Wondering what financial independence is, or how to be financially independent without a job? Many are asking this question, and the answer may surprise you.
To be financially independent without a job you need to save 25 times your typically annual expenses or leverage your resources to provide you sources of income that cover your total annual expenses. If your annual expenses are $40,000, saving and investing $1,000,000 would allow you to retire and live off your investments without keeping your job. Setting up passive income streams that generate $40,000 in income will also enable you to be financially independent without having a job.
Both strategies are important, and both will get you to the top of your financial mountain. Read on for more details on how you can get there.
How to Become Financially Independent Without a Job
The definition of financial independence is having sufficient personal wealth to live and provide for life’s basic necessities without having to work. You can achieve this state by working a typical job and saving and investing your money over time, or by creating multiple income streams to supplement and/or eventually replace your job. Reaching the state of financial independence simply means not having to have a job.
In order to be financially independent without a job, save up 25 times your typical annual expenses. If you had annual expenses of $50,000, saving and investing $1,250,000 would allow you to retire and live off your investments without keeping your job. If you spend $60,000 annually, you will need $1,500,000 saved. If you spend $100,000 annually, you will need $2,500,000 saved and invested in order to be financially independent without a job.
For convenience, here’s a breakdown of annual expenses and their corresponding financial independence numbers. For more information on calculating your financial independence number, read here.
| Annual Expenses | Financial Independence Number |
| $30,000 | $750,000 |
| $40,000 | $1,000,000 |
| $50,000 | $1,250,000 |
| $60,000 | $1,500,000 |
| $75,000 | $1,875,000 |
| $100,000 | $2,500,000 |
| $150,000 | $3,750,000 |
| $200,000 | $5,000,000 |
| $300,000 | $7,500,000 |
The reason why you can be financially independent at your FI number amount is based on the 4% rule. The 4% rule of thumb means that you can expect to withdraw 4% from your retirement account each year while still maintaining a steady flow of income generation throughout retirement.
That means that once you’ve saved and invested 25 times your annual expenses, you can leave your job and still be financially independent. Many call this ‘retiring early’ or ‘financial independence retire early’, or simply, ‘FIRE’.
If it still doesn’t make sense as to how you can sustain financial independence without a job, let’s look at an example.
Let’s say your current job at least covers your current expenses, and that your current annual expenses total $75,000. You need your job in order to provide for these costs. Let’s say you make $100,000 annually, and save the $25,000 that you don’t spend each year. That gives you a savings rate of 25%. If you were to maintain the same level of expenses and income, you could continue this pattern for around the next 32 years and eventually reach financial independence.
Diving into this example in greater detail, we find that annual expenses of $75,000 gives us a financial independence number of $1,875,000.
| Annual Income | Annual Savings | Savings Rate | Annual Expenses | FI Number (Annual Expenses / 4%) | Years to FI |
| $100,000 | $25,000 | 25% | $75,000 | $1,875,000 | 32 |
Assuming a current zero net worth, 5% annual return on investment, and an FI number calculated with the 4% rule, the amount of time it will take you to reach financial independence based on your savings rate looks breaks down like this.
| Year | Savings | Contributions | Growth | Year End balance |
| 1 | $0 | $25,000 | 5% | $26,250 |
| 2 | $26,250 | $25,000 | 5% | $53,813 |
| 3 | $53,813 | $25,000 | 5% | $82,753 |
| 4 | $82,753 | $25,000 | 5% | $113,141 |
| 5 | $113,141 | $25,000 | 5% | $145,048 |
| 6 | $145,048 | $25,000 | 5% | $178,550 |
| 7 | $178,550 | $25,000 | 5% | $213,728 |
| 8 | $213,728 | $25,000 | 5% | $250,664 |
| 9 | $250,664 | $25,000 | 5% | $289,447 |
| 10 | $289,447 | $25,000 | 5% | $330,170 |
| 11 | $330,170 | $25,000 | 5% | $372,928 |
| 12 | $372,928 | $25,000 | 5% | $417,825 |
| 13 | $417,825 | $25,000 | 5% | $464,966 |
| 14 | $464,966 | $25,000 | 5% | $514,464 |
| 15 | $514,464 | $25,000 | 5% | $566,437 |
| 16 | $566,437 | $25,000 | 5% | $621,009 |
| 17 | $621,009 | $25,000 | 5% | $678,310 |
| 18 | $678,310 | $25,000 | 5% | $738,475 |
| 19 | $738,475 | $25,000 | 5% | $801,649 |
| 20 | $801,649 | $25,000 | 5% | $867,981 |
| 21 | $867,981 | $25,000 | 5% | $937,630 |
| 22 | $937,630 | $25,000 | 5% | $1,010,762 |
| 23 | $1,010,762 | $25,000 | 5% | $1,087,550 |
| 24 | $1,087,550 | $25,000 | 5% | $1,168,177 |
| 25 | $1,168,177 | $25,000 | 5% | $1,252,836 |
| 26 | $1,252,836 | $25,000 | 5% | $1,341,728 |
| 27 | $1,341,728 | $25,000 | 5% | $1,435,065 |
| 28 | $1,435,065 | $25,000 | 5% | $1,533,068 |
| 29 | $1,533,068 | $25,000 | 5% | $1,635,971 |
| 30 | $1,635,971 | $25,000 | 5% | $1,744,020 |
| 31 | $1,744,020 | $25,000 | 5% | $1,857,471 |
By year 32, you would no longer need to have a job in order to cover your annual expenses. After having saved $1,875,000, you would be able to withdraw 4% ($75,000) from your investments in order to cover your typical expenses each year. Your investments on the other hand, will continue to compound and grow. helping to provide you with a steady stream of income.
