7 Popular and Successful Paths To Financial Independence

Financial independence is a destination that not very many people make it to. Just like with any destination, there are different ways of getting there. Those of us that share this common dream destination end up getting there in many different ways.

The 7 main paths to financial independence are:

  1. The consistent passive investor
  2. The extreme frugal connoisseur
  3. The side income hustler
  4. The well-compensated professional
  5. The real estate tycoon
  6. The geographic arbitrageur
  7. The successful creator

While many of the main paths can be intertwined to help each other, there is probably one that you could focus on yourself that would be best for you. I intend to list the paths in order from what I think is “easiest” to “hardest” but at the same time, it is completely dependent on who is taking that path.

The Consistent Passive Investor

This path to financial independence is probably the most common one and is probably the most realistic path for most people. Basically, it is a get rich slowly method. You simply set aside a higher percentage of your income (usually 50% plus) and invest that money into passive investments. The best investment vehicle for this method is usually index funds.

Index funds are mutual funds that are designed to track a particular financial market index. They can offer exposure to so many different assets while minimizing risk because your investments are so well diversified. They also are very low in fees and operating costs because of low turnover and little active management needed.

This path to financial independence fits well with pretty much anyone of any current income level. The “difficulty” stands in getting to a high percentage of your income to put towards your investments. If you are consistently investing in index funds at regular intervals then over time you will be getting an average of the current market price. This is known as dollar cost averaging and according to Investopedia, it is a way for investors to neutralize short term volatility.

Basically, you are concerned with passively investing and are not concerned with the current market prices. You will get the best overall average price possible because you are buying assets at lower prices and at higher prices. No one can know how a market will react in the future and trying to time the market has been proven time and time again to not be a viable strategy for the majority of investors.

There are also many tax advantages available to investors that consistently invest this way. For one, index funds themselves are very tax efficient because they have a low turnover rate. This simply means assets are not being bought and sold very frequently, which would lead to short term capital gains taxes. In addition, if you are consistently investing in tax-advantaged accounts then you can shelter some of your income from income taxes. On top of that, if your income fits into a certain category you may be eligible for a tax credit known as the retirement savers credit. The IRS.gov website breaks down the retirement credit in easy to understand details.

This path to financial independence is my number one method for getting there. I have been consistently investing in index funds since early 2013 (which was when I earned my first paycheck). I didn’t know at the time that I would be striving for financial independence, but starting early on gave me a huge boost. I would recommend utilizing this strategy for everyone on their own path to financial independence.

The Extreme Frugal Connoisseur

Everyone on their path to financial independence needs to be somewhat frugal. There is no way around this one in the sense that you must spend less than you make. If you don’t meet that requirement then you have no money to invest and it just won’t work. It doesn’t matter how high your income is if you spend it all. Regardless, frugality is essential and taking it to the next level can take your financial independence to the next level as well.

There is no real formal definition of “extreme” frugality, but we do know that according to dictionary.com that to be frugal is to be “economical in use of expenditure” and “not being wasteful”. If we want to take this to the extreme then we would have to apply this concept to every facet of our lives. Let’s take it one step further and assign a number to extreme frugality because in financial independence we want to try to think of as many things as quantifiable as we can.

I would quantify extreme frugality as a spending level near the countries assigned “poverty level of spending”. For those of us in the U.S. that would be around $17,000 per year for a couple with no kids and $26,000 for a family of four. Those are very low levels of spending indeed. Go 10% in either direction and I still believe you are in the realm of extreme frugality. Also, keep in mind that these figures were taken from the U.S. Department of Health & Human Services and they are for the 48 contiguous states and the District of Columbia.

I can tell you that $17,000 for a couple is nearly impossible in the area where I have lived in Southern California. While at the same time I can tell you that $17,000 for a couple is possible in an area where I have lived in Arizona. Very similar situation for a family of four on $26,000. So those figures are very relative to the local cost of living. I will talk more about the local cost of living a little later. For extreme frugality, if you are spending near those levels under normal circumstances then you are probably making an active effort to support it.

Frugalness is all about maximizing value out of things. Taking it to the extreme is maximizing satisfaction and minimizing expenditure. Extreme frugality can be done at lower levels of income and so it can be used by so many people. After all, if the median household income were somewhere around $50,000 that would mean that half of all households earn less than that. If you are after financial independence on a household income of $50,000 and are utilizing the minimum of a 50% savings rate then you only have $25,000 to spend in a year. This would require some degree of extreme frugality.

The very big upside of extreme frugality is that you can reach financial independence very fast. The more frugal you are, the less you spend. The less you spend, the less you need in total assets to sustain your spending. Imagine a dual income household bringing in a very modest combined $70,000 per year. However, through extreme frugality, they are able to reach a savings rate of 65%. They would be spending $24,500 per year and they would reach financial independence in about 10.5 years according to my own calculations.

