When I first started Dividend Mantra back in early 2011, I knew that I could achieve financial independence by 40 years old on the modest income I was making working for a car dealership. And I decided to start a blog to not only prove and document it, but also to inspire others into change by way of action.
I felt like if I walked this path and provided a road map along the way for others to follow, others would follow. And it’s in that inspiration that I find even more value than in my own journey. It’s said that giving feels better than receiving, and I can think of no better example than this.
But I was absolutely positive that I could walk this path and see it through to the end. And I’m still waking that path to this day, as determined and aggressive as ever. Perhaps even more so.
But I’ve discovered something interesting along the way.
Financial Independence Isn’t A Door You Walk Through
While financial independence can be quantitatively measured – your passive income either exceeds expenses or it doesn’t – it’s not a finish line you cross over. And it’s not a door you walk through.
What do I mean by that?
Well, I used to think that the road to financial independence was much like the yellow brick road in “The Wonderful Wizard of Oz”. You’re striving to save and invest your way down this road, eventually opening the door to this great world of magic, rainbows, and unicorns. Or some such. It sounded better in my head.
But it doesn’t work like that.
You don’t wake up the day you become financially independent and all of the sudden transform into someone else. You’re still you. For better or worse, you still have to deal with all the benefits and drawbacks of your life. I certainly view financial independence as this amazing life hack where you can eliminate all the stress that comes with being beholden to an employer for most of your waking hours, but there’s a lot more to life than your job. At least, there should be.
Furthermore, you’re becoming more free every month. It’s not like going from the point of covering 95% of your expenses via passive income is a radical difference from being able to cover 100%. You’re adapting, changing, and freeing yourself all the way along.
So what I ultimately mean is that the path doesn’t really have an “end”, per se.
Sure, having enough passive income to cover all of your expenses will deem you financially independent. But the path of financial independence intertwines with the path of life. And that latter path will continue on (hopefully) well after you become financially independent. In fact, that’s exactly what most of us are after: financial independence early enough in life to have enough time to enjoy it.
I once wrote that financial independence is both a journey and a destination. Perhaps the more accurate description is that financial independence is a journey within a journey. After all, we’ll continue to grow, learn, change, and become better versions of ourselves long after we become financially independent. At least, we should. In fact, with incredible resources of both time and money at our disposal, it’s likely that we’ll be much better versions of ourselves 10 or 20 years after financial independence than we were when we initially attained enough passive income to pay for our expenses.
But I have even more incredible news for you.
You don’t have to be completely financially independent to reap much of the inherent rewards.
The Spectrum Of Freedom
I have realized that freedom exists on a spectrum.
I’ve been on one side of the spectrum – the wrong side. For most of my life, I had no freedom. I had no passive income and a whole lot of expenses. If I didn’t go into work for a month, I’d likely be broke. Strike that. I was already broke. In fact, I was below broke and worth less than a baby as recently as 2010.
So forget about taking a year or two off to travel the world or relax by the beach and read great books. No work, no income, no bueno.
If being chained in place in Plato’s cave is having no freedom and freeing yourself from the cave and stepping into the light is complete freedom, we can clearly see how one is better than the other.
Stepping into the light is the opposite side of the spectrum. That’s complete freedom, a.k.a financial independence. You can wake up every single day and do whatever you’d like. Or nothing at all. Or something in between. But your life is pretty much on your terms.
However, there’s also a middle ground there that isn’t often discussed.
If time is money, then we can break time down into monetary numbers and see a spectrum from no freedom to complete freedom, as well as everything in between.
Take my situation, for instance.
I’m aiming to receive $7,200 in dividend income this year. That’s $600 more per month than the me of early 2010 was receiving. Does that not buy some freedom? Is this me not more free than the me that existed five years ago?
Freedom Isn’t All Or Nothing
This realization – freedom exists on a spectrum and it isn’t all or nothing – has opened up a whole new world of opportunity for me.
I quit my job in the auto industry – one paying a pretty decent $60k/year there near the end – to pursue self-employment last summer. (My last day at the dealership was the day after my 32nd birthday.) Now, that would have been an incredibly risky proposition back in early 2010. Not only did I not have any experience doing it and no platform on which to grow, but more importantly I had no other income.
But in mid-2014 knowing that I was earning a good chunk of cash every single month no matter what in the form of dividends from my portfolio of dozens of high-quality companies meant I could take some risks. I could take a leap of faith because there was a safety net of sorts there. I was already more free than I had ever been in my entire life. Sure, I wasn’t financially independent and completely out of the cave. But I also wasn’t chained to a wall anymore. I could move around. I was nimble.
See, freedom isn’t all or nothing.
