17 Lessons From Regular People Who Achieved Financial Independence

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Excited young woman wasting money
Roman Samborskyi / Shutterstock.com

Editor's Note: This story originally appeared on NewRetirement.

In strict terms, financial independence is just another word for retirement. It means that you have enough income and assets to cover all your expenses and maintain your desired lifestyle without the need to work actively for income.

Financial independence retire early (FIRE) is a phrase used to describe people who have achieved financial independence and retired in their 40s, 30s, and even 20s through extreme frugality and disciplined saving and investing.

While FIRE is not for everyone, there are some great lessons for anyone.

Most people worry about being able to retire in their mid to late 60s. FIRE adherents take the leap much earlier.

We read through hundreds of articles from dozens of financial independence blogs to discover the top lessons from people who have achieved total financial independence.

1. Spend Less on Highest Cost Items

adulting responsible adults saving money
Proxima Studio / Shutterstock.com

If you save 50% on an item, that sounds pretty impressive. But if that item was a $5 bottle of shampoo, you really only kept $2.50 in your pocket.

J.D. Roth from Get Rich Slowly explains that if you want to retire early, you’ve got to focus on your high-cost items. Namely, your:

  • Home
  • Car
  • Food

The average person will spend over $2,000 a month on these categories alone. If you want to retire or retire early, the solution is simple: spend less and save more. And, you can do it easily by focusing all your efforts on reducing the big dogs — home, car, and food expenses.

Need more inspiration? Here are 23 ways to save BIG. Or, listen to the podcast interview with J.D. Roth.

2. Consider the Difference Between Financial Independence and Financial Freedom

Happy man outside in town counting money saved
Krakenimages.com / Shutterstock.com

Financial independence means that you don’t require additional income to sustain your desired lifestyle.

Financial freedom is more about being able to find work that you love. With financial freedom, you are able to monetize something you are passionately interested in pursuing.

You are still working, but you love your work.

3. Know Your Target Savings Rate

Mother and daughter saving for college
Prostock-studio / Shutterstock.com

There is no formula that is going to work for everyone.

However, if you want a simple formula for FIRE, Mr. Money Mustache (MMM) is your guy.

He uses a shockingly simple formula with just two data points: the number of years you work and save and the percent of your income that you put away (assuming a 5% return and a 4% withdrawal rate).

MMM savings rate for someone just starting to save

Woman doing taxes at computer with calculator
fizkes / Shutterstock.com

If you currently have zero in savings and want to retire in:

  • 5 years, you’ll need to save 80% of your income
  • 15 years, save 55% of your income
  • 25 years, put away 35% of your income

Savings rates translated into number of years you need to save

Young couple making money decision
Africa Studio / Shutterstock.com

Most of you have already been working for a few decades, so the numbers above might not mean as much. So, what numbers are relevant for you?

If you have consistently put away:

  • 10% of your income, you’ll likely have to work a total of 51 years before you retire
  • 15% of your income, your time in the workforce is 43 years
  • 20% of your income, you’ll probably have enough money to retire after 37 years in the workforce
  • 50% of your income, then you should be good to quit after a mere 17 years on the job

4. Don’t Rule Out Part-Time Work in Retirement

Happy older worker in home office
Perfect Wave / Shutterstock.com

When most people retire, they assume they’ll never work another day in their lives, and, if they have to, they consider themselves a failure in retirement.

Jonathan Clements, from the financial independence blog HumbleDollar, disagrees.

According to Jonathan, “Working a few days each week could greatly ease any financial strain, while adding richness to your retirement.”

So if you have to (or want to) work in retirement, don’t sweat it. There are countless others that do the same.

Explore 14 reasons retirement jobs are the best and listen to our interview with him on the NewRetirement podcast where Clements discusses money, behavior, and happiness.

5. Start With Simple Retirement Models

Man crumpling paper in frustration and stress, writing in a notebook, planning or doing math or taking notes
Pixel-Shot / Shutterstock.com

Like MMM, Darrow Kirkpatrick (retired at 50) is a fan of simplicity.

He compares retirement planning to constructing a puzzle. You don’t try to put all the pieces together at once. You start with a corner, add a piece, add another, and then slowly put together the entire puzzle one piece at a time.

The same should be true with your retirement planning.

Instead of putting all your numbers into a complex tool right off the bat, put in only a few, confirm the number, and then go back and model other likely scenarios.

In the end, you’ll be much more confident in your number and you’ll understand it completely.

6. Map Out Your Spending Today to Better Understand Tomorrow

Couple worried about money
Diego Cervo / Shutterstock.com

There are tons of people today that have absolutely no idea how much they spend from month to month. And, not only do they not know the amount that they’re spending, they probably couldn’t even tell you how the spending is allocated.

