The Road to FI

So you want to make your escape from the corporate rat race?  You want to gain back the freedom to live your own life?  Reaching the goal of Financial Independence is a fantastic achievement.  It definitely can be done, I’m living proof of that!  

Be warned though: The Road to FI isn’t always easy…


The Road

The Road to Financial Independence is a long, empty, and lonely road.  Other than your passengers, there are no other cars in sight.  Other than people on the internet, I’ve never actually seen anyone else on The Road.

Going it alone can be tough.  Uncertainty about your direction and the process of achieving FI are real concerns.  So when readers ask me questions, I really try to answer them…

Today’s reader question: “I’m saving about 25% of my income, but it’s taking a long time to get anywhere.  How do I reach financial independence faster?  Should I focus on saving more?  Or, is it more important to learn better investing?”

Mr. Tako’s answer:  It depends!  It depends upon where you are on The Road to FI.  Without a doubt, saving is most of the work (maybe 75% of your effort).  The other 25% of the effort is about investing (and learning investing).  Where and when you apply that effort is actually pretty important…


How The Road Changes

Imagine The Road as a highway leading up into the mountains off in the distance.  The peak of the largest mountain is your goal.  From the starting line ($0 net worth), it looks easy.  Everything looks easy when you’re young!

There’s a long, straight paved road at the start.  It looks straight, and flat.  Intuitively we know it isn’t going to always be this easy.  We don’t realize how hard it’s going to be.  We know the terrain is going to get steep.  We’re going to need four-wheel-drive, and climbing gear at some point….we just don’t know when.

Mountain Road
The Road: Looks easy, right? It always looks easy when you’re young.


Early Days On The Road To FI: $0 to $200k

The beginning of The Road is flat and easy.  These are the Early Days, and you’re going to be young and full of energy.  At this point in your life, your financial responsibilities are probably minimal.  The Early Days should be all about maximizing savings and working hard to get that promotion at work.  Saving is most important when you have this few assets.  Save as much as you can – 50% is a good starting place!

Initially, your earnings from investments are going to be tiny.  Say for example you save $100k in your first few years after college.  With a “normal” stock market return of 7% you’re going to be looking at returns of only $7,000/year.  That’s nothing to sneeze at, but it certainly isn’t anywhere close to $26,250 (50% savings from a 70k job after taxes)  Your savings for the year are going to far exceed your investment returns.

My advice for people in the Early Days:  Skip the social life.  Keep your foot on the “savings” pedal.  Focus on saving as much money as you can, and working hard.  Save 50% or more.  Live with roommates to keep costs low.  With luck, you’ll get a promotion at work, and break free of the “Early Days” that much quicker.  Don’t worry about trying to make great investments at this point.  Your investment returns will be insignificant next to what you can save.  Just dump it into a index fund and keep saving.  Make good use of work 401k plans and matching programs.  Start reading some good investing books.


Middle Of The Road To FI: $200k to $600k

So you’ve been able to save at least $200k.  You are at what I call the “Middle of The Road”.  Your annual return from investments is probably going to be at least $14,000 (at 7%).  Meanwhile you’ve kept expenses under control and are still saving at least 50% of your salary…which has probably grown due to hard work.

Saving is still going to be the most important thing you can do!  Saving 50% should now be like a bad habit…impossible to stop!  

By now, you’ll probably have extra money for some fun!  A social life and limited travel probably wouldn’t hurt….but don’t get tricked into buying luxury possessions, those things are detours that can seriously derail your Financial Independence.  Your peers may be buying these things, but don’t stray from the path.  Resist the social pressure!

detour choices
Financial Detours: Don’t get caught up in all the distracting detours that travel, luxury cars, and fancy houses provide.

My advice for people in the Middle:  The “Middle of The Road” is a good time to learn about other investments.  Start learning about different funds, REITs (or Physical Real Estate), Preferred Shares, small businesses, and Stocks.  Educate yourself and begin diversifying your investments. 

You’ll also want to start building up a taxable account, while still contributing the maximum to tax-exempt retirement accounts.  As you build up the taxable account, it will begin spitting off dividends.  For now, just keep reinvesting the dividends.  Don’t spend them!

All the tools and knowledge you build now are going to help you later on…when things get tricky; when you own houses, rental properties, and have real responsibilities like kids and a spouse.

fair warning
Fair Warning: Kids, Houses, and Spouses can seriously delay Financial Independence. But, they’re also a really good reason for Financial Independence.

“Later Days” On The Road To FI: $600k to $1.2m

At this point, your income from investments is going to be pretty significant.  Your portfolio will produce returns nearly as large as you can save per year.  Somewhere between $42,000 to $84,000 using our hypothetical 7% return.  Financial independence actually looks possible!  But this is also where navigating the road has the most pitfalls and distractions.  The Road is toughest here.  It’s filled with life’s endless financial pitfalls…like a broken furnace, or braces for your kids.

