Money Goal or a Rabbit Hole?
Money Goal or a Rabbit Hole?
There is no question that I sometimes eschew some basic personal finance principles. I generally feel that we are kidding ourselves with the safe withdrawal rate nonsense. And don’t even get me started on how net worth ain’t nothin but a number. The point of all this naysaying is the idea that a financial plan is a living, breathing entity that can’t always conform neatly into a number. Whether it be 4%, 25X, or a certain configuration of zeros, it is often hard to tell if we are in pursuit of a money goal or a rabbit hole.
What do I mean?
We love to set an achievable goal only to move the finish line once the end comes in site. It is human nature. We create more mile markers as we go further and further down, but are we any more content by focusing on numbers and forgetting about life?
Net Worth
Read any how to guide on personal finance, and there will be at least one chapter dedicated to net worth. The holy grail of financial independence, I challenge you to find an expert that will not embrace this calculation. There is no other way to better define your current economic standing.
I can’t argue with this logic.
Setting net worth goals, however, can be a slippery slope. Is it a money goal or a rabbit hole?
While I think at the beginning of the FI journey it is important to know the amount of invested assets to meet yearly needs after retirement, it eventually becomes a self-defeating process.
Net worth is a very fluid concept, It can vary from moment to moment, especially for those who are invested in the stock market. Too often important financial decisions are made based on an illogical sway of the market when net worth goes momentarily backwards. Hard core investors become speculators when they see their wealth erode.
Emotionally, there are pitfalls also. It is a commonly known saying that if you ask any individual, their goal net worth tends to always be about double the current holdings. No matter how high the numbers are.
Chasing down a number may just lead to a bigger number. Maybe our goals need to be a little less concrete.
W2 Wages
Another key principal in the financial independence community is to maximize income. For most of us, our W2 wages comprise a big percentage of our take home. Again, it will be hard to find a personal finance guru who tells you not to shoot for a high salary.
But is this a money goal or a rabbit hole also?
When is enough, enough? Often you see people going for a higher salary but a lower quality of life. They work for years at jobs they don’t love to one day reach this ephemeral goal of wealth. Might they not be served better by finding a more tolerable job even if they make less? Would it be OK to reach financial independence a little more slowly to enjoy the ride?
Then there is also the issue of the golden handcuffs. Once you have reached the heights of W2 salary, are you going to be willing to loosen the reigns post financial independence? Many feel they cannot.
Financial Independence
Financial independence can be the biggest rabbit hole of all. Consumed by the money mind meld, it is easy to forget that financial freedom is just a goal post, not a goal. How you spend your time before reaching financial independence is just as important as how you will spend it afterwards.
Don’t fall into this trap.
Final Thoughts
I love the concepts behind FIRE, and I love this community. But I also think that we have to ask ourselves a very important question each time we calculate our numbers and glance longingly towards the future.
Is it a money goal or a rabbit hole?
To many of us go chasing down the rabbit hole without realizing that numbers will never make us happy. Long term contentment comes from living a purposeful, meaningful life filled with people and joy.
Where you happen to fall in the spectrum of your money goals on any given day or time is largely irrelevant.
Life is about balance. Balance future enjoyment with enjoyment today. After all tommorrow May never come. You don’t want to plan so poorly that tommorrow is strictly rice and beans. But if today is rice and beans for tommorrow to be sunny your doing the same thing your trying to avoid.
I agree, it’s a double edged sword.
I never had a goal, just wanted to be secure. And I’m pretty confident i won’t keep moving the posts or go deeper into a hole. Enough is my favorite word.
Do you think you will stop working then?
The problem is it’s all projection. You project 4 x25 is adequate. You project 30 years is long enough. In the scheme of things 65 is normative for retirement. When you’re 65 the end tends to come into view. It may be 10 years, 20 years or 30 years but there is a kind of certainty to probable portfolio longevity. The goal of retirement is to not die poor. Age 65 retirement does not require extreme lifestyle manipulation to get there. Medicare exists, SS exists, cost of living goes down so you merely need to save a little dab every year, start at 30 end at 65, 35 years is a long time to compound and the end is in view. During the course of the 35 years your retirement wasn’t exposed to SORR. You weathered downturns by working and continued to add dough to the retirement portfolio. It’s an organic pretty bullet proof process.
You then get a wild hair (hare) and decide to retire early. Totally bollixes up the organic dynamic. You have a much shorter accumulation and much less time to compound. You tend to take too much risk because some artificial number drives you. The end is no where in sight. You still have a lot of expenses to fund like high school and college new roof maybe a new baby etc. As soon as you start drawing dough (deflating) your portfolio you are subject to SORR. During accumulation you squeezed hard and saved mercilessly got out of debt, burned out, and decided you deserve RE! You read a bunch of blogs which tell you it’s oh so easy to project your need 50 or 60 years into the future. You know you don’t want to die poor but you don’t even know what poor means 60 years hence. You think you’re smart and in control but truth is you are like a flea living on a dog. You go where the dog goes. PERIOD You can go from the belly to the head but the dog is where you live.
So that’s the dilemma, retirement and RE are not the same. RE is a gross distortion and at best guesstimation of retirement. RE is a rabbit hole where as retirement is more of a money goal proposition. Make a mistake when you’re 30 and by 90 it will be very magnified. Make the same mistake when your 75 and you likely won’t live long enough to even know it was a mistake.
So is RE even possible then? Or is it just a pipe dream?
If you have enough money anything is possible. That’s why if you RE you better have side gigs aka a job or two to mitigate your risk.
I knew last year when someone asked me if I would leave retirement and go back to the 9 to 5 world for a seven figure annual salary, and it only took me 15 seconds to ponder and say a firm no to the offer, that I finally had put money in its proper place. I have enough.
That’s quite a test you passed!