You have no freedom when you start this journey. No passive income. Expenses like shelter, food, and transportation don’t just go away, no matter how extremely frugal you get at the beginning. So you have to make money to survive. And going to work every day is about the only solution there is for most people. Without that job, you can’t pay your bills or eat. Thus, you are completely beholden to an employer.
However, taking on this journey means there are changes afoot. You’re regularly saving money. And you’re investing that excess capital into high-quality companies that are paying and growing dividends. Not only is your passive income growing from all this fresh capital you’re depositing into your investment account, but the income itself is growing via the dividend raises the companies you’re invested in announce, as well as the dividends that are coming in and you’re reinvesting.
Hey, you’re onto something here.
Fast-forward a few years down the time line and you’re now earning hundreds or possibly even thousandsof dollars per month in passive income. You’re no longer completely beholden to that employer any longer. You can cover 20% or 30% or 40% of your expenses via dividend income every month. You’ve moved along the spectrum. You started off not free. And while you’re not completely free with an expense coverage ratio of 30% or 40%, you’re certainly more free than 0%.
You Can Leverage Partial Financial Independence
The spectrum exists to our benefit. And once I realized that I didn’t have to be completely financially independent to leverage that benefit, I took advantage.
I took a leap of faith and decided to work for myself because I moved up the spectrum and became partially financially independent. Not only did I have hundreds of dollars in passive income coming in every month which could cover a good chunk of my necessary expenses, but I had well over $150,000 in assets backing me up. That’s one hell of a runway to see if I can get off the ground.
And I got off the ground, with a goal to net more than $36,000 in self-employment income this year. It’s a far cry from what I was earning before, but I leveraged my solid financial position to the max by going after what would ultimately make me happiest. And this journey is about being happy, not accumulating the largest amount of absolute wealth. By the way, wealth can be judged in many terms, not just the amount of money in your account.
The goal is still stepping into the light. But every move we make on the way is toward that end. Better yet, each and every one of those moves increases the amount of freedom and flexibility you have. You don’t go from 0% freedom to 100% freedom just like that. There’s 5%, 10%, 50% freedom, and so on and so forth. And once you get to a comfortable level, you can leverage that if you so wish. You could take on part-time work, or monetize a hobby, or try on a new career without fear of failing or how much you might make.
After all, work and financial independence aren’t mutually exclusive. And it’s unlikely that anyone enterprising and driven enough to achieve financial independence extremely early in life will never make another dollar with some kind of work once they’re financially independent. I plan to become financially independent at 40. But does that mean that I’ll never thereafter write a book? Or continue to blog? Or speak at events? Who knows. But I’ll be free to do any of these things. Or not.
However, the key to this entire article is this: I’m actually free to do any of these things right now. And you could potentially take a similar approach well before you reach financial independence.
And that’s because freedom exists on a spectrum. It’s not like this is a game where you beat it and you’re done. You become more free with every dollar invested, every dividend received, every month that passes which sees your wealth grow.
If you’re able to get to the point to where you can cover a good chunk of your expenses via passive income, the fear melts away. You can make that leap of faith because there’s a net to catch you. If that leap is like jumping between two high ledges, the passive income is a net to catch you in case you don’t jump far enough. And with every month that passes, the net becomes higher and higher. Eventually, there can be no failure. How much of a leap you’re comfortable with, however, is really up to you and your personal circumstances.
Financial independence and this journey to freedom is really whatever you make it out to be. It can be as challenging and/or rewarding as you make it. Equally so, those rewards need not be a decade or two out into the future. You don’t have to cover 100%+ of your expenses via passive income to have freedom and flexibility. There are degrees there and you can take advantage of that.
Financial independence isn’t a door you walk through one day to another galaxy or something. You’ll own all of your own time once passive income covers all of your expenses, which is, in my view, the ultimate reward. But it’s not like you don’t own any of your time right now if you’ve been at this for a while. I own a good chunk of my time already. If I absolutely had to, I know I could cut my frugal budget down even further, and increase the passive income coverage ratio right away.
Bringing in hundreds or thousands of dollars in passive income every month means you’re already free to some degree. You’ve moved up the spectrum from a previous point of not being free. If you’re earning, say, $500 per month in passive income and your expenses are, say, $1,500 per month, you’re 33% free. You’re 1/3 up the spectrum. That means, if it came right down to it, you’d only need to go out into the world and make $1,000 per month. And knowing that alleviates a lot of stress and opens up a world of options that being 0% free does not allow.
So remember: You are more free than you think you are. Even if you haven’t stepped into the light yet, you’re also likely not completely chained to a wall.
What do you think? Does freedom exist on a spectrum? Is it possible to leverage partial financial independence?
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