How much money do you need to be considered financially independent? Many people compare financial independence with retirement, but these are two different terms with different meanings.
Financial independence means you have the ability to live your life without being dependent upon a primary job. Essentially, you have other income streams to sustain your way of life either being through investments or your business. You only work on YOUR terms and if you choose to do so.
Retirement is like financial independence, but the primary difference is that retirement means you have a permanent separation from employment/business and typically occurs at an older age. Financial independence can happen at anytime if you plan correctly.
When you become financially independent, you “could” separate from traditional employment if you wanted, but typically it still requires some sort of partially passive involvement in your income streams, such as your niche side practice.
Because of this reason, I could be considered financially independent at the age of 36 as I could live 100% off my investments and side businesses. It still requires work on my end, but it is work that I ENJOY and only requires 15-20 hours a week to sustain.
Let’s face it, many of us will never completely stop working, we will always be doing something. I think it is the nature of a nurse practitioner entrepreneur to always have a side hustle, the key difference is that you enjoy what you are doing instead of being a slave to some corporate health system that doesn’t give a rats ass about you. Remember the old saying “You will never work a day in your life if you enjoy what you are doing?” I think that is totally applicable to the nurse practitioner entrepreneur, but let’s get back on topic.
So, what is that magic number you need to be considered financially independent? I cannot give you an exact number because everyone’s life circumstances are different: the city you live in, how many children you have, your living expenses, your travel budget, your mortgage payment, your debt load, etc.
Everyone will need different amounts of income to sustain lifelong happiness, but I suspect many of you know what that number would be. Do not think about it as a lump sum of money, instead think about it as a monthly income or yearly income amount. Saying you need $1,500,000 to be financially independent doesn’t mean anything, instead, say you need $5,000 a month in post-tax income to be happy. That will make the goal more attainable.
Multiple studies have shown that happiness does not increase by a significant amount after $80,000 a year. This number tends to be the point where you either stress out about money or you don’t. I can relate. When I was an RN making $50,000 a year, I did stress out about money and bills. When I became a nurse practitioner though, my first job resulted in a salary of $90,000 a year with production. I was perfectly CONTENT on just the base salary. I did not worry about money and I lived within my means. When my income increased to $150,000+, my happiness did not really improve that much.
With that said, think really hard about what monthly income you need to be happy. If you are loaded with debt, then you will need more than someone who doesn’t have any. Here is a piece of advice; get that debt paid down as fast as possible… You will never be financially independent with a bunch of junk debt. Mortgages on rental properties are fine, car payments, credit card debt, and student loans are not fine. Any debt you have should be on an appreciating asset, not a depreciating one.
Let’s stick with the number of having $80,000 a year to be financially independent for simplistic purposes. This would result in approximately $5,000 a month in POST-TAX income. If you were debt free, could you live off $5,000 a month? I could because my expenses are in check, and most of you could as well with a proper budget. Generating an income of $5,000 a month with a couple niche side practices that can be done in <20 hours a week total is TOTALLY FEASIBLE for the nurse practitioner entrepreneur. There is no excuse why you couldn’t accomplish this… Any nurse practitioner could. You could literally be considered financially independent in just 2 years by opening your own side practice. This only applies if you want to continue working and seeing patients though. So, keep that in mind while you define your financial independence goals.
What if you don’t want to continue working? How can you accomplish $5,000 a month in post-tax income? You must have cash flowing investments. Your house does not generate income, but your rental property does. There is something called the 4% rule. This rule means that you can safely assume that you can withdraw 4% a year off your investments as income. So, if you had $1,000,000 invested in some rental properties and in the stock market, then you could withdraw $40,000 a year for the rest of your life (pending something catastrophic happening).
If we stick with the $80,000 a year figure, then you would need to have $2,000,000 in CASH FLOWING assets: rental properties, side businesses, stocks, index funds, bonds, etc.
I bet some of you are thinking “$2,000,000 is a lot of money… how can I even get there?” It is pretty simple:
Invest your money.
Lower your expenses.
Build income generating assets.
Lower your taxes (YOUR BIGGEST EXPENSE IN LIFE).
These are the 4 pillars of financial independence and I go through them in much more detail in the upcoming financial independence course, just FYI, but these are the 4 key areas of your finances that you need to be on top of. Obtaining $2,000,000 does not happen overnight, it takes years to build that kind of portfolio.
This might sound stressful to many of you, but I can assure you, this can be done in 10 years if you utilize your power as a nurse practitioner to its fullest: build niche practices and maintain part-time employment. If your practices flourish, then you don’t even need to stick with part-time employment, but if your goal is to diversify your finances and be as redundant as possible, then maintaining a part-time job is advisable.
Any nurse practitioner who is in their 20s or 30s could reach financial independence where they CHOOSE to continue seeing patients or not by the time they are 40-45. For the nurse practitioners who are older in their 40s and 50s, you have a lot of work to do but you could accomplish this within 10 years as well by investing correctly, living below your means, building multiple income streams, and legally lowering your tax obligations.
I personally will always work to an extent. I just do not see myself totally stopping, I enjoy what I do. I love treating my men’s health patients and I love helping NPs succeed. If you are in a similar boat, then you can reach financial independence MUCH FASTER if you continue to work on YOUR terms. You can travel and still see patients due to the wonders of telemedicine also!
What you do is continue working on your businesses, seeing patients, and bringing in income while investing that income heavily into income generating assets and living below your means. What will happen is that in 10-20 years you will look at your net worth and be considered a multi-millionaire. At this point, you can do whatever you, whenever you want.
For the people who want to be practically retired in 5-10 years, I suggest you get started building as many businesses as you can as fast as possible and cutting down living expenses dramatically. If you can save and invest 60% of your income, you could be comfortably retired within 5-10 years.
So, decide what your lifestyle goals are and figure out what the dollar amount you would need monthly to be happy. Happiness is the most important goal, and let’s face it, you need money to achieve it in modern day society unless you are content being broke, which will be very few of you. Think of this as insurance to your future happiness. If you have a very large nest egg, you will be far happier than the broke person who relies only on their social security. I guarantee that.
To sum it up: I believe having a yearly income of $80,000 a year or $5,000 a month in post-tax income to be the optimal number to be HAPPILY financially independent/retired, but that is for you to decide.
The Financial Independence and Investment course will launch on January 1st for those nurse practitioners who want to put down building a life of financial independence as their new year’s resolution in 2021. I will cover how to become financially independent in a 200+ slide presentation. In the mean time, I will be releasing a few more finance focused articles over the next month. Make 2021 the year where you begin your journey to financial independence and make the 2030s the decade where you are DONE!