So why create a blog on financial independence for high-earners? I mean most people in that category according to the IRS would be in 90th percentile for filers. Isn’t that good enough? Shouldn’t it be a piece of cake to become financially free if you make a good chunk of money annually?
The short answer is that financial independence is about being able to get out of the rat race should you choose to do so and peace of mind that comes with that knowledge.
Many high earners are even further indoctrinated into the rat race due to their:
- upbringing and familial expectations.
- the need to provide a quality of life for their children at least as good or better than what they had.
- Significant investment into their skillset
- Keeping up with the Joneses or Patels or your brother-in-law
Now, let’s tease apart how some of these inherently lead to higher expenses, which in the Financial Independence space makes it that much harder to achieve that goal.
Imagine your parents were professionals that lived in a nice neighborhood, had 2 cars and sent you to get the best education they could afford, which was the nearby private school. You did well for yourself and went on to go to college and graduate school before settling in to a nice paying career. Most people would want to be able to provide their own family with those experiences and yes, luxuries. That is what they have known as normal their whole life.
Now if we estimate the cost of that lifestyle to be 100K per year, using a 4% rule for financial independence, they would need 2.5 million sitting in an investment account, and probably closer to 3.5 million to protect and buffer for inflation.
With a savings rate of 20%, which does require discipline and a 15 year horizon. This family would have to earn $834,000 per year to save 2.5 million from scratch (and that is like 99.9 percentile).
So something needs to give, you either lengthen your time frame or increase your savings rate or increase your return on investment.
How you balance those variables is the purpose of this blog.