What this article covers
Opher Ganel argues that being wealthy isn’t about a specific net worth but about reaching financial independence, and that knowledge alone won’t get you there without the right mindset and accountability. Drawing on his own path from financial hardship, he shares seven lessons, from automating savings and budgeting by priorities to using debt strategically, diversifying income streams and starting a business early, with input from four financial advisors.
Key Takeaways
Financial independence depends on your expenses, not a specific net worth
Opher Ganel argues you could be wealthy with less than $1 million if your expenses are low enough, yet not wealthy with $10 million if you spend more than the roughly $300,000 a year such a portfolio can reasonably support. Advisor Jon McCardle defines financial independence as replacing earned income with passive income that sustains a comfortable, not excessive, lifestyle in good and difficult economic times.
Save 15% to 20% of your income automatically, before you spend
Blaine Thiederman suggests automating savings through your payroll provider, starting at 5% of each paycheck and working toward saving 20% of your income every year. Michael Acosta recommends paying yourself first by treating saving as an expense, which builds assets on your balance sheet regardless of market returns.
Use debt only for things that help you earn more or spend less
Ganel warns that buying things you don’t need on credit leads to a debt spiral, while debt used for an education, a growing business, rental properties or a home mortgage can accelerate wealth. He applies the same discipline to income streams: add them one at a time, and only when the return on your time and money justifies the effort.
Kenneth Sean Polley
Jon McCardleI experienced financial hardship as an undergraduate and graduate student and then as a postdoc. Thankfully, I never dropped into outright poverty.
As I see it, being wealthy isn’t defined by a specific number of zeros in your net worth. It does require and means that you’ve achieved financial independence. You could be wealthy with less than a $1 million net worth if your expenses are low enough. On the other hand, you may not be wealthy with a $10 million net worth if your expenses exceed the ~$300,000 a year you can reasonably expect from a portfolio of that size.
After years of focus, work, and grit, we’re well along the path from hardship to wealth, though not quite there yet.
At the end of the day, knowing stuff isn’t enough to generate breakthrough results. Otherwise, I’d already have lost a bunch of weight! What’s required is a combination of 3 things:
- Knowledge (yup, can’t escape that one)
- Mindset (knowledge can help you identify this, but you have to apply that knowledge in the right ways)
- Accountability and support (to keep you present to your commitments and in action to accomplish what you set out to do)
Here are 7 lessons I learned along the way, including some surprising ones, very different from conventional wisdom.
1. Set Money Aside Routinely (and Automate Your Savings)
After articulating your financial goals, you need to make a plan for how to achieve those goals and identify the monthly amounts you need to set aside for each. Then, each month put aside money for short-term goals in safe places (e.g., savings account, certificate of deposit, money market account, etc.).
For longer-term goals, invest the money based on your personal willingness to accept risk. However, note that if you don’t want to risk any investment losses, you will forgo the growth stocks can deliver and will need to set aside a lot more.
Blaine Thiederman, MBA, CFP, says:
An easy way to do this is to automate your savings. Many people add a separate savings account to their payroll provider for automatic deposits from each paycheck. You can start with 5% of each paycheck and slowly increase it. Remember, the goal should be to save 20% of your income every year. If you don’t, you’re probably not on track to reach your goals.
Michael R. Acosta, CFP®, ChFC®, CSLP®, Financial Planner at Genesis Wealth Planning, LLC agrees:
There’s a higher probability of achieving financial independence when we flip the way we manage our cash flow on its head. We can do this by getting great at paying ourselves first and treating the act of saving as an expense. It’s important to strive to save 15-20% of your annual gross income across taxable, tax-exempt, tax-deferred, and risk-free buckets. By saving at that rate, we ‘guarantee’ more assets on our balance sheet despite market returns. Lastly, be diligent in avoiding speculative investments, and if you can’t, at least make sure you’re not using your ‘dessert money,’ not your ‘lunch money.’
