What is FI?

Financial Independence (colloquially “FI” or “FIRE”) is an exciting concept. The internet, social media, and podcasts are rapidly spreading and developing FI.

What do we mean when we say FI?

There are many definitions of FI. Here’s what it means to me.

Have you either:

1. Decided not to make a purchase because the good or service was too expensive? or
2. Saved money in a retirement account?

If so, you have already chosen FI (to a degree).

So what have you chosen? Well, FI is not about “getting rich.” FI is getting control of your money and finances so that your life can revolve around far more important priorities.

FI starts with being intentional about spending. FIers (my term for those actively pursuing FI) do not “go shopping.” They shop for that which they need and that which brings real, appreciated, and understood value to their lives. FIers understand that many purchases give you a quick dopamine hit, but aren’t necessary and do not really add value to life or improve the world. FIers are not miserly — we open our wallets for that which is important. For the unimportant things, most FIers have a high degree of frugality.

Second, FIers invest in assets. Those assets may be investments, small businesses, real estate, or education. The idea is to prioritize purchasing assets that build a future over purchases that destroy wealth.

As expenses decrease and wealth-building assets increase, your financial life becomes much more flexible. You become less dependent on spending and on situations you may not like. As you become less dependent on such things, you become more Financially Independent (get it?).

Third, many FIers seek to accelerate their path to FI through what Jonathan Mendonsa often refers to as “optimization.” FIers plan with intention to optimize their long term tax position and other aspects of life to gain significant financial advantages.  

FI facilitates an intentional life, not a life driven by spending and employers. JL Collins said on the ChooseFI podcast that FI “allows a lot of people to step back, get off the treadmill, and then figure out what they’re going to do.” None of this is to say spending is bad or employers are bad; far from it. But for FIers, spending and employers are not the primary drivers of their lives.

There is no one uniform standard of FI or look to FI. People strive for FI to various degrees and FI can help support many different types of lifestyles.

Another thought: FI is not necessarily about early retirement. Sure, there are examples of FIers that have retired very early by conventional standards. But most FIers strive to either stay in their current job simply because they like it, or have enough wealth and low enough expenses where they can be flexible about the types of professional endeavors they pursue and how/when they pursue them.

FI and Tax Planning

Pursuing financial independence opens up several tax planning opportunities. Here are posts addressing the intersection of tax planning and financial independence.

FIRE Tax Strategies for Beginners

Roth 401(k) Versus Roth IRA

An Ode to the Roth IRA

Health Savings Accounts

QCDs and the FI Community

The SECURE Act’s Impact on the FI Community

Need to get your financial life in order? Have retirement plans you need to figure out? FI Tax Guy can be your financial planner. Find out more by visiting mullaneyfinancial.com

Follow me on Twitter at @SeanMoneyandTax

This post is for entertainment and educational purposes only. It does not constitute accounting, investment, financial, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, investment, financial, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.