The caveats, however, include accounting for market conditions and not spending more than 4%. If the market is down, your investments aren’t going to perform as well. Likewise, if your spend is up (i.e. spending more than 4% each year), you will diminish your portfolio faster than you intended, and it may run out before the end of your life.
All this being said, the above scenario plays out in regards to the years it will take you to become financially independent so you can leave your job. Roughly, this is about how many working years you have until you reach financial independence, given your current savings rate.
| Savings Rate | Working Years Until Retirement |
|---|---|
| 5% | 65 |
| 10% | 51 |
| 15% | 42 |
| 20% | 36 |
| 25% | 32 |
| 30% | 28 |
| 35% | 24 |
| 40% | 21 |
| 45% | 19 |
| 50% | 17 |
| 55% | 14 |
| 60% | 12 |
| 65% | 11 |
| 70% | 9 |
| 75% | 7 |
| 80% | 6 |
| 85% | 4 |
| 90% | 3 |
| 95% | 2 |
But what if you wanted to leave your job sooner, and still become financially independent?
Well in order to do that you’ll need to understand and master the power of leverage.
Leveraging Your Resources to Become Financially Independent Without a Job
One of the secrets to becoming financially independent without a job is learning how to leverage your resources. Now, what exactly does that mean? It means finding ways to leverage your life so that your inputs don’t equal your outputs – to the point that your outputs most certainly outweigh them. For example, here’s a quote from Naval Ravikant:
“Humans evolved in societies where there was no leverage. If I was chopping wood or carrying water for you, you knew eight hours put in would be equal to about eight hours of output. Now we’ve invented leverage… As a worker, you want to be as leveraged as possible so you have a huge impact without as much time or physical effort.
A leveraged worker can out-produce a non-leveraged worker by a factor of one thousand or ten thousand. With a leveraged worker, judgment is far more important than how much time they put in or how hard they work.
For example, a good software engineer, just by writing the right little piece of code and creating the right little application, can literally create half a billion dollars’ worth of value for a company. But ten engineers working ten times as hard, just because they choose the wrong model, the wrong product, wrote it the wrong way, or put it in the wrong viral loop, have basically wasted their time. Inputs don’t match outputs, especially for leveraged workers.
What you want in life is to be in control of your time. You want to get into a leveraged job where you control your time and you’re tracked on outputs.”
Another way to think about leverage is to use a mountain analogy when it comes to skiing. Say you loved skiing, and wanted to spend an entire day on the slopes. You could climb a mountain with all of your gear, and ski down it, then do it all again. Climb to the top, ski down the slopes. Climb up. Ski down. And so forth. If you were to continue this all day, you may be able to get a few runs in. If however, you took advantage of a gondola, you’d be able to ascend the mountain much more quickly (and without nearly as much effort), enabling you to double, triple, or quadruple (or much, much more) the amount of runs down the mountain! This is an example of leverage.
The same principles apply to your work and finances. If you work 8 hours a day, and get paid for 8 hours worth of work, you’re not leveraging your resources. Your inputs are the same as your outputs. If you were to find a way to leverage your outputs, however, you could put in 8 hours worth of work, and get 40 hours of output from it. Scaled over time, you could turn a day’s worth of work into a year’s worth of income.
There are several ways to take advantage of leverage. One of which is to create multiple income streams.