2. Budget Intelligently by Aligning Spending With Your Goals
As I discuss here, there are many ways your budgeting can fail. Use the tips I provide in that article to avoid those pitfalls.
Note that successful budgeting isn’t necessarily about cutting expenses (though that is an important tool at times). As often stated by Ben Le Fort, it’s more about aligning your spending with your financial goals and priorities.
Spending money to gain valuable new skills or to outsource low-skill tasks to buy yourself time increases your net result. You should see such spending as an investment rather than a cost to be cut.
3. Use Debt to Build Wealth, but Never Become Its Slave
Using credit cards to buy things you don’t need with money you can’t afford is a quick way into a debt spiral that can eviscerate your financial future. This is how you become a slave to your debt.
Instead, use debt and credit cards intelligently to invest in things that help you earn more, spend less, or both. For example:
- An education (see next lesson for more about this);
- Appreciating assets (e.g., growing your business);
- Income-generating assets (e.g., rental properties); and/or
- Reducing your long-term costs (e.g., using a mortgage to buy a home).
As Kenneth Sean Polley, Private Wealth Manager and CEO at Polley Wealth Management, says:
Debt can be a powerful tool to accelerate your goal of financial independence. However, you must understand debt, such as when and how to properly use it. If you don’t, it can quickly become a slippery slope to disaster.
4. Get a Degree, but Be Smart About What You Pay for It
In some arenas, you don’t need a college degree. Building a business in plumbing, roofing, carpentry, etc., is one example. If this is your path, you’re better off spending 4-5 years and $100,000-$250,000 growing your business than getting a degree.
However, in many fields, education opens doors and gives you knowledge, skills, tools, and networking connections that can provide a lifetime of increased income. Still, research shows that in most fields, 10 years post-graduation, your results are almost independent of which school you attended.
Thus, consider carefully if paying $70,000 a year for 4-5 years at an elite private school is a good investment. You may do better attending a good community college for two years and then transferring to your state’s university system. Your cost may be 75% lower, and your degree and education may well provide comparable long-term results.
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5. Start a Business (Even on the Side) as Soon as You Can
Not everyone who drops out of college will go on to build the next Microsoft or Facebook. Graduating, gaining a few years of on-the-job experience, and building a professional network will improve your chance of success.
Having said that, staying as an employee for your entire career will likely generate a far smaller lifetime financial result. Thus, if you have what it takes to take on the risk of starting a business, do it as soon as you can reasonably expect to succeed.
Thiederman reminds us:
You don’t need to quit your day job to start a small business on the side. Even hopping on Upwork on occasion and working a contract one weekend a month can mean an extra $15k a year for those of us with high-value skillsets. Some people start a YouTube channel which can also be a lucrative business. The sooner you start a business, the easier it will be to reach your financial goals.
6. Diversify Your Income Streams, Not Just Your Investments
When you invest, it’s a good idea to spread your investments across multiple assets and asset classes. This usually reduces volatility and risk while offering near-comparable returns.
The same holds true for income streams. Consider building multiple ways for money to flow into your accounts by building an investment portfolio, starting a side hustle, buying a rental property, etc.
However, keep in mind that adding income streams increases takes time and effort. Even after you set up a new stream, it takes time to manage. Thus, follow these guidelines:
- Only add income streams that provide a high enough return on time and money invested to justify the effort;
- Add one stream at a time, so you don’t get overwhelmed by the knowledge, skills, and experience you need to gain.
- Don’t add more streams than you can manage in the time you’re willing to devote to them.
7. Take Time Off to Recharge, but Use It to Learn and Grow
Taking time off periodically to rest and recharge is critical to avoid burnout. However, try to use such vacations to learn new things and broaden your experience. Also, keep your eyes and ears open for new opportunities. You might see how someone else’s business in your industry does things differently. That might spark ideas on how you can make your own operation more efficient and effective.
Talk with people you meet. One of them might become your next mentor, partner, client, or business-referral source.
