• June 3, 2023

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Now that we’ve celebrated our nation’s Independence Day, we might want to start thinking about our own “financial independence day.” That’s the day you work or don’t work because you want to, not because you have to. Here are the steps you can take to turn your dream into a reality.

1) Define your dream.

What would financial independence mean to you? For some people, it may mean traveling the world. Others would just like to spend more time with their family and not have to wake up to an alarm clock every day. You may want to volunteer for your favorite cause or even start your own business.

Having a clear mental image of your retirement is important for a couple of reasons. First, it will affect how much money you’ll need. Second, it will help keep you motivated to make some of the changes that might be required.

2) Estimate how much income you’ll need.

It’s probably best to start with how much you’re spending now and then think about how those expenses might change in retirement. To see your current spending, go through at least your last 3 months of bank and credit card statements for an average of your regular monthly expenses. Then add in non-monthly expenses like vacations and holidays that might not be captured in the last 3 months. For many people, seeing where their money is going can be quite an eye-opener.

Next, create a retirement budget by thinking about how each of those expenses might change. For example, you may want to spend more money on things like travel or other hobbies. On the other hand, your housing costs may decrease if you will have your mortgage paid off or plan to downsize and/or move to an area with a lower cost of living.

3) Don’t forget health care.

If there’s one expense that will likely go up for most people in retirement of all ages, it’s health insurance. This is especially true for anyone retiring before 65, which is the age you can qualify for Medicare. You can use this calculator to get an estimate of health insurance costs for a mid-level “silver” plan under the Affordable Care Act and add that into your budget. (Just be sure to use your expected taxable income for “yearly household income.”)


4) Calculate how much you need to save.

You can use our retirement estimator to see if you’re on track towards your goals. If not, you can try saving more, retiring later, or reducing your retirement expenses. On the other hand, you may also discover that you can retire earlier or with more income than you thought.

5) Use tax-advantaged accounts.

If you need to save more, first make sure that you’re getting the full match in your employer’s retirement plan and not leaving any of that free money on the table. A Roth IRA allows your money to grow to be tax-free after 5 years and age 59 ½ while also allowing you access to the contributions anytime without tax or penalty. An HSA allows you to contribute pre-tax (if you’re eligible) and potentially take the money tax-free for qualified medical expenses.

We covered a lot of technical information here, but at the end of the day, achieving financial independence is really about how much you value the material possessions that money can buy you today vs. the freedom that it can buy you tomorrow. Our founding generation made great sacrifices to achieve political independence. What will you do to achieve financial independence?


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