The Incredible Joy of Financial Independence

About a year ago -- around Independence Day 2012 -- my wife and I reached an important financial milestone, our own Financial Independence Day. We were in our mid-30s, with four kids and only one working-for-pay adult amid one of the worst job markets in generations, but we were free. Not rich, mind you, but free nonetheless.

When we ran the numbers, we discovered that with reasonable returns on our investments, we could stay in our house, cover COBRA/HIPAA health insurance premiums, and feed our family home-cooked meals. The kids would be on their own for college, our entertainment budget would consist of walks to the park for picnics, and we'd have to downsize our transportation to just the (paid-off) minivan. But still, we had a reasonable chance of making bare-minimum ends meet without working.

Peace throughout turbulent times
The transformation in our lives was astounding and almost instantaneous. I still work, as we want better than subsistence living and to help our kids start their lives without excessive debt, but I was able to land two jobs that were about as close to ideal fits for me as exist in the job market. That only happened because we had the freedom to ask for what we wanted at a time when many others were simply happy to have any job.

In addition to the awesome jobs, I also regained the ability to attend most of my kids' sporting events, spend most weekends and some evenings with them, and tackle some of the overdue "honey-do" list. For the first time in years, our work and life were in some semblance of balance, thanks almost entirely to reaching that state of financial independence.

We got there, so can you
We followed an incredibly simple strategy to reach that point of financial independence:

  • Spend less than we earn.
  • Invest the rest, in tax-advantaged accounts when possible.
  • Reinvest dividends in something, though not necessarily the dividend payer.
  • Repeat.

The strategy was simple, but it certainly wasn't easy or quick. Kids got sick. Cars broke down. The air conditioner, water heater, furnace, and other appliances needed to be replaced. Vacations were reduced to driving trips to visit out-of-town family. Entertainment came largely from the public library and neighborhood sports. And notice that I mentioned working two jobs...

I followed that four-step strategy before my wife and I were married, and once she realized that it was her best shot of being able to stay home with the kids, she quickly converted. Yes, it took years of sacrifice and being extremely choosy in our spending. Still, having emerged intact on the side of financial independence, we can attest that the benefits, from peace of mind to improved work-life balance and family time, are certainly worth it.

How we invest
The centerpiece of our plan was consistent investing in a strategy that has its roots in Benjamin Graham's timeless classic, The Intelligent Investor. The keys to that strategy are:

  • Dividends: We look for companies that pay dividends, have a history of raising their dividends, and look capable of continuing to raise their dividends over time.
  • Valuation: We look for companies that trade at what look like reasonable-to-cheap prices based on some fundamental measure of their worth. Since the financial crisis took out some of our weaker holdings, we began including balance sheet strength in that valuation consideration.
  • Diversification: We follow Graham's advice to look for companies that meet our other investing criteria and that operate in different industries. This absolutely saved us during the financial crisis, as many financial institutions looked good in the rearview mirror at the same time they were busy melting down. We lost more than I would have liked due to our holdings of financial companies, but far less than we would have were it not for Graham's diversification principles.

As we worked through that strategy, we had some good years and some bad years, and we didn't consistently beat the market. But we were able to keep on plugging away, because we understood the strategy and believed from Graham's experience and his followers' that it would work for us over time. And with every paycheck with money automatically sent to the 401(k), every IRA contribution, every reinvested dividend payment, and the occasional after-tax investment, we kept at it.

Why almost anyone can succeed
Perhaps the most important lesson we learned along the way is that you don't need to trounce the market to wind up comfortable. Indeed, the act of investing is in many ways more important than the returns you get from investing. You just need a reasonable strategy that you can consistently follow and the persistence, perseverance, and time to see it through.

The strategy that got us to our Financial Independence Day may or may not work for you. But in honor of our nation's Independence Day this Fourth of July, I encourage you to take the time to consider what your path to your Financial Independence Day might look like. Because the sooner you start, the better your chances are of reaching that goal, and the longer you'll be able to enjoy the fruits of your effort and sacrifice.


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