Saving 50% or more should still be on auto-pilot!

My advice for those in the “Later Days” on The Road to FI:  Financial independence is coming soon.  Now is the time when those investments skills are needed.  Prepare yourself to live without a job!  Diversify your income streams!  Start building up side-gigs or micro-businesses to bring in income from outside of work.  Funnel more cash into the taxable account and build a dividend growth portfolio that spits off significant cash flows.  

multiple streams
Having multiple streams of income is important: It doesn’t rain all the time, or in all places.


Finally FI: $1.2m and beyond

So, you’ve finally reached Financial Independence.  Congratulations!  A portfolio of $1.2 million (or more) can produce $36k/year at 3% and $48k/year at 4%, depending upon which rule you like to use.  That’s enough to live-off in most of the United States!  

Because your spending hasn’t grown much over the years, investment income should now exceed your expenses!  Your lifestyle shouldn’t need any significant changes!  

Mountain Summit
The Financial Independence summit: Take a bow; you made it!

Well done!  A job is now optional.  It’s time to execute your escape plan!  

Job income will now become less important than investment income and alternative income sources; these should now be your main focus.  

Investing “skills” are paramount at this stage, because they will sustain your Financial Independence.  I hope you’ve been learning and practicing!

The frugality skills you built-up (to save 50%) should still be in place, but now they can be used for having frugal fun!

Now, take a moment to breath deep and reflect.  You’ve worked hard.  You’ve busted ass to get here.  It’s time to really live and enjoy life.   No more Monday morning staff meetings.  No more jerk bosses.  You are free!

Hawaii Beach 2
You’ve reached FI. Time to take a vacation!! In my case, Hawaii!


My Road

I reached my own Financial Independence at the age 38.  My road was filled with potholes and detours.  It was a terrible mess.

I made every mistake in the book.  I didn’t even start at $0.  I started at -$50,000.  I wasted tons of money on stupid stuff, like cars!  There was a couple recessions along the way!  But eventually, I did arrive.  No speed records were broken, that’s for sure!

Today we have financial assets that exceed $2 million and dividend income of $4,000 per month.  I feel like we’re doing pretty well!

In your case, you might reach FI sooner than I did.  Or, you might reach it a little later…but you CAN reach it.  

Remember, it’s not a race.  The important part is just staying on the path.  Remain true to the principles that got you here…there is a reason you made it this far.


[Image Credits:  Flickr1, Flickr2, Flickr3, Flickr4, Flickr5]

27 thoughts on “The Road to FI

  • April 15, 2016 at 4:22 AM

    That’s a great road map. In the early stages I wouldn’t say don’t have a social life, but be social in a fiscally responsible manner 🙂

    • April 15, 2016 at 7:40 AM

      I knew that one was going to get a comment 😉

      So much of life’s spending is *socially” related, I think it’s no accident you see FIRE very frequently in introverted engineer types. 🙂

      • April 20, 2016 at 1:56 PM

        Ha, guilty as charged! My introversion has saved me from many stupid expenses.

        I’m in the “Later days” of my own road to FI, and my main problem is less with the financial distractions than the burden of still having to show up at work to complete the plan. That’s grown into a very distinct pain.

  • April 15, 2016 at 4:24 AM

    Thanks Mr. Tako. Another solid post. I like the comparison to a journey with sometimes smooth and sometimes treacherous terrain. Like you, my family’s journey did not start on smooth pavement. In fact, I feel now like we had to find the road by cutting through saw grass that grew above the head. Then, we just sort of Forrest Gumped along the road for 12 years without paying much attention. We really had no plan for FI, but we maxed our retirement accounts, and we did not buy new cars. When the market crashed, we just ‘let it ride’ and continued to throw money at it.

    The first time we heard of early retirement, we checked our retirement accounts and found that we were already 2/3 of the way down the road! Now, we have the climbing gear and harnesses out. We have reduced our profligate lifestyle, and started saving like crazy with a plan to exit planet work in 2018. I feel really lucky to have saved so much without really trying, but now that I know there is a finish line ahead, it feels 50% harder to go to work every day. On the other hand, I look at every paycheck with so much pleasure because it is buying our freedom.

    Best wishes to you and your family, Ap.

    • April 15, 2016 at 7:37 AM

      Freedom is really the best thing you’re ever going to buy! Congrats (in advance) on 2018!

  • April 15, 2016 at 6:23 AM

    Great article – I have noticed myself that as I’ve worked my way closer to FI, it’s becoming easier and easier. And the returns do come that much quicker. I think the saying “the first million is the hardest” seems to be true.

