fixing things and am good at it. I also largely managed our investment portfolio for similar reasons. Lastly, I taught some college courses as a sort of lifestyle design experiment which yielded a small pension and paycheck that I considered a bonus for what I wanted to do anyway.

Financial Independence Middle Stage Happiness: 

When I had no money, I assumed that being rich makes people happy. It wasn’t a hard and fast belief but more of an assumption based on a lifetime of what my culture had sold to me and a general understanding that having money means being able to do what you want. Once I reached financial independence, I stopped working for others for money and started working for myself for happiness. In ways this is a complete 180 re-prioritization to what I did in the early stage.

I will offer that this commitment to make it the main priority yielded huge growth for me in this middle stage. Getting to FI doesn’t mean a switch just flips and happiness comes. The brain doesn’t rewire on its own, it takes commitment, practice and cultivation. What has been neglected? Are there stories you told yourself about money and happiness? What was true and what is false? Are there lifestyle experiments can you do to find out what works for you versus what you thought you wanted? What habits work for you and which make you unhappy or no longer serve you? My first couple years of FI were some of the happiest of my life. I researched happiness and chronicled much of that on this site. I committed to positivity and optimism. While I remain a work in progress, I know myself so much better.

Financial Independence Middle Stage Adventure: 

You made it to FI!! This is your victory lap. It is time to do all the things!! You planned for this in your FI numbers. At the same time it often costs less than many think to do all of those things on your list. While I put some adventures on hold in the early stage, I certainly did many in this middle stage. There is an old adage that if you never leave the town you grew up in, you will always secretly feel like you never got out. However, if you leave and then return you do so contented. Often you need to do things just to move beyond them. It’s lots of fun and is better than waiting until you are old to try to complete some kind of bucket list.

In this middle stage I even dabbled with some luxury which is something I would highly advise against for someone in the early stage trying to get to FI. However, eating some crazy meals and staying in some fancy villas helped break the mystique of luxury for me and helped me to look at experiences and things in terms of value rather than exclusivity. In this endeavor it is important to keep the hedonic adaptation treadmill in mind. No adventure or luxury item has provided me near as much security, freedom, and sense of possibility as my FI itself. Hence, its maintenance supersedes adventure.

Financial Independence Later Stage: Fulfillment

You built your financial independence in the early stage. Then you realized FI and did some victory laps in the middle stage. Your finances strengthened over time with momentum and compounding of your habits, skills, and relationships. However, what have you learned about yourself while you spent time working for happiness as opposed to money? What worked and what did not? This should inform what your late stage life will look like. In this stage, you take those learnings from the middle stage and you get the gift of getting to work on building fulfillment.

Most of us don’t think about what our golden years will look like until they arrive. However, by that time will you actually have the drive and ability to set these things up or will you just take the path of least resistance? Moreover, these things take time. It may take 15 years to set up your social circle and a meaningful role in something that can continue into old age. Both of these things are examples of what might help you thrive in your later years.

A year and a half ago while on a beach in Costa Rica I found myself in a “blue zone,” an area with an above average rate of people living to age 100 or more. It caused me to ask how I might build my own mini personal blue zone? This last year I went through cancer at age 43. This gave me an acute appreciation for life and what I may be confronted with as I face end of life whenever that comes…(hopefully when I am 100 or so 🙂 )

I feel like I am entering this third stage on my FI journey. I am grateful to get to think about living a regret free life, building fulfillment, seeking balance, and being present with family and friends.

Financial Independence Later Stage Spending: 

Everyone likes to make fun of the billionaire who eats cold oatmeal for breakfast or drives across town to save 3 cents a gallon on gas. However, if being rich is what we all supposedly aspire to, isn’t there something genuinely sad about this?

Are you at a 1-3% rule or even less? Don’t hoard out of fear or greed.  Paradoxically, some frugality vestiges that served you so well earlier are likely now holding you back.  Perhaps spend more but do it to trade money for time or to remove barriers. Do it out of knowledge and compassion for yourself and others.  Money enables and fuels intention and contribution.

