How To FI: 6 Steps to Achieving Financial Independence When You Want It

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Wouldn’t it be great if you had enough money that you could retire early and live the life you always dreamed of? Well, it is possible, but in order to make this happen, there are several financial steps you need to take. 

I will show you these steps on how to FI, or how to become financially independent so that you can be on your way to achieving financial independence.

What is FI?

FI is short for financial independence which means having enough money to pay all of your living expenses now and in the future without having to work. 

Just as we all have different lifestyles, interests and career paths, there are many ways to reach financial freedom

The steps you take to reach FI can differ from your friends, relatives and coworkers, yet each person arrives at the same spot. Once you arrive, you are financially secure and can focus your efforts on endeavors that can be more personally rewarding.

For example, you now have the ability to pursue goals such as:

  • Helping charitable causes
  • Learning new hobbies
  • Moving closer to family or a temperate climate
  • Switching to less stressful work
  • Traveling frequently 

You can seek the pursuits above even before you achieve FI, although you may have more time and money-related limitations. 


There are many similarities between FI (financial independence) and FIRE (financial independence retire early) as both lead to financial freedom to escape the rat race. but 

However, the most notable difference is that FIRE requires deeper cash reserves so you can stop working if that’s your ultimate goal. Retiring early can require more years of hard work and barebones budgeting, thereby increasing your risk of burnout.

FI is easier to reach and it can be suitable for your personal motives. You can most likely afford not to work but you may continue to if you enjoy what you do or at least reduce to a part-time schedule in a demanding career field like medical, technology or transportation. 

Achieving FI is also more realistic than FIRE if you earn an average income or have a small savings balance. Practicing self-made millionaire habits can help you reach FI sooner.

How to FI

Making a financial independence plan helps you accurately estimate how soon you can achieve this goal and know what you need to do to realize your personal dreams. 

1. Know Your Financial Independence Number

The first step is calculating your financial independence number (FI number). This metric estimates the liquid net worth you need to use your cash flow to cover your living expenses if you stop working.

Formula: FI=Average annual spending/safe withdrawal rate (divide by 0.04 or multiply by 25)

Your FI number is an estimate of your “safe portfolio value”.  Many use the 4% rule to formulate a retirement income strategy and avoid outliving your nest egg. 

However, you may need to adjust your withdrawal rate higher or lower depending on your expenses and portfolio size.

For example, let’s say your monthly expenses are $5,000 which amounts to $60,000 per year. Your FI number is $1,500,000 when you withdraw 4% of your savings each year ($60,000/0.04=$1,500,000).

But, if you live frugally and only have $3,000 in monthly living costs, your FI number reduces to $900,000 and you can afford $36,000 in annual spending. 

In many cases, you need to become a millionaire to achieve financial independence and maintain your current lifestyle.

2. Estimate Years Left Until Financial Independence

After knowing how much you need to save, it’s time to see how quickly you can reach your FI number. 

Formula: Years Left= (FI number-current savings balance)/annual savings amount

Here are the steps to estimate your financial independence date:

  1. Subtract your current savings value from your FI number
  2. Divide this number by how much you save each year
  3. This number is how many years remain

Depending on your situation, this can be the same number to retire early for additional flexibility. 


Assuming your FI number is $1.5 million, a $300,000 cash cushion and save $48,000 per year ($4,000/month), you will achieve financial independence in 25 years.

Your FI date arrives sooner when you can increase your savings rate and minimize your annual expenses. Don’t forget to include compound interest from existing investments and other income streams like matching contributions to capture your total savings rate.

3. Look for Ways to Reduce Expenses

Spending less money is an excellent first step to speed up progress in two ways:

  • Reduces your FI number as your annual expenses are lower
  • Can increase your savings rate as you have more disposable income

Start by tracking your spending and seeing which services you can eliminate or switch to a cheaper alternative. 

Easy options include canceling streaming subscriptions or going out to restaurants less frequently. Swapping insurance providers, minimizing after-school activities and choosing cheaper vacations are other options. 

More drastic measures include moving to a cheaper community or house hacking by earning income from an extra room in your residence.

It can take several months to identify unnecessary expenses. After the initial spending cuts, continue looking for ways to lower your living costs and avoid lifestyle creep.

Besides reducing your discretionary spending, you may also consider paying off debt quickly

Each loan payoff means one less monthly payment and more disposable income to save or invest. Repaying high-interest debt first can help you save the most.