    Congrats on your numbers as well – that’s phenomenal! I likely won’t have numbers as strong as yours but I’ll hopefully be able to join the FI group sooner rather than later.

    — Jim

    • April 15, 2016 at 7:36 AM

      It’s kindof a critical mass thing isn’t it? Once you’ve built the skills up and reach that critical mass, it does seem easy! But, for many people, the more they have the harder it is to save…there’s just more temptations to spend!

  • April 15, 2016 at 11:18 AM

    Great roadmap. I wish I had discovered all of this about 15 years ago…. I might have been free by now.

    The not spending on social events parts would be difficult for me. I am an engineer, not to introvert… The spending is under control now days, or so I think

  • April 15, 2016 at 12:49 PM

    Great framework, your description really resonated with me. And the part about houses and kids can delay FI but be a good reason / motivator for it. I’ve compromised by working part time even though it would mean we could save a lot more but time now is precious too.

  • April 16, 2016 at 6:11 AM

    Very cool post and nice overview of the FI road map. By the looks of things, our road is supposedly going to be a bit rocky going forward. Thanks for the heads up! 😉

    • April 16, 2016 at 9:20 AM

      Yes,it can definitely be rocky (maybe more on this in a upcoming post). With any luck, you’ll have built up the skills to overcome nearly any obstacle and climb to new heights.

  • April 17, 2016 at 4:53 AM

    Tako San, Excellent post! I recall from another post that you have a 3.5% yield target so if $48K covers all your expenses and then some as you say, you are good to go…for life! This post is an inspirational roadmap for all who wish to follow the real path to FI. It’s not flashy, no overnight success and definitely shuns all the Madison Avenue inspired symbols of affluence, but this WORKS! I have a 3.8% dividend yield on my current portfolio which means I probably have more high yielding stocks than you but then I am deep in 40s and also FIREd so I tilt a bit more towards current income. You don’t need massive income to reach FI but massive grit is required. The rewards are worth it as Mr. Tako clearly shows. Kudos!

    • June 3, 2017 at 12:46 PM

      I am truly confused on the target amount. 48,000 per year (assuming after taxes) does not go far when health insurance costs are currently half of that (yep, 24,000), property taxes on our modest paid off home are 8,000.

  • April 18, 2016 at 3:56 AM

    The Road to Financial Independence is a long, empty, and lonely road.

    Indeed. I learned that the hard way. Hinting at the topic of early retirement and hearing “you mean like at age 62?” or pointing out the total cost of purchasing a $42,000 entry level SUV (including opportunity cost). Nothing but weird looks. Best to keep my mouth closed.

    • April 18, 2016 at 9:29 AM

      You are so right! I have stopped mentioning it to my friends. I brought up the subject once and the reaction was so negative that I felt really uncomfortable.

  • April 18, 2016 at 11:38 AM

    I like how you point out starting the taxable account. I am nearing the middle stage and it feels like everything is in a retirement account, but hopefully with more income I can build a taxable account. I may want to boost it through a bit more schooling though if I can get a great ROI.

  • April 18, 2016 at 6:51 PM

    It’s amazing how great compound interest and time allows the hard work of early savings build up. Great road map, especially for most of your middle income readers. I’ve encountered many people who are into the FIRE mentality but are also stuck in the <$40,000 income range (a la ERE). For those cases, I agree with the multiple income streams (nice photo!)

    I'm still early in my path, but this is good reinforcement for us all.

  • April 21, 2016 at 7:05 AM

    This is a really great and detailed post about different people’s journey’s to FI. I do agree that you can have a social life without unnecessary expenditure though. There’s ways to spend time with people without splashing out at dinner or on fancy gifts!

    Impressive to see where you started and congrats on getting to where you want to be, despite your obstacles.

  • June 20, 2016 at 4:56 PM

    Anytime I feel discouraged at work, I try to browse a FI blog to keep me going, hoping I’ll reach there one day. Glad to know another person made it!When you talk about savings, does it include 401k and pretax accounts in the amount of savings?

  • August 13, 2016 at 12:20 AM

    Nice article. As one who is 43 and already on the road to FIRE with all expenses covered by passive income I really appreciate it.

    Nice shots of Mount Shasta and the red lava tubes higher up on the mountain. I climbed that back in 2002 and it was a really fun climb.


  • January 21, 2017 at 8:29 AM

    Hi Mr Tako,
    Thank you very much for this roadmap. I am now equipped with my compass, your map to slowly but steadily build that dividend income.

  • August 31, 2017 at 9:33 PM

    Mr Tako! When was it you started on your path to FI? I’m curious how long it took you.
    Congrats on escaping like a cephalopod.


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