Creating Multiple Income Streams to Become Financially Independent Without a Job
Continuing on with our initial example, let’s say your income is $100,000 annually. Breaking that down, that’s $8,333/month, $1,923/week, $383/day, or $48/hour.
| Yearly Income | Monthly Income | Weekly Income | Daily Income | Hourly Income |
| $100,000 | $8,333 | $1,923 | $383 | $48 |
Your goal would then be to set up income streams that can replace your working income. As you set up your initial income stream to begin making money, you can let it continue to provide money for you passively. If that income stream doesn’t replace your entire working income, that’s okay. You simply can set up another income stream to begin making money as well. You now have two income streams providing you additional income. As they grow, you can set up additional streams or scale your current ones until they replace your income. Once they do, you no longer need to work your current job because your income streams have replaced the money you need for your expenses. At this point, you have become financially independent without a job.
For example, you may be a developer who creates an application that solves a particular need for people. Let’s say you’re able to generate $1,000/month from it. While that leaves another $7,333 of working income to replace, you’ve effectively set it up once and don’t need to touch it again. That’s the beauty of a passive income stream. Taking the time to generate a $1,000 income stream would provide $12,000 annually, and eventually $108,000 only 9 years later – a year’s worth of working income – without having to trade any additional working hours to get there.
You can continue this pattern by finding ways to make money doing the things you love. Your skills as a photographer or writer may give you the ability to freelance. Trade some of your time to test out ways that may be profitable. Your initial investment can be small before you settle in on an income stream to pursue. Once you find an investment that begins to provide you money, scale it as much as you can with as little resources as you need. You can begin a passive income stream ladder, where you can set up additional streams to see what’s performing the best (or which you like the most). As you do so, you can choose to devote more resources to the income streams that provide you the most value.
Here are a few popular categories and ideas for setting up multiple passive income streams.
Passive Income Streams From Real Estate
If you’re interested in building up income streams through real estate, there are plenty of ventures to pursue. Some of them are more active than passive, but you can always scale and hire others to run jobs for you as needed.
A few ideas include but are not limited to the following:
- Investing in REITs (Real Estate Investment Trusts)
- Land or house flipping
- Subleasing your current space
- Refinancing your mortgage (paying less each month is like making more each month)
- Airbnb your space
- Invest in single-family homes
- Invest in multi-family homes
- Purchase an apartment building
- Purchase commercial space
- Obtain a vacation home
And the list goes on! If this is an area you are passionate about or want to specialize in, you can start with any of the above. Start small and scale as you decide where you can best leverage your resources. Note that this category may be harder to get into without a larger investment up front.
Passive Income Streams From Investing Your Money
When it comes to investing your money, there’s a plethora of options out there. Everyone wants it, but it’s up to you to do your research and find where it’s going to provide the best returns on investment for you. You can actively trade on the market, but even the experts don’t beat it long term.
Here are a few investment ideas to passively secure returns on your investments over time.
- Low-cost index funds
- High-yield dividend stocks or funds
- Robo-Advisors
- Bonds
- Certificates of Deposit (CDs)
- Private Equity funds
- Peer-to-peer lending
- Angel investments
- Cryptocurrencies
When it comes to your money, you’ll want to keep yourself balanced. You want to have an established and diversified portfolio that aligns with your risk tolerance. Invest for the long term, and invest in things that have a history of solid returns. Don’t invest heavily in things you don’t know anything about.
Passive Income Streams From Side Hustles
While real estate and market investments tend to be some of the most popular income streams, side hustling is definitely the most diverse. There are so many ways to make money these days that you may even be able to spin a niche hobby into a multi-million dollar business. Find ways to spend your after-work hours doing things you enjoy, and set your income stream(s) up to boot!
- Create an application
- Create software
- Start a Youtube channel
- Build your own Etsy store
- Freelance write
- Freelance design
- Freelance photography
- Write a book
- Create an audiobook
- Create and sell a course
- Rent out your tools
- Advertise on your vehicle
- Start an e-commerce business
And so on, and so on.
Overall, you may have interest in all of these categories or in one particularly. Set up an income stream ladder where you can keep your initial investment of money (and time, if possible) low, and see where you find success. It’s a good idea to start with things you’re interested in initially, so that you have the motivation to stick with things as you learn the ins and outs of setting up income streams.
Conclusion
In order to become financially independent without a job, you’ll need to reach your financial independence number. You can reach it by working your job and increasing your savings rate (by cutting your expenses or increasing your income) until you reach your FI number, or by setting up income streams that cover your annual expenses. Optimizing both of these strategies will help you make and save more. Leveraging your resources will help you spend less time doing so. The more you do this, the faster you will reach financial independence.
But remember, life’s a journey. So, as you ascend your financial mountain, don’t forget to enjoy the fresh air every once and a while. You’ll get there soon enough.
Climb on, FinBase.
