Your Simple Formula for Financial Independence

The less money you need, the less dependent you are.

When you're in any institution, you cannot speak freely, especially when you're the CEO. I've only really been able to speak freely to a greater extent over the last year and a half.

After my first big liquidity event, I had around ten years of personal runway (the number of years one can go without working). That's when I became kind of invincible, in a sense. Saving money and separating from organizations made me intellectually independent. It was like giving myself tenure.

I don't buy cars or homes. After I earned a big payout, whenever I could save time with money, I did. That's the single biggest change I have made. I spend my money on being able to work harder. It sounds funny, but it's true.

I'm not a consumption person; I'm a production person. I'm not burning capital on stuff. Everything is going into the next compounding outcome—not just compounding money, though money is an important tool. Knowledge compounds on other knowledge. Impact, same thing.

Once you get that first win under your belt, you build the confidence you’re able to do it again and again.

Reducing your cost of living to ⅕x is way easier than increasing your net worth by 5x. If you're willing, you can move to the middle of nowhere and cut your expenditures. You can just read Kindle and live on simple, healthy foods. You can basically reduce your consumption to the level of a grad student.

Then you can go from making, say, 120k in San Francisco and spending 100k a year and having no savings to making 120k in Bali, Indonesia, but only spending 30k or 40k a year with a better quality of life. Now you're banking 70k or 80k a year, and your expenditures are only 40k a year. So every single year you work, you're building up one or two years of time off. That's time off you can use to start a company. It’s like angel investing in yourself. This is another way you can become financially independent.

Build your personal runway. Here is the basic calculation for reducing your expenses to become financially independent:

[your current savings] ÷ [your yearly expenses] = [personal runway]

Financial independence is also personal and ideological independence. If you have financial independence, the crowd can't economically cancel you. If you have a financial cushion, which anybody can build by cutting consumption, you can ride out challenges.