Mindsets and Behaviors Leading to Financial Independence
There are certain philosophies within the Financial Independence (FI) community that are pretty widely known and widely accepted. If you're on your way to FI like we are, this may be a fun read for you. If you have some thoughts to add, please let us know! For those who are just starting their journeys, this may be a good place to start.
Change takes time, and I'm a big believer in the "aggregation of marginal gains" through trying to improve oneself by 1%. If we focus on the small things and and have a mindset of constant self improvement, we can be successful in not only reaching FI, but also the various other big goals we have in our lives. Like many things in life, it's a pretty simple concept, but actually quite hard to put into practice. I believe that if we do a little better each day in just a few of these categories, we'll find ourselves in early retirement in no time. With each point below, we should keep in mind the impact marginal gains can have in our lives.
I've split these points into two categories - general and FI-specific. With no particular order and trying to keep this post simple, here are the various mindsets and behaviors that FI-minded and Early Retirement dreamers have:
FI-Specific Mindsets and Behaviors
Pay Yourself First
One of the foundational principles in the FI community is that you should always pay yourself first. Simply put, save first, then figure out your other expenses after. The concept isn't new and certainly isn't that difficult - try to save (or invest) at least 10% of your income and then build your life around the money you have left. You'll come to find that 10% isn't all that much, and if you do it before considering other expenses, you won't really ever miss that money.
Delayed Gratification and Compound Interest
Related to the previous point, putting money into savings and investments has a lot to do with delayed gratification. They can wait to use that money for the purpose of it working for us. They deny themselves a few luxuries once in awhile to focus on their needs so they can save for the future. The FI community members understand that having their money earn more money through compound interest is one of the most powerful tools available to reach their financial goals.
Optimization
To make the best use of their resources, FI-minded people are usually looking to optimize their lives. This means that learning to use each and every resource they have available to them when it comes to credit card points, air miles, tax laws, and the like. Where there is something to be gained (legally), there is a Financial Independence article out there teaching others of how to do it.
Pay Off Credit Cards Each Month
This one is obvious and should be done automatically if possible. Set your bills to automatic payments and forget about it! The FI-minded folks out there know that if they don't have any credit card debt, they avoid it like the plague. The folks who have credit card debt at the beginning of their FI journey quickly learn that credit card debt is a major hindrance to the path toward Financial Independence. Once the task is done (and it may take a long time, no doubt), they will never get into credit card debt again and simply pay the card(s) off each month.
Frugality
Understanding the value of items can be a tough one. There is a fine line between frugality and being cheap. People in the FI community can sometimes be accused of being cheap (sometimes justifiably), but for the most part, they know the true value of an item and will pay the appropriate price for it. Why pay for a $1 a hundred times over the span of 10 years when you can buy a higher quality item for less upfront? This higher quality item will likely last you a lifetime and that, friends, is where the FI-minded people tip over into the side of frugality.
Start Investing Early and Consistently
If a FI-minded person isn't saving their money in an emergency fund, they're likely investing it. It's important to invest early, but also to be investing consistently. Where they have money to spare, they will put it into the brokerage account to invest it. They know that "time in the market is better than timing the market" and they live by it (as best they can). Though greed and fear can play a big part in investing, FI-minded people will know that consistency in their investments (generally a low-cost, broad-based index fund) can squash those emotions.
Asking and Negotiating
FI folks aren't afraid to ask for extras, because they know that if they never ask, the answer is always "no" so better to ask and receive (sometimes) than to never know. After all, asking is the first step in negotiating. Those in the FI community know that negotiating is a powerful tool in both lowering costs (when purchasing items or services) and increasing income (when negotiating a salary).
Do-It-Yourself (DIY) Mindset
The people in the FI community like to do things themselves. The DIY folks are especially helpful with one another because they know sharing knowledge can build community. They know that doing things themselves can save them money, but more than that, they know it is empowering to accomplish a task themselves. The investment of time and energy can sometimes cost more overall, but the knowledge and experience gained is priceless.
Diversify Investments and Income Streams
FI folks don't have all their eggs in one basket. They work toward diversifying not only their investments (through low-cost, broad-based index funds), but also their income streams. Their day jobs may be their main source of income, but it isn't the only source of money. Diversifying streams of income can take many forms, but the most common are rental properties and side hustles.
Prudence and Take Calculated Risks
Overall, most FI-minded people are prudent in their choices. Those in the FI community are often cautious about their decisions surrounding money. Many folks have learned from tough mistakes, and others have learned from those who shared those mistakes. They are all learning from one another, but most people are taking calculated risks when it comes to mortgages, investments, their various income streams, and their savings.
General Mindsets and Behaviors
Goal Setting and Living Intentionally
The goals we strive for should be clearly defined. Camilla and I hope have mentioned in many posts that we hope to retire within the next 20 years. Breaking it down further, that means each month, we set financial goals for ourselves. We intentionally control our spending with a budget in mind and set realistic goals for our side hustles. We often remind ourselves of how intentional living is directly related to how we reach our goals. It's the foundation of our behaviors that leads us toward our goals.
Taking Care of Your Health
We all want to live a long and fulfilling life, right? This is especially true if we have children and want to share in their joy as they grow up. Taking care of our health is easily one of the most important things we can do for ourselves. What's the point in slogging through life with an unhealthy body or mind only to retire and have to spend your hard earned money and your precious time fixing those mistakes? I often remind myself that an ounce of prevention is worth a pound of cure.
Delayed Gratification
The things we want now are often less impactful than the things we want in the future. Not to ever be confused with the things we need, our wants should be delayed occasionally until we reach our final goals. With balance and intentional living, delayed gratification can be mastered with time.
Finding Balance
It's incredibly important to be balanced with the wants and needs in our lives. I think that good FI-minded people take this very seriously. We sometimes tow the line of deprivation for the sake of our goals, but it's a continuous challenge for us to think about why we're doing certain things in one area of our lives, but neglecting to do others.
Patience and Persistence
With all long-term goals, it's important to have patience and persistence. When the going gets tough, the tough gets going, right? For those who are working toward FI but have a mountain of debt, this is an incredibly important mindset to have. We all must have patience and persist in getting rid of debt as fast as we can, especially if it's credit card debt. For those who are working toward their retirement, patience and persistence will get us there before we know it.
Continuous Education
As far as I can tell, anyone who is consistently trying to improve themselves through continuous education is on the right path to success. With FI people in particular, it's easy to see how this might be applied. We are always learning strategies on tax optimization, saving money, and so many other things related to money.
Social Indifference
Finally, we don't really live by the general rules of society. We try our hardest to be inclusive of others in the group, and at the same time, we shun the world in which we live - the world that bombards us with advertisements of the newest things; the world that tells us we need the most expensive things to be happy; the world that wants to consume as much as we can without a care. We care about our families being taken care of more than keeping up with our neighbors. We are socially indifferent because we care about our financial well-being more than what others think of us. We are in the world, but we define our own world, regardless of others. We are the Financial Independence community, and I think it's a wonderful group.
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So there you have it. I hope you see clearly that people who balance these mindsets and behaviors in their lives are well-rounded individuals who can apply these frameworks to both their financial goals as well as their personal goals. The people in the FI community are quite agreeable and nice, even when they aren't completely convinced about a new opinion. I am proud to be a part of that community.
Cheers to FI folks all around the world!
Khang
P.S. Any thoughts to add? We'd love to hear from you! Email us at faithandfi@gmail.com and send us a note!