The Bottom Line: What Financial Independence Really Takes
Overnight success is a myth. Financial and business success is a long road with ups, downs, and pitfalls. Long-term, your success will depend on what you know, but more so on how you use what you know. The above are 7 lessons I learned along my own financial journey that could help make your journey smoother and more successful.
Jon McCardle, AIF, President of Summit Financial Group of Indiana pulls it all together, saying “Our definition of financial independence is simple and yet quite a challenge for people to achieve because it requires focus and discipline over a long period. Simply put it’s the replacement of earned income with passive income to a point that you can maintain a comfortable (not excessive) lifestyle during positive and difficult economic times.
The common misconception in our experience is that if you can amass enough in your retirement accounts you can achieve financial independence. However, it’s much more strategic than that since there are rules to accessing retirement accounts before age 59.5 that require a more nuanced approach.
Some believe real estate is the key while others focus on the stock market, and still others on business ownership. In our opinion and experience, a combination of several economic ‘silos’ of assets working in tandem leads to independence regardless of age.
Having 1-2 years of liquidity, passive real estate income, significant investment in the markets, and business ownership in which you’re not actively involved make for a solid and steady set of assets that can produce enough passive income in various economic and market conditions to reach and maintain financial independence. For some, it can take a minimal amount of assets because they‘ve positioned themselves to live a minimalistic lifestyle while others require more… much more.
Our clients who achieved this level of wealth still live a simple and comfortable lifestyle that mimics what they had while working and avoided increased spending as their wealth increased. Note that since your primary residence incurs costs and doesn’t generate income, you shouldn’t consider it part of your financial independence assets.
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Frequently Asked Questions
How much money do you need to be financially independent?
There is no single number. The article argues that wealth means financial independence, so it depends on your expenses: you could be financially independent with less than $1 million if you spend little, but not with $10 million if your spending exceeds the roughly $300,000 a year that portfolio can reasonably provide.
What percentage of income should you save to reach financial independence?
The advisors interviewed point to 15% to 20% of your income. One suggests starting by automatically saving 5% of each paycheck and increasing it over time, while another recommends paying yourself first and treating saving as an expense rather than saving whatever is left over.
Is debt ever a good way to build wealth?
Yes, when it funds things that help you earn more, spend less or both, such as an education, a growing business, income-producing rental property or a mortgage that reduces long-term housing costs. Using credit cards to buy things you don’t need with money you can’t afford is the opposite, and can lead to a debt spiral.
Is an expensive private college worth the cost?
Not necessarily. The article notes that in most fields, results 10 years after graduation are almost independent of which school you attended, so starting at a good community college and transferring to a state university may cost 75% less with comparable long-term results. In some trades, growing a business may beat getting a degree altogether.
Should your home count toward financial independence?
One advisor interviewed says no: because your primary residence incurs costs and doesn’t generate income, you shouldn’t consider it part of your financial independence assets. The same advisor notes that retirement accounts alone may not be enough, since rules on accessing them before age 59.5 require a more nuanced approach.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the author
Contributing Writer, Wealthtender
My career has taken some unexpected turns, from earning a PhD in experimental high-energy physics, to conducting cosmic-ray research in Antarctica, to supporting NASA projects and programs, to running my own consulting business. I also run several other small businesses and help my wife run her Marriage and Family Therapy practice.
Those experiences taught me to question assumptions, think critically, and recognize that real-world decisions of any significance rarely have simple answers that apply to everyone. Today, I bring that perspective to writing about personal finance. Drawing on my analytical background, business experience, and research, I explore financial decisions, challenge conventional wisdom, and help readers understand the tradeoffs that can affect their financial well-being. To complement my own research and experience, I also weave insights from financial professionals into my articles, drawing on their expertise and real-world experience helping clients navigate financial decisions and challenges.
At medium.com/@opher-ganel, you can read more of my articles and subscribe to receive email notifications when new ones come out.