Extreme frugality often has a bad stigma associated with it. Being called a cheapskate is one of the challenges, but there are key differences between cheap and frugal. Being frugal is about maximizing the value of what you do have and do spend while being cheap is about just not spending any money as much as possible. Being frugal is about looking at the big picture and not necessarily going with low-cost items while being cheap would be buying the lowest cost items even if their value and quality are also very low. There are so many differences, and I would recommend being frugal and not cheap.

I consider myself to be frugal, but not to the extreme. Perhaps some of my more spendy friends and family would disagree but only you really know your own level of spending. You should know your level of spending anyway, especially if you are on the path to financial independence. Don’t ever be afraid to be called frugal because it is a key element to getting 95% of us to reach our personal finance goals.

The Side Income Hustler

Here is a path to financial independence that has become more and more popular since the sharing economy has exploded and access to the internet is so widespread. Do any kind of search on side income and you will find a multitude of ideas. Some can supplement your income pretty well, some can replace your income entirely, and some can take up a lot of time and offer very little in return.

For most side income “hustlers” it has become a second shift or a part-time job. Most side jobs are done to fit around your existing regular job. However, some side jobs can become more lucrative the more time you have to put into them and the more resources you have on hand. Some can be passive and some extremely active, it just depends. One of the benefits is that they are low-risk ways of making some extra money and usually don’t require long term commitment.

One of the best side income ideas is becoming a host on Airbnb in my opinion. This is because you can effectively offset one of your largest expenses (housing) by using your house to do it. You can also choose exactly when you want to host and your own set of reasonable rules. You are in control a lot with this idea and it can generate some great side income, especially if you live somewhere that is popular with tourists. At the same time, you don’t have to deal with a lot of the pains of being a regular landlord.

Another popular side income idea is to be a driver for a ridesharing company like Uber or Lyft. You are basically a taxi driver that chooses to work whenever you want. Be careful with this one though because you really need to work out the math to see if you are earning enough to make it worthwhile. These ride-sharing companies are great for users because of their low costs. That low cost gets transferred to how much you get paid as a driver and you need to carefully calculate how much it actually costs to drive your car around because cars are very expensive.

A “pro” of filling a lot of your time with side jobs is that it can lead you to spend less money because you are occupying your time with earning more money instead. It is a slippery slope though because if you are constantly busy you might be spending more money on convenience items like food and drinks which cut away from the profits of your side jobs. If this is a path you are going to take just be careful not to undervalue your time. After all, financial independence is about freeing up your time to do what you want to do and you should enjoy the journey just as much as the destination.

I personally haven’t done any side income jobs recently. I have been a host on Airbnb before and enjoyed it and plan to do it again in the future if I purchase another place. You have to be really careful if you are renting because of “subletting” clauses in your contracts, I kinda learned that the hard way back in the day. For me, it is hard to find a side income worthwhile since I place a lot of value on control over my limited time, and I think you should place a high value on your time as well.

The Well Compensated Professional

This path to financial independence is for those that have a very high income. Basically, they can utilize the “consistent passive investor” strategy without having to live extremely frugal. Again, it is difficult to quantify what a well-compensated professional is. It really depends on your local cost of living. If you make 100k per year but you live in Manhattan, New York (which is the most expensive city in the USA according to Kiplinger) then you might not be living very large at all. On the other hand, if you make 100k and live in Harlingen, Texas (which is the cheapest city to live in the USA also according to Kiplinger) then you probably are living large.

I think that in most places if you are bringing in a household income of over 100k after taxes then you are pretty well compensated. Usually, well-compensated professionals have high education levels and/or highly developed skills that are in high demand and low in supply. Their jobs often command very high levels of commitment and time as well as high barriers to entry into the profession. Highly-paid professionals are commonly found to be in the medical and dental field, engineering, finance, high-level management, and such. Usually, these careers require high-level degrees, training, licensing, testing, or time as a proven asset.

Take a dual-income couple that brings home $75k per year each. That is $150k which is nearly three times the median household income. If they don’t live somewhere unusually expensive then that is a lot of income that they could easily funnel into investments while still living on a median level of spending. If they have a 65% savings rate they can reach financial independence in about 10 years while still spending about $52,500 per year. They would be living a “normal life” in an average neighborhood while still easily investing 65% of their income.

I have yet to break into this category myself, I’m not much of a “workaholic” and I am still pretty young. I also do not prefer this path because even though you are very well compensated, your work becomes your life. The number of hours and dedication you put in towards your work might dwindle down your actually hourly rate substantially. Either way, if you are on this path you are at a huge advantage to accumulate assets quickly.

The Real Estate Tycoon

Real estate is a classic wealth builder. It can be a very active pursuit or a very passive pursuit. There are a lot of different ways to utilize real estate in order to build wealth for financial independence. Real estate is responsible for making most millionaires their first million. They offer strategic tax advantages and can build your net worth quickly because you can utilize debt for their purchases.

