Financial Independence Makes Workers Think Differently by Robyn Kurdek
Financial independence seems elusive for many Americans. With the right mindset and some money-saving steps, financial independence does not need to have to be. One key to achieving financial independence is starting young. It’s a message each employer can share with early-career employees to help them set themselves up for financial independence later in life.
That’s exactly what happened to Sam Dogen, founder of the personal finance site Financial Samurai, who achieved financial independence at age 34. He “retired early” with approximately $2 million in after-tax investments, according to an interview he gave MarketWatch. He figured out the financial independence concept on his own, but the tips he shared with MarketWatch might help others follow in his footsteps. Or at least get several steps closer to financial independence in retirement, whether they leave the workforce at age 37 or 67.
When he graduated college, Dogen was a 20-something living in Manhattan, making $40,000 a year. Yet he still managed to max out his 401(k) contributions and achieve financial independence by his mid-30s. While Dogen lived frugally, he didn’t live entirely like a pauper, either. By his calculations, if he lived that way for a decade, he could have $150,000 saved by age 32, assuming a 7% annual return. That, combined with the “magic” of compound interest, would end up netting him significant savings — enough to reach financial independence earlier than most.
Dogen offered useful tips anyone can use to start working toward financial independence. While many of these would likely work best for younger individuals without families and other major financial commitments, some are applicable at any age. In any case, they are great tips to share with today’s workers who are looking to their employers for help to cut expenses and save more for the future.
Dogen’s first tip? Live significantly below one’s means. “‘There is no reason why you shouldn’t continue living like a college student until you can save at least 30% of your income, if not 50% of your income,’ Dogen says.” It’s stock advice to live on way less than you make as a path to financial independence, but Dogen recommends a more extreme approach. Live with roommates and split rent several ways and take advantage of a free meal whenever possible (Dogen’s company cafeteria offered free food after 7:30 pm).
Tip #2: Work so hard, there’s no time to do anything else — including spend money. This one is self-explanatory. Tip #3: Dogen advises those pursuing financial independence to keep their eyes on the prize and set realistic goals. “‘If you only work 40 hours a week, how can you compare your salary to someone working 60 hours a week? If you are 30 years old, how can you compare your net worth to someone who is 45 years old? If you dropped out of college, it’s not rational to compare yourself to someone with a graduate degree,’” Dogen told MarketWatch.
Tip #4: Max out all pre-tax retirement accounts. It may seem a daunting task but saving as much as possible as early as possible is one of the best ways to prepare for retirement. It’s important to remind retirement plan participants of this simple but powerful fact. Like Dogen, with a bit of creativity and persistence, it is possible to live on a lower income for a period to achieve one’s financial goals, including financial independence. Finally, Dogen offers a final tip: not to expect one’s salary to remain stagnant with more experience and expertise. Financial independence is linked to an upwards earning trajectory that keeps pace with inflation, he told MarketWatch.
Today’s workers may need to think outside the box like Dogen if they want to achieve financial independence, whether that be 10 or 40 years from now. Employers can help by reminding employees to set realistic, achievable goals and consider taking an unconventional path to reach them.