If you want to get to financial independence, you need to get yourself into a position whereby your earned or created capital is capable of sustaining you. Whether that means you have a big pile of money to swim in Scrooge McDuck style or whether that’s an investment that pays you income, you need that capital.

Which means you need to generate capital somehow.

The dilemma: you also have a powerful need to eat, sleep and live in shelter. These require you to earn money for today’s needs.

Logically, this means you need to generate a surplus of income or capital.

Why “capital”?

The classic FIRE method, a la Your Money or Your Life, is to earn more than you need to spend and put that to work. That’s because most people are capable of getting a job of some kind that earns an income, and thereafter can work out how to avoid spending all of that income and put it to work. This method has quite a high probability of success and a very low barrier to entry.

However, I don’t rule out other forms of capital. “Hustle culture” (Really? We’re calling it a culture?) has massively fallen out of fashion, but I’ve long advocated for side hustles and other projects that you could use excess labour capital – i.e. spare time and energy – to build.

It’s a legitimate plan for someone to work part-time to feed themselves today but invest heavily in their own business scheme with a view to a long-term payoff. Lady SierraWhiskyMike is doing that right now.

How do you generate a surplus?

Ultimately, there’s an uncomfortable truth: it’s harder to generate a surplus of money on low earnings. That only leaves you with the ability to generate labour capital surplus, so if you’re busy and badly paid, financial independence is going to be tricky.

The options for generating or increasing a surplus at any moment in time are:

  • Cut some spending – see my post on why a penny saved is better than a penny earned
  • Earn more in your current job or business
  • Get promoted by your current employer
  • Change your job or business to a more lucrative one
  • Gain some investment income
  • Get a side hustle or build a new income stream

That’s about it. There isn’t a lot else you can do, and these pretty much boil down to “earn more” or “spend less”.

It follows that the bigger the surplus you generate the faster you’ll get to financial independence.

FIREpower, manpower, distance

When the military teaches newly-promoted section commanders to do basic attack planning, they talk about the three factors of firepower, manpower and distance.

Basically: do I have the weapons, do I have enough troops, and are the enemy in range of my weapons?

The idea here is that if you have two out of three advantages you can probably fight the nearby enemy without needing additional help. If you’re bringing an eight-man section with rifles, machine guns, grenade launchers (etc) against two enemies with pistols and you’re within 100m of them you’re going to rate your chances. However, if those two men are actually two armoured personnel carriers filled with enemy elite forces you’re going to need to do some very careful planning and may need support.

The same is true in financial independence planning. Instead, you have surplus income (firepower), assets already invested (manpower) and time before you start relying on your capital (distance).

If you’ve got a massive income surplus and a big pile of invested capital, you can probably pull the pin and retire (if you want to) really soon.

On the flip side, if you’ve got ages to go and are happy to extend that distance/time out, you don’t need as big a surplus.

In my case, I’m looking to CoastFIRE. I’ll explain how this works in my financial independence campaign.

The CoastFIRE approach

My energy levels are still fairly high, which means that right now I can take on stressful jobs and pretty much throw myself at problems.

This is not likely to be the case in 10 years’ time!

Regular readers can already tell that I struggle with the cognitive dissonance of living on my boat as a sort-of minimalist (which I’m happy with!) while having a high-earning by highly stressful job as a corporate lawyer. It’s hard in my thirties, I don’t think it’s something I could do in my fifties.

My plan to use the energy now to generate a massive surplus early in the game by living cheaply on a high income, generating a bigger amount of assets early on, allowing me to contribute less effort in the future as I get tired out.

I’m probably not going to “fully retire” at 55 (although I want the option to…) but will probably have a small income from passion projects like writing and so on. I get bored, I like to play with things, but I don’t want the pressure of having to succeed in everything I try.

When we set off cruising on the boat and/or switch to earning pennies from passion projects, our surplus will drop. It may be tiny. However, because the time to retirement won’t have changed and we’ll have a lot of invested capital already (earning some interest, capital growth or dividend income), we can afford for this surplus from our earned income to be tiny or even nil.

Expectations and effort

I’m grateful for every one of my readers. I get a real sense of community from the fact that people read my posts and sign up to receive them by e-mail.

So know that I say this with love, and not to be a (total) dick: you are not entitled to financial independence, this requires hard work and discomfort.

If I was some kind of “Finfluencer” (I heard this word on YouTube so I’m presuming it’s a real word now) I’d tell you “anyone can do financial independence”. Which, to be fair, is sort of true. But only sort of.

Anyone can save money and invest it for a long time. If they give themselves a long enough distance/time, anyone can find some kind of surplus (even £100 a month) by scrimping, saving, side hustling or living frugally with intention.

The problem is generally expectation, and it’s the expectation that there’s a silver bullet option whereby you can buy a bigger house, have more kids (although there’s some nuance to the economics there, but that’s not really a topic for this blog), drive a new car, go on an overseas holiday every year and magically end up with a decent retirement pot at age 57 without much effort.

I’d like to think that long-term readers of this blog are more realistic about this, but there are some interesting posts on the FIRE subreddits and Facebook pages that tell me this isn’t universal.

Realistically, there’s going to have to be some effort put in and/or some discomfort suffered. If you could have everything, you wouldn’t need to think about financial independence anyway, so this shouldn’t be too counter-intuitive.

Allocation of effort

This is effectively the crux of the problem: you need to balance effort with the time you’re willing to wait for. There’s also a limit to how much effort you’re able to put into this without giving yourself mental health issues.

It’s possible that I could save an extra 10% of my wage by not having a beer in the pub and not taking my wife out to dinner, but I would be a stir-crazy shut-in and I’m not willing to pay that price when I have to do it for a few more years! If it was six months then sure, but I can’t get that time shorter than a few years even by going without.

Obviously, your own situation (job prospects, retraining ability, spending habits, and energy levels) will change what the easiest ways to generate a surplus are for you. By in large though, the easiest thing to do is reduce your expenses first. The hardest things to do are often the promotions and career changes (since these rely on putting in a lot of effort now in the hopes that an opportunity becomes available later).

I reckon that the side hustles are an intermediate level on the difficulty scale, but only if you have energy and time to do them and they’re hobby projects or otherwise have an element of fun or fulfilment in them. While some side hustles are phenomenally successful, most aren’t, and you have to enjoy the process of earning that little bit of extra pocket money as a hobby in itself otherwise it’s just a second job.

Aren’t you going to sell me an affiliate marketing course, blogging, YouTube (etc)?

Sod off!

Seriously though: affiliate marketing, dropshipping, blogging (don’t pick financial independence – trust me, no money to be earned in telling people not to spend money… but I like it), that kind of thing – they probably have made some people money, but given that everyone now knows about them I suspect those opportunities have long gone to the early actors.

There is likely to be a day in the future where I sell training courses, but not on this topic. Maybe a book or some adverts, or some affiliate links to things I actually endorse, but that’s about it.