What does it mean to be financially independent? Here’s what financial independence means to me: security, time to paint and write and explore, the ability to overcome crises, and the opportunity to leave the work force when I choose. I’m well on my journey, but I’ve learned many lessons over time. It seems fair to first share with you the context in which this goal was born.
When I turned 30, I had a good full-time salaried position in California, a small retirement fund, and no debt. Three years and four states later, I was struggling to survive, had no health insurance, and owed tens of thousands of dollars. What happened? Several things were beyond my control – being downsized out of my position, shrinking University budgets that led to hiring freezes, and just some rotten bad luck. Twenty years later, I can point to four of my own mistakes that contributed to my demise.
I was naïve. Surely, universities would fight to have someone like me on their faculty! After all, I was a newly minted PhD, my dissertation was being published, and I had applied research experience. Wrong! Timing is everything. I entered a stagnant job market and my “off the beaten path” dissertation subject led to zero job offers. Deep in my heart, I believed that all my hard work would be rewarded. I was not prepared for rejection. I still hear my friend’s voice: “What’s your back-up plan?” Mine was pretty lame and drawn out of desperation.
My graduate school program did little to help me find employment. A few graduate school pals tried to open doors for me, but jobs were scarce. In hindsight, I would have benefited from a mentor, someone who would guide me and provide advice and support through the process.
Everyone I knew who had a PhD in Sociology went straight from graduate school to the University classroom. What else could I do with a PhD? Today, thanks to the Internet, it’s easy to explore options. Back in the 1990s, when dial-up modems were the standard and Internet providers charged by the minute, job searches were expensive and clumsy and online postings still rare. Consequently, I ended up taking low-wage jobs, even stocking shelves at Target, to simply keep the lights on.
My roots are working class and the only financial training I had was how to reconcile a checkbook register. Only later did I learn about the magic of compound interest. I’ve always lived within my means, but building passive income and developing investment strategies were well beyond my knowledge base.
I was 33 when I finally returned to salaried work and health insurance. It’s true, I had no health insurance for several years and managed to avoid medical care during that time. I was living in Atlanta and working as a Crime Analyst. The job certainly didn’t require a PhD and the salary was okay, but it allowed me to secure a nice clean apartment, which was huge in my book. While I had the position in Atlanta for less than a year, it gave me security and hope. There were two things I did during this period to rebuild my financial life.
Finally, after all my struggles, I landed a PhD-level research gig in the Washington, DC metro area. The salary was respectable and my continuing frugality allowed me to purchase a townhouse in northern Virginia. I couldn’t believe it! Wow! I was a homeowner, and that was something I couldn’t have dreamed of a few short years earlier.
Eventually, an even better opportunity came my way and I moved to Williamsburg, Virginia. I was doing pretty well financially, and I continued to tuck money into my retirement accounts, which I tracked with Excel spreadsheets. But I didn’t have a plan and still knew very little about investing outside of a retirement plan. I happened across a book called Smart Women Finish Rich, where I learned about a concept called a “Dream Fund.” No one ever mentioned a Dream Fund before! So I built a dream fund and before I knew it, I was in Ukraine adopting a little girl and making two dreams come true!
As you might have guessed, I don’t subscribe to “get rich” schemes that involve trips to Vegas or Ponzi schemes. It’s the slow and steady road that will lead you toward financial independence. The mainstays of my approach are pretty dull.
Make a Plan. The Smart Women Finish Rich book provided a template on how to make a basic plan. Here are three questions to get you started:
Prioritize. Few people can afford luxurious lifestyles. The rest of us have to prioritize. What’s most important to you? When you write your priorities into your plan, you have a starting point that allows you to document your success and see how your priorities change over time.
Save. Everyone needs an emergency reserve for when things go bad. If you were to lose your job today, how many months could you survive on your own? Save at least six months of expenses so that you have a cushion for tough times.
Invest. The fun begins when you get to invest your money and see it grow. Invest in retirement and in non-retirement accounts. There are lots of options out there, but make it simple – stick to index funds.
Underneath this approach is the ongoing effort to be frugal. Don’t spend money on unnecessary things. “Keeping up with the Jones’s” is a sure way to derail all of your efforts. Live simply. If you’d like some inspirational help on the value of being frugal, check out one of my favorite blogs: The Frugalwoods.
Dr. Brenda is a financial coach and full-time RVer. In addition to coaching, she creates and leads online courses at the Dream Big Money Academy and is the founder of the Gutsy Women Club. She blogs at The Five Journeys.