For most of our lives we are financially dependent. During our childhood we are dependent on our parents, and once we’re on our own we’re then dependent on our job. But our hope is that one day we can retire from that job because we have enough money saved, and the distributions from that savings will meet our needs, and hopefully some wants as well.

So how does one become financially independent? It’s actually pretty simple. You just have to spend a certain amount of your money during your working years on assets that will pay you later. Right away, I should point out that this is not the normal language that we hear. Instead, we talk about saving our money instead of spending it. I believe that we need to save money, but I prefer the language of spending our money on assets.

I learned this from Robert Kiyosaki, the author of Rich Dad, Poor Dad. He says that an asset puts money into your pocket, while a liability takes money out of your pocket. So in order to generate wealth, you need to spend money on assets. The way most people do this is to purchase shares of mutual funds, most often through a retirement account like an IRA or 401(k).

I said above that this is a simple thing. Let me clarify…it’s just that the math is simple. Delayed gratification can be difficult. No matter how much money you’re making, spending a portion of it on your future self can be tough.

I remember when I got my first real job out of college. I learned about compound interest listening to Dave Ramsey on the radio, and so I opened up a Roth IRA. I invested $166 every month. That was a decent chunk of my budget at that time, but I believed that my future self would thank me.

Later on I began spending money on rental properties. The idea behind this is that once the mortgages were paid off, I would receive cash flow that could provide for my living expenses. This has been my primary strategy for the past fifteen years.

For most Americans, retirement begins around the time you hit age 60. A person can begin receiving social security benefits at age 62, though full benefits don’t kick in until age 67 (at least for those born after 1960). And a person can begin drawing on their retirement accounts at age 59 1/2 without penalties.

This is the path for most Americans. But what if you’d like to be financially independent at an earlier age? I discovered the FIRE movement around five years ago. FIRE stands for “Financial Independence Retire Early.” The FIRE movement advocates for an earlier retirement date than one’s sixties, and the way that can happen is three-fold.

First, early on in your working career you need to spend a large percentage of your income on assets that will pay you later. Another way of saying this is that you need to have a high savings rate.

Second, you have to give the assets time to grow. This is why you begin early.

Third, you need to buy the right asset. I’m a big believer in buying mutual funds over individual stocks, and I’m also a big believer of buying index funds (funds that hold all of the stocks of a particular index) rather than actively traded funds (more on that at a later time).

We’ll look at each of these more fully in future posts.