If you have absolutely no idea where your money is going today, you have little chance of grasping where it will go 10 to 30 years from now.

In Darrow Kirkpatrick’s book “Retiring Sooner,” he discusses several ways to assess your living expenses quickly and easily.

So if you’re one of the people who doesn’t know where your money is going, take some notes from D.K. and get a handle on your spending today so that you can have a blissful, easy retirement.

7. Have No Regrets

Woman doing her taxes
Pra Chid / Shutterstock.com

When you think of regrets in retirement, you might only consider the regret of retiring too early and running out of money, but that’s not the only outcome you should fear.

Physician on FIRE (retired at age 39) warns us also of retiring too late.

If you run all the scenarios in all of the models and you’re safe in every one, then you waited far too long to retire.

Everything won’t happen all at once. You’re not going to get cancer, develop Alzheimer’s, get into a car accident, experience three stock market crashes, lose your pension, and get sued.

The point of modeling is to protect yourself against the likely fears, not every one.

Wait too long to retire, and you’re going to regret it for the rest of your life. Sure, your kids might enjoy the millions that you’ll never be able to spend, but I bet they’d much rather have your time instead.

8. Get Out of Debt Already

Woman cutting up a credit card
Doucefleur / Shutterstock.com

The Wealthy Accountant, Keith “Taxguy,” is certainly a guy you want to listen to. He’s worth over $12 million and hasn’t held a conventional job since he was 22 years old.

He says it plain and simple:

“When you are in debt the clock works against you. Every morning when you wake — weekends, holidays, sick days, birthdays and work days — you are already behind. The mortgage, credit card, car loan, et cetera, all tacked on interest the second after midnight. Long before you rolled out of bed and poured your first cup of coffee you need to work to pay the interest before you have money for food, clothing, shelter or entertainment.”

The takeaway is that debt is just adding to your expenses. Pay your debt off as fast as possible and invest heavily once those liabilities are gone. Saving is easier once you don’t have a payment in the world.

9. Never Take on a Mortgage That’s More Than Three Times Your Income

Happy couple with house keys
fizkes / Shutterstock.com

Most people go to the bank and ask the question, “How much will you lend me?” The bank tells them the maximum that they’d be comfortable forking over, then the borrowers go out and find the best house for that amount of money.

Without realizing it, these folks just became house poor. Hopefully, they really love the house, because they won’t have enough money to do anything outside of those four walls for many years to come.

Passive Income MD gives us a great rule of thumb when it comes to getting a mortgage – never exceed three times your annual income. So, if you are making $100,000 a year, you should buy a home that is valued at no greater than $300,000.

If you are currently in over your head, downsize. You won’t regret minimizing your debt down the road.

10. Max Out Your 401(k)

Piggy bank with 401k on the side, next to stacks of coins
DD Images / Shutterstock.com

You hear this all the time, but are you actually doing it? Are you putting the maximum amount allowed into your 401(k) each year?

Joe Udo, from the financial independence blog Retire by 40, admits that he didn’t max it out every year, but he only missed his first couple of years when he let his high-performance, stock-chasing mentality get the better of him.

By maxing out his retirement nearly every year, he was able to build up a $640,000 nest egg before his 40th birthday. Not too shabby.

If you still haven’t started to max out your contributions, it’s better late than never. Do nothing and you’ll have way more regrets than if you get started today.

If you’re over age 50, be sure to use catch-up contributions (whether or not your employer offers a program or not).

11. Pay as Little to Uncle Sam as Possible

Uncle Sam panhandling
Jim Barber / Shutterstock.com

In 2012, Justin, from Root of Good, earned $140,000 and paid just $600 in taxes. In 2013, he did even better. He earned $150,000 and paid $150.

“We didn’t do anything sneaky or illegal,” Justin explained. He and his wife simply invested in all the tax-advantaged accounts:

  • 401(k)s
  • Traditional IRAs
  • Health Savings Accounts
  • 457
  • 529 College Savings Account

That, and they paid for child care with a flexible spending account through his wife’s work.

His motto is to keep things simple, but also to keep the government’s hands off his money. If you can do this just half as well as Justin, you’ll be well on your way to total financial independence.

Planning ahead for taxes in retirement — especially when it comes to your required minimum distributions (RMDs) — is critically important if you want to preserve your wealth.

Use the NewRetirement Planner to take discover ways to reduce your lifetime taxes.

12. Enjoy the Magic of Compound Interest

Interest growth illustration
isak55 / Shutterstock.com

If you can earn a 10% rate of return each year, it takes approximately seven years for your money to double. In another seven years, it would double again. Wait another seven, and it doubles again.