Financial Independence Later Stage Earning: 

Additional earning should only be a side effect to efforts and decisions made entirely for other factors. Be concious of the intention behind what you give yourself to. Time is the other currency that only flows away. 

Financial Independence Later Stage Investing: 

There is someone that I greatly respect as an investor who is financially set for life. However, he spends hours a day stressing over the markets, a possible recession, the possible collapse of the dollar as a reserve currency, etc. Heck, I monitor myself for similar traps.

Most of us wanted wealth so that we don’t have to worry about money, so don’t. It is hard to change habits that served us so well earlier but now no longer do. If you are watching stocks all of the time and trying to tweak your returns you risk becoming a tool of your tool. Be intentional and clear about how your focus is serving you…or not. In the middle stage, you already padded your finances. So what is the goal behind excessive focus around more in this later stage? Why not relax and let long term holdings of broad based etfs and other assets that you have accumulated sit and compound? Remember that as you age your faculties diminish and the average active manager underperforms the index!

Financial Independence Later Stage Budgeting: 

Your work in the early and mid stages has paid off. You don’t need a budget. You have awareness of when spending changes and when reviewing finances is necessary. Annual reviews are less about money and more about helping you to be intentional.

Financial Independence Later Stage Working: 

When I was a kid, my grandfather owned a small business. He built a modest house at age 77 but he put an elevator and an indoor pool in it (even today the house is worth less than $400K). He also made the basement into a mother in law apartment. Instead of selling his business as he aged, my grandfather kept it. I didn’t really understand why he did all of this when he could have sold his business and done whatever he wanted. He could have built a much fancier house if he could afford to have an indoor pool.

It wasn’t until I was an adult that I realized that he was doing exactly what he wanted. He was working for himself for reasons beyond money to set up his golden years. He knew that taking a step back into an emeritus role would give him purpose and connection at his business while others actively ran the day to day operations. I remember walking with him through the warehouse where he would spend hours talking to everyone 15 minutes each. He knew that what he wanted was not a fancy house but rather a simple one where he could get up and down stairs even if he couldn’t walk and my grandma and he could swim every evening.

A caretaker ended up living in that mother in law apartment and my grandparents both lived into their 90’s. When my grandma passed, my grandpa continued to go into “work” and had connection in his life. When he passed as well, a team of caretakers who had each looked after him at home over the years all attended the funeral.

What will fulfill you as you age? Get back to work but not for money, rather to build your purpose, identity, and connection incrementally while minimizing the noise and the crap that drains you. This is hard!… and so worth it. It is something that is front and center for me in my life as I write this article.

Financial Independence Later Stage Happiness: 

What have you learned about yourself in the middle stage of exploration?  Happiness is not a trophy that is secured but a garden to be constantly maintained.  How can you foster it as you age and build the personalized lifestyle that you want now that you are beyond chasing ideals and know yourself better? This is what is on my mind as I enter this later stage.

Financial Independence Later Stage Adventure:

In the middle stage you did all of the things. Hopefully it was just straight up joyous fun. You also learned that they don’t sustain you. You knew that they wouldn’t and that is ok. However, as most age, the desire for wacky adventures often yields to other concerns.

In this later stage, money is likely not your limiting factor. Come to grips with what is your limiting factor and why. Is it motivation, inspiration, or something else? Use your means, don’t hoard. Time is likely your more precious currency and few regret spending money or failing. More regret never having attempted.

Financial Independence Over All Of The Stages

Spend less then spend more. Forgo some happiness in the short term but then make it a primary focus. Work then enjoy not working and then work for something else entirely. After several years of financial independence, I now understand that I would give different and sometimes even totally opposite advice to others depending on which stage of financial independence they are at. Next time you read something that seems to make no sense, ask yourself what stage of FI the writer is writing about, and how it applies to you.

I have learned so much over this financial independence journey so far. However, one of life’s great challenges is that you only get to live one life. You can’t A/B test it or preview both ways like Marty McFly or Ebenezer Scrooge. I’ve tried to do a lot of living and a lot of learning. I’ve been through more than many and less than many others. If you have been through some of these stages I’d really love to hear your perspective on these stages and the changes over time in the comments. How has it been similar for you and more importantly, where am I wrong? 🙂

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