10 Principles of Financial Independence

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These are not steps but principles or pillars that we use as a strategy to get us to financial independence. They are not a step-by-step process, as in, finish one and then start the next one as most of these principles are run parallel.

  1. Track your expenses
    • If you don’t know where you are, it is impossible to find out how to get to where you are going! tracking your expenses is one of the most important exercises that you can do in order to get control of your finances.
  2. Build an emergency fund
    • An emergency fund of 3 or 6 months expenses will give you a good security blanket should an emergency arise. Even a €1,000 emergency fund will prevent more debt under most circumstances.
  3. Get rid of unnecessary debt; Credit Card, Car loan, etc…
    • Short-term, high-interest debt will decrease your disposable income and savings rate, try to pay off this debt as soon as possible.
  4. Start saving consistently to take advantage of compound interest
    • One of the best things that I done was to set up an automatic transfer each month to my savings account. Then I budgeted the remaining balance.
  5. Increase your pre-tax retirement fund; decrease your tax liability
    • Your biggest liability is your taxes, anything that you can do to decrease this liability will benefit you enormously. If your employer gives you a matched pension percentage, make sure to take full advantage of this, otherwise, you are leaving money on the table.
  6. Decrease expenses; focus on FAT expenses first
    • The FAT expenses; Food, Accommodation, Transport are usually the most expensive and mandatory expenses that you will have. Finding ways to reduce these will help your savings rate tremendously.
  7. Increase income; side hustles, investing in low-fee funds. See my list of top 11 passive and extra income ideas
    • Earning extra income has never been easier with the Internet. There are many somewhat passive income generators to hunt down and do in your spare time. There are also offsite income generators and passive investing to consider. All of these ideas can bring in extra income which in turn can be used to invest and grow your fund.
  8. Learn something new each year; it will help when you retire
    • I know this is hard in our busy lives but I think it is important. If you do a course or start a hobby, you will build your social network. When we do retire, our social network will be more important to us. Learning something new can also open up opportunities for other income sources.
  9. Beware of lifestyle creep
    • I think this affects all of us. When we get a raise or a bonus, it’s easy to increase our expenses or go out and spend it. When I get a raise now, I wait for the first paycheque to see how much extra net income that I actually received, then I increase my savings by 75% of that amount (see #4 above). That way, I still get to benefit from the raise without completely depriving myself but I also get to FI faster.
  10. Aim for a net-worth of 25X your annual expenses which will provide a save 4% withdrawal rate
    • This is a rule of thumb, work out your annual expenses and start saving to get to 25 times expenses. Of course, you want to have compound investing working for you as saving that amount is very daunting.
      Once you do have 25 x annual expenses invested in an index fund or some other investment vehicle that should be growing at 7% per year. You can safely take out 4% per year to cover your expenses and your investment money remains there for the rest of your retirement.


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