Compounding interest is practically magical.

In 21 years you could take $100,000 to $800,000 ($100,000 becomes $200,000 which doubles to $400,000, and then doubles one more time to make $800,000). If you could hold off seven more years, you could have yourself a cool $1.6 million.

Why you must invest

happy woman with cash
NewSaetiew / Shutterstock.com

Sure, sustained 10% returns are unlikely, but the point is that investing, earning returns, and reinvesting those returns is going to increase your money greatly. As Bill Bernstein said in his NewRetirement podcast interview:

“I’m going to sound kind of insensitive and cruel, I suppose, but when someone tells you that [that they are not invested and are holding cash], what they’re effectively telling you is that they’re extremely undisciplined. And they can’t execute a strategy and that’s the kind of person who probably does need an adviser.

“If you sold out in 2007 or 2008 and you’ve been in cash ever since, you’ve got a very seriously flawed process and you’re probably managing your own money.”

You have got to be invested in order to get ahead.

13. Be Flexible, Things Won’t Go According to Plan

Older couple with financial planner
EdBockStock / Shutterstock.com

If you retire at age 60, you could easily have 30 years or more of retirement life ahead of you. When you were 30, could you have predicted you’d be where you are at age 60?

Of course not.

The same is true for your retirement years, “And that’s okay!” explains Steve from Think, Save, Retire (retired at age 35).

You can do all the planning and forecasting your want, but you’ll never be able to predict what will happen to you personally, professionally, relationship-wise, or financially over the next 30 or more years.

In early retirement, Steve thought he was going to exercise more, blog more, and read more. He doesn’t, and for good reason. All reasons he hadn’t thought of when he handed in his two weeks’ notice.

Be ready to be flexible and able to make updates to your overall financial plan.

14. Keep It Simple

A young woman is happy using her phone at the table because she has the best phone plan
fizkes / Shutterstock.com

Sam at the popular financial independence blog, Financial Samurai worked as an investment banker for Goldman Sachs for 13 years. Very few have those credentials on their resume.

After all that experience and knowledge of the markets, his advice to achieve early retirement is not a stock tip and not even a sector analysis. His advice:

Keep it simple.

Spend less, earn more, and invest all you can. That’s it. There’s power in that message, especially considering the source.

15. Invest for Growth, Then Income

Money plant
amenic181 / Shutterstock.com

ESI Money retired in his early 50s and has practiced exactly what he’s preaching today. His message:

“Invest for growth and then income.”

What does that mean? He goes on to explain and outlines the following:

  1. Max out your 401(k) and invest in index funds (growth)
  2. Invest in rental properties (a combination of growth and income)
  3. Consider person-to-person (P2P) investing (income)

Also, option three could include annuities — another tool that helps build up a consistent income for your retirement years.

Why growth, then income?

building wealth
wk1003mike / Shutterstock.com

You first want to get your nest egg going and grow your investments quickly out of the gate so you can capitalize on compound interest.

Then, in order to retire early, it’s best if you invest in multiple income sources that can float you until you hit the magic age of 59 ½, when you can start withdrawing from your retirement accounts without penalty.

16. Invest in an HSA

Health savings account
Andrii Yalanskyi / Shutterstock.com

Led by co-founders and co-hosts Brad Barrett and Jonathan Mendonsa, ChooseFI has become home to the largest financial-independence community in the world.

One of their many many financial independence tips is to take advantage of the triple tax benefits of health savings accounts (HSAs).

  • Contributions to an HSA are pre-tax
  • Any earnings you acquire through simple interest or investing are not subject to tax
  • If the proceeds are used towards qualified medical expenses, the withdrawals are not taxed

They say, “After maxing out your IRA and 401(k), the HSA is your best tax-free savings vehicle. It’s the only account that doesn’t tax contributions, earnings, or withdrawals.”

Learn more about HSAs.

17. Breaking Up With Your Career Is Hard to Do

Senior man pondering a question
Roman Samborskyi / Shutterstock.com

Even if you hate your job and have a “countdown to retirement” clock on your desk at work, you’ll still likely have difficulty when you finally give them the old heave-ho.

Jacob, from Early Retirement Extreme, likens it to a long-term marriage. A break-up from your long-time spouse is sure to be difficult. You think the escape will be nothing but sunshine and rainbows, but it’s not always that easy.

The same is true of your job. Expect it.

Better yet, set up a future for yourself in other areas — self-employment, volunteering, or starting that part-time gig we mentioned above.

When you’ve already moved on to the next thing mentally, letting go of the old boat anchor becomes that much easier to do.

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.