If you want to be an active real estate investor, a common way of doing it is buying houses that need some Tender Loving Care (TLC) and fixing them up. The idea is to increase the value of the home by performing updates, cosmetic fixes, landscaping, etc. The house must be able to increase in value beyond what you paid for fixing it obviously and that extra equity would be profit after the sale is made. This method is active because it requires finding an undervalued property, hiring a team to get the work done (or doing it yourself) and making the sale shortly after.

If you want to be a passive real estate investor, a common way of doing it is by buying single-family homes, multi-unit properties, or apartments and renting them out to tenants where the rent is enough to cover the mortgage, taxes, insurance, maintenance, etc. and still have some profit at the end of the month. Not only do you get the cash flow, but every payment on the mortgage builds some equity for you. It takes a bit of due diligence to invest in real estate but the returns can be phenomenal.

There are so many other methods to get into real estate investing, some are better than others, and some will only work in certain markets. The two biggest advantages of real estate are using debt and the plentitude of tax advantages. There aren’t many other ways to smartly use debt for investing. Using debt in real estate means that you can invest in something with a price beyond what you have on you right now. Real estate is generally an appreciating asset, and an appreciating asset is the only thing you should ever buy with debt if you are on the path to financial independence.

The tax advantages of real estate are numerous but forever changing. Not only does the federal government offer tax advantages, but state and local government can too. So investing in the right market is key for maximizing tax advantages. To get started learning all the legal stuff, the IRS has developed Publication 530 on their website. Another great place to gain knowledge on real estate, with less formality and easier to read articles is at the Biggerpockets website.

Real estate can be great because it can take up as much time as you want it to. You can pursue it full time or you can invest on the side. Along with the sharing economy has come a real estate investment vehicle that is super easy for anyone that has a home. Becoming a host on Airbnb can be a way to utilize property you already have and generate some income from it. Some people even operate properties specifically as Airbnb rentals, while others rent out spare bedrooms in their own homes for side income.

For me, I haven’t gotten into real estate investing just yet. If I do get into real estate, I want it to be more passive and under my control. If I decide to do so, I want to house hack by buying a small multi-unit property (4 units) and live in one unit while renting out the other units. After a while, I would intend to upgrade by selling the multi-unit property and purchasing more units, perhaps 8 units this time. I would continue that process or stay put at whatever level I am comfortable with. Of course, I would utilize Hosting on Airbnb as well because it is the best side income hustle in my opinion.

The Geographic Arbitrageur

Geographic arbitrage is simply moving to somewhere where the cost of living is lower than where you are now. You can do this in a variety of ways such as getting a similar paying job somewhere where the general cost of living is less, becoming financially independent because you have enough in assets to move somewhere where costs are less or moving to another country because your currency is much stronger than theirs and you can become financially independent by living in that low cost of living country.

This path is all about getting more value out of what you already have. Wealth and income is very much relative. One million dollars in Manhattan, New York might not be very impressive, but it is in Harlingen, Texas. It is even more so if your wealth is based on a strong currency such as the USD and you are moving to a country with a weaker currency like Mexico. You can utilize this arbitrage either in your own country or in another country which makes it an awesome way to travel slowly.

I love the idea of geographic arbitrage and intend to utilize it when I reach financial independence. At least on a part-time basis, I want to utilize the opportunities given to me by financial independence to travel slowly through other countries, perhaps staying longer in countries that cost less. The beauty of being financially independent is that you can decide when and how long you want to stay and how much you want to travel at any given time.

The Successful Creator

A creator makes something of value and presents it to society. If society thinks that it does hold value then they will utilize the creation and the creator will realize many benefits. Creators are often described as entrepreneurs. Entrepreneurs create businesses, sometimes they are successful and sometimes they are not. For a business to succeed, it needs to offer something that its customers want.

There is much more to it than that of course, but it basically boils down to solving a problem in society. If there wasn’t something that was needed or wanted by society then the business would simply fade from existence. Entrepreneurship can be a way to quickly amass enough wealth to become financially independent, but it is the most difficult.

Creators make their wealth from their businesses, they sell goods or services or even their entire business altogether if it is successfully bought out. I wouldn’t choose this path if financial independence is your number one goal because that would be extremely risky. Choose entrepreneurship for other reasons than to just generate enough wealth for financial independence in most circumstances.

In some small way, I am on this path with this website. Although my path is the equivalent to a tiny dirt road, this website is a business. The risk is very low for this type of business and so I am not counting on it to speed me up to financial independence, but I do hope that this website can give the information and tools necessary to help speed up your path to financial independence.


So while there are nearly unlimited paths you could take to achieve financial independence, there are 7 main paths that give you a really good chance of success. These paths can be combined to streamline your early retirement goal. No matter which path you choose, it is important to do your due diligence and educate yourself on the subject.

Zachary Smith

Zach is passionate about personal finance, especially when it comes to financial independence. He is a heavy index fund investor and budget connoisseur that also loves traveling, exercise, and the great outdoors. See his full bio here

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