How a regular 9-to-5 employee earns passive income for financial independence
The Hidden Costs People Forget to Plan for in FI
When I first started my financial independence (FI) journey back in 2015, I thought I had the math figured out. Save aggressively, invest in good businesses, and eventually live off the income.
By 2022, I reached the milestone many people use to define FI – a portfolio value of around USD 1 million. On paper, I had “made it.” But my personal definition of FI was different. To me, it meant having passive dividends fully cover my family’s living expenses of about USD 3,000 per month. I didn’t reach that milestone until 2024.
That distinction matters. Because while spreadsheets can tell you one version of the story, real financial independence is about living with confidence that your income covers your needs, and that you’re prepared for the hidden costs along the way.
Over the years, I’ve learned that the biggest risks in FI aren’t just obvious ones like market crashes or inflation. They’re the hidden costs you don’t think about until they show up. Here are the ones I’ve personally thought through, adjusted for, and learned from.
1. Healthcare: The Cost That Never Stops Rising
Healthcare is the expense that scares many people in FI and for good reason. An accident or serious illness can wipe out years of careful saving if you’re unprotected.
That’s why I’ve always seen insurance as my sailboat hull. Imagine your wealth as cargo inside a sailboat. Without insurance, a sudden medical event is like a hole in the hull – water rushes in and sinks everything you’ve built. With insurance, the hull stays intact. The storm might still rock the boat, but it won’t sink it.
👉 My hedge: I buy health insurance as protection. Beyond that, I keep a separate emergency fund so I never have to sell investments in a downturn just to cover medical costs.
2. Family Responsibilities You Don’t See Coming
One of the questions I often think about is: How much should parents continue supporting their kids into adulthood?
Personally, I expect my sons to manage their own finances when they grow up. I don’t want them to rely on me forever. That said, I’m realistic – when they’re just starting out, they may not always have enough credit or financial history for big-ticket needs.
That’s where I see myself as a kind of “family bank.” Not handing out money indefinitely, but stepping in with a loan if necessary, especially in cases where traditional banks won’t help. This way, I can provide support without creating dependency.
👉 My hedge: My FI plan doesn’t assume constant financial support for my kids. Instead, I treat it as something optional – an additional responsibility I may take on if the situation calls for it.
3. Home Repairs: The Silent Drain
Back in 2015, my spreadsheets had neat categories for mortgage, utilities, and taxes. What I didn’t fully appreciate was how quickly home maintenance adds up.
Air-conditioning units fail. Roofs leak. Appliances break. These aren’t optional expenses, and they rarely come at convenient times. Last year alone, I had to spend a few thousand on repairs and that was just to keep things running.
👉 My hedge: I now set aside 1 to 2% of my home’s value annually for maintenance. Sometimes it sits untouched, but when a big repair comes, I don’t feel the pinch.
4. Lifestyle Creep After FI
During my accumulation years, I was disciplined. Every dollar saved felt like fuel for my freedom. But after FI, I noticed a shift. Small luxuries like dining out more often or upgrading travel suddenly didn’t feel like “breaking the rules.”
The danger isn’t in enjoying life; it’s in slowly raising your baseline expenses. Over time, that can push your monthly budget way beyond your original FI plan.
👉 My hedge: I allow myself room for upgrades, but I track them against my dividend income. If the portfolio supports it, great. If not, I pull back. FI should give freedom, not an excuse to overspend.
5. Inflation in Disguise
The 4% rule is a common reference point. But in real life, inflation doesn’t move evenly. Healthcare and education often rise much faster than the official CPI.
That’s one of the reasons I chose to invest mainly in dividend growth businesses – companies like Coca-Cola, Procter & Gamble, and Abbott. These businesses don’t just pay dividends; they grow them, often faster than inflation.
During COVID, my portfolio value dropped nearly 50%. But because those companies kept paying reliable dividends, my passive income still helped to cover my living expenses. That experience proved to me that dividend growth investing is my best hedge against long-term inflation.
👉 My hedge: I focus on businesses with strong track records of growing dividends. Watching my income rise each year gives me confidence that inflation won’t silently eat away at my FI plan.
6. Taxes Don’t Retire With You
One thing I didn’t fully account for early on was taxes. Even after FI, you still pay taxes – whether it’s on dividends, rental income, or capital gains.
For me, investing in US stocks also means dealing with withholding taxes. That’s money that never makes it into my pocket, and it directly affects how much income I can rely on. And tax laws can change at any time.
👉 My hedge: I always budget with taxes in mind. Instead of hoping rules stay favorable, I build in enough margin so that even after taxes, my income comfortably covers my lifestyle.
7. Personal Growth and Passion Projects
Some people worry about boredom after FI, but for me, that hasn’t been an issue – I still work a job today, even though my dividends already cover my living expenses. Having a job gives my day structure, and I don’t feel the void that early retirees sometimes describe.
What FI has given me is the freedom to pursue passion projects on my own terms. For me, that’s been building this blog to share my journey, lessons, and experiences with others. Writing has been both fulfilling and purposeful, but it hasn’t been free – it requires time, energy, and money for hosting, tools, and maintenance.
👉 My hedge: I treat these costs as part of my FI lifestyle. FI isn’t about cutting life down to the cheapest version possible – it’s about having the freedom to spend on things that bring meaning and fulfillment.
8. The Black Swan Fund
Finally, there are the unknowns. No one predicted COVID-19, yet it disrupted lives and markets for years. My portfolio value halved during that time, but my dividend income stayed resilient. That’s what kept me calm when others panicked.
👉 My hedge: I keep a “Black Swan fund” – cash reserves outside my portfolio. It helps me sleep well knowing that if the unexpected happens, I won’t be forced into panic selling.
Final Thoughts
Reaching FI was never just about hitting a number. By 2022, I had USD 1 million invested. By 2024, my dividends finally covered my family’s living expenses. Both milestones mattered – but the second one gave me true peace of mind.
And even then, I’ve learned that FI isn’t the end of the story. The hidden costs – healthcare, family responsibilities, home repairs, lifestyle creep, inflation, taxes, passion projects, and black swan events are what really test whether your FI plan is fragile or resilient.
That’s why I still choose to work today. Not because I need to, but because building extra margin gives me more confidence to face whatever life throws my way.
FI isn’t just about retiring early. It’s about creating a life that can handle surprises without breaking. And the best way to do that? Expect the hidden costs and plan for them before they arrive.
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