Published in · 7 min read · Jul 31, 2021
The road to FI usually starts with debt but ends with abundance
J.D. Roth started a blog back in 2006 — that is a lifetime ago for many netizens. In a way, it is also a lifetime for me. In 2006 I had finished secondary school and willingly signed up to £20,000+ of student loan debt. Since 20016, I have travelled around the world, tried out many different jobs, wrote part-time, paid off that debt, and eventually found the concept of FI/RE (Financial Independence / Retire Early).
While I was busy finding myself, J.D. Roth was busy digging himself out of debt. He didn’t have student loans but had around $35,000 worth of consumer debt instead. He’d fallen for the concept of ‘free money by spending on credit cards and repayment plans and had ignored the snowball of debt that was steadily growing out of sight. He was living paycheck to paycheck until one day, a check he wrote bounced (again). This spurred him on to face his debt and wrote up a 3-year plan to get out of debt and back to a neutral $0.
It took J.D. just over 3 years to get debt free, but once he was debt-free, he decided to start saving and investing the money that previously went towards his debt payoff. His website, Get Rich Slowly, started as a way to track his debt payoff journey but ended up getting him enough subscribers to generate monthly revenue that allowed him to quit his job and write on the site full time (the dream!). Over the years, he built a 7-step plan to financial independence that covers his entire journey, from in debt to the feeling of enough, and here it is, summed up into bitesize pieces of his wisdom.
1. Dependence
Nobody cares more about your money than you do, so assume responsibility for your financial future. — J.D. Roth
When we are children, somebody else takes care of money. If you want something, you have to ask your parents, grandparents, or a sibling; then they use a plastic rectangle card, and boom — that thing is yours. Some of us have never stopped thinking this way.
At some point in your life, somebody needs to teach you about money. If nobody has, then it is your responsibility to teach yourself. Today, with Instagrammers, bloggers, and personal finance books galore, there is no excuse to not learn.
Regardless of where you are starting, you need to take the first step and move out of dependence and towards financial freedom. Only you can take the first step, but once you do, it will change your life.
2. Solvency
The best way to get what you really want is to become clear on your goals and values. — J.D. Roth
To become solvent, you need to clear your debt. Tackling debt can be one of the most difficult parts of the journey to financial freedom, but it can offer valuable life lessons too.
Debt has been set up to make money for the issuer, and as you learn, budget, and aggressively pay off debt, you will also start to question the spending habits and consumer culture that got you there in the first place.
The aim of step 2 is to get to net $0. This might take you a few months or a few years, but taking control and working towards paying debt off is liberating, and many people in the FI/RE space say that if it wasn’t for the debt, they wouldn’t have found FI/RE or taken control of their finances. It’s a silver lining but also something that needs to be tackled immediately.
3. Stability
There are two paths to building wealth: spending less and earning more. — J.D. Roth
Financial stability is a great feeling. It is liberating to know that you don’t have to give half your paycheck away to repay a debt you created 5 years ago. It’s freeing to know that you can meet your monthly commitments and still have money left over each month. It’s exciting because now you might be in a position to save and invest spare cash.
In the land of financial stability, the first step is to create an emergency fund of 3–6 months expenditures. This will help you sleep better at night, knowing that even if you lose your job tomorrow, you will still be able to pay rent, afford food, or in an emergency, pay any bills.
The next step in instability is to start to get clear with where you want to go. Become clear on your goals and values. Understand the fundamentals of saving and investing, learn and start to save more, and invest. Look at your monthly outgoings and try to reduce them by budgeting. Look at your income and how you can increase it.
4. Agency
Time is money. In a very real way, it is. You pay for money with your time. The less money you spend, the less time you have to work. — J.D. Roth
This step again will give you a great feeling, and it’s an internal feeling similar to confidence. You have enough money to start to seriously shape your life and what you want from it. You can say no to crappy jobs and crappy bosses and instead hold out for the better. You can afford to job hunt for a few months, request a month of leave (unpaid if needed), and say ‘no’ to things that no longer serve you.
You have learned how to invest and are now reaping the rewards of smart long-term investments made in the past. You are also experiencing the concept of having ‘F**k You money.’ And now, nothing is going to stop you. You are, as J.D. Roth puts it, a wealth snowball.
5. Security
The road to financial independence can be long and tedious. That’s okay. Along the way, learn to adopt habits that foster wealth and success. — J.D. Roth
While the FI/RE movement is amazing for the lessons shared and the potential of the end goal, the time between the security stage and the FI stage can be long and tiresome.
It’s usually good during this phase to automate things as much as possible and to stop checking your net worth every week. Stop watching the stock market and instead shift your focus towards building better habits, learning new hobbies, and investing in yourself. After all, the goal of Financial Independence is to give you back time in your life to pursue the things you really enjoy.
At some point during the security phase, you will reach Lean FI, which means your investment income is enough to pay for a basic standard of living. At this level, some people choose to radically change their lives, while others push on to their full FI target.
6. Independence
After you’ve accumulated a wealth snowball, you have to figure out how to manage the money.- J. D. Roth
At stage 6, you must congratulate yourself. A lot (and I mean a lot) of hard work, time, and energy has been invested into your FI journey, and it has finally paid off. At Financial Independence, your investments can cover your current standard of living, and you no longer need a traditional job (i.e., trading time for money) in order to survive.
Now you need to create a new plan. How do you want to spend your free time, what do you want to achieve? How will you manage your money to ensure you can sustain yourself indefinitely, and how will you entertain yourself? For some, it’s hobbies cultivated during the security phase of their lives; for others, it’s through writing, while some may wish to travel, spend time with their family or take on a new project. The choice is beautiful, and it’s yours to make!
7. Abundance
Money isn’t everything. What good is wealth if you’re not content? As you pursue financial freedom, be sure to learn how to be happy and lead a meaningful life. — J.D. Roth
A mindset as much as net worth, Fat FI is when you have enough to cover your lifestyle and then some. This is the ultimate freedom, and many who get to Independence also get to Abundance because the habits that got you to financial freedom don’t change overnight, and usually neither do the trajectory of your investments.
This is also a really tricky place to be, as the majority of the world works for a living, so what should you do when you don’t have to. At this stage, more money won’t make you happier, and instead, you may wish to give the surplus away or to invest in something or someone else to bring about your version of a better world. Perhaps you write a book or teach others how to become financially independent, or learn an instrument, how to paint, or a foreign language. The world is your oyster, and your time is finally completely yours.
Whatever stage you are at, enjoy it and protect your energy. Time will get you to where you are going, and while we all wish we were at the Abundant Fat FI/RE stage, once there, we will look back fondly at our ‘working days’ in the office, and our younger self who made scarifies to get you there. You are where you need to be right now, and the most important thing is to have a plan to get you to the next stage, make time to learn, and cultivate habits that keep you healthy and hobbies that keep you happy. Good Luck!
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