4. Boost Your Income

Making extra money is another way to reach your goals sooner as it’s only possible to reduce your monthly spending by so much. 

This is especially true as inflation is causing core housing costs, groceries and insurance to get more expensive even if you pay the lowest price already. 

There are several different ways to increase your income:

  • Ask for a pay raise: Your day job can be the easiest starting point when you can get a raise or work overtime. Another recent trend is remote work as you can invest the commuting cost savings.
  • Switch to a higher-paying job: Learning high-income skills can help you qualify for promotions or more lucrative promotions. 
  • Work a side hustle: An online or local side gig lets you earn extra income in your free time. You have the ability to keep making money after hitting your earning limit at your day job. 
  • Earn investment income: Passive income ideas require an upfront investment but don’t require ongoing effort like an active job or side hustle. These income streams can continue making money so you can afford to reduce your working hours once you FI.
  • Sell unwanted items: Decluttering your closets provides more storage space and you can make money by selling belongings you no longer need. There are many selling apps for local and online sales. 

Increasing your income can help you make extra debt payments or additional investment contributions. The important thing is to save your pay increase instead of spending it.

5. Increase Your Savings Rate

Avoid “lifestyle inflation” by saving or investing your pay raises and monthly expense reductions instead of keeping the funds in your spending account for future purchases.

A higher savings rate reduces the number of years it takes to reach financial independence. For instance, I was able to save 50% of my take-home pay with my previous employer. Seeing your account balance grow quicker can motivate you to keep up the momentum.

Once I decided to prioritize saving money, I used my disposable income to pay off debt quickly and then put the extra income in a high-yield savings account and investment accounts.

An interest-bearing savings account is ideal for cash that you need instant access as there isn’t a minimum investment period or transaction fees like stocks or real estate.

For long-term holdings, consider building a diversified portfolio holding several types of investments with differing risk levels and potential investment returns. Many investment ideas have higher potential returns than savings accounts as there is more volatility. 

If it’s still several years until the traditional retirement age, you may keep most of your funds in a taxable brokerage account to avoid early withdrawal penalties. As you may know, most IRA and 401k-type distributions made before turning 59 ½ years old are subject to a 10% penalty.     

6. Make Adjustments

Implementing your plan can require several substantial adjustments to your spending habits and savings routine. After the initial setup, the process is easier once you establish a routine but periodic monitoring and adjustments are needed to stay on track.

New worth trackers make it easier to keep tabs on your progress and continue to be helpful once you reach financial independence.

Don’t be afraid to continue making changes even once you reach FI. New investment and cost-saving opportunities occur plenty of times when you’re looking. These adjustments help you keep up with the best ways to make money or save money to maintain a wealthy lifestyle.

Frequently Asked Questions

Here are several topics people often ask about when learning how financial independence works.

How do I find my financial independence number?

With a 4% withdrawal rate, divide your annual household expenses by 0.04 or multiply it by 25. Either option produces the same financial independence number to suggest a savings and investment goal (i.e., $50,000/0.04 or $50,000 x 25 both equal $1.25 million).

A more conservative strategy to avoid overspending your cash reserves is by adopting a 3% withdrawal rate. In this case, multiply your annual expenses by 33 to reach your FI number (i.e., $50,000×33=$1.65 million).  

What is the fastest way to become financially independent?

Earning a high income and cutting expenses is the quickest way to reach financial independence. These practices reduce how much money you need to save (i.e., FI number) and you can increase your savings rate by increasing your contribution amounts. 

High-income earners with no expenses are the most likely to become financially free first as they have more unspent money to save and invest consistently. The goal is to save as much money each month as possible and have low expenses to minimize the balance requirements.

How much money do you need to be financially independent?

Dividing your annual spending by 0.04 is the quickest way to calculate the minimum to save or invest.

The 4% rule is widely practiced and assumes withdrawing up to 4% of your nest egg each year to still have enough funds to cover your living expenses.

Can you become financially independent with no money?

It’s possible to reach financial independence when you have no money but it can take longer as you need to make adjustments to your financial habits.

The first step is to spend less than you earn and pay off debt to reduce your household expenses. Next, save or invest the difference.

Boosting your income through pay raises, overtime or money-making ideas provides more funds to save or invest. Increasing your take-home pay is one of the best ways to raise your savings rate after you cannot reduce your expenses further.


It’s possible to work toward FI at any time and enjoy the peace of mind that financial security provides. 

This achievement will likely take several years or decades and it’s important to be patient and flexible to enjoy life along the way and prevent giving up on this dream.