Should Financial Independence Be a Target?
Should Financial Independence Be a Target?
I have mentioned several times on this blog that for me financial independence was quite accidental. Although I had financially responsible parents who were great fiscal models, none of us had ever really contemplated understanding the numbers for early retirement. My introduction to the FIRE community changed everything. It also, however, created a somewhat skewed perspective. I never had the benefit of looking at financial freedom as a goal post somewhere off down the field. But is it a benefit? Should financial independence be a target?
For me, it was more a phenomenon that I have been inspecting through the rear view mirror. Try as I might, I will never have the experience of striving that so many of you out there in the community are going through right now. This creates a different perspective.
The Good
There is no question that aiming towards financial independence creates a series of habits and beliefs that can propel an individual forward. Even if you are not a fan of budgeting, frugality and savings become ingrained. There forms an awareness of the hedonic treadmill and a concentration on value. W2 wages are maximized and sacrifice is front loaded to allow for years of compounding of burgeoning wealth.
Should financial independence be a target? This question should not be answered without considering the vibrant community that has arisen surrounding this lifestyle. There is no greater team of support than awaits those who choose this pathway. Go to any CampFI (wink, wink, Sept 7th in Little Rock) and you will be embraced and cherished.
And lastly, we all need a Plan B. A lever to pull when employment lives get to be too hectic and loathsome. Financial independence allows for exiting the work place and the freedom to choose how and what type of work we agree to be involved in.
The Bad
Sometimes it is easy to forget that money is just an intermediary. It is a way for us store potential energy in the great trade of goods and services that makes up life. You create goods or perform services in exchange for money, and then you use that money to buy more goods and services from others. Money therefore is not a goal, it is a tool. Should financial independence be a target if money is not?
It is easy to delay gratification when a big audacious plan is in place. But we must not forget to live today as well as tomorrow. Foregoing joy and stepping on the stoic treadmill can also lead down the path to bitter asceticism as opposed to wealth.
Financial independence should be Plan B. An escape hatch when you no longer enjoy showing up to work everyday.
Life should be plan A.
The Ugly
I couldn’t finish this blog post without discussing the money mind meld. I know I have written about it many times before, but it bears repeating. Often financial independence becomes a goal to the exclusion of everything else. We stop working on our humanity and dreams and focus only on a series of spreadsheets. This may lead to a better financial persona, but not a fuller emotional human being.
Victims of the money mind meld find no joy when they reach financial independence. They find depression. When the veil is finally removed, there is a great reckoning. They have been blinded to everything but a solitary target and now are left with difficult questions.
Who am I?
What is my value in the world?
Where do I belong?
Final Thoughts
Should financial independence be a target? In my opinion it should be a minor one. We should build fiscally responsible lives and partake in this wonderful FI community. It is never bad to have a Plan B and a lever to pull when work environments get rough.
But it can’t be the goal. Although we may not always agree on definitions, living the best life probably involves searching out authenticity and purpose.
For most of us, becoming engrossed in financial independence can’t fully accomplish that.
To me financial independence is a clear goal. But as you say, it’s very important to live and enjoy your life in the present. That’s why I constantly remind myself of the things I’m grateful for. I think it helps me enjoying the present to the fullest and still allows me to dream of the future.
It seems to me that it should be a goal but not the goal. It sounds like you have the right attitude.
I agree it’s a target or milestone. Goal not so much. What you plan to do with it is the goal, financial independence is the how.
I like that. Not the why but the how.
I think it’s important to have finances set aside for the future. Not so much as a goal or target , but as a matter of care . Seeing the options, and expenses that come with aging parents, in varying states of health has hit home hard. That being said, it’s equally important to enjoy the present , whatever that joy is for you. Life is for living.
The future especially health care is such an unknown. I agree.
“Financial Independence” is a false flag. It confuses the point. It causes a mental deception almost to the point of delusion. It’s a sop top the ego. Early Retirement is even worse. It’s a multiplier to the delusion. What is financial Independence? Let’s say you accumulate a certain amount of money and call that FI. What does it buy you? Nothing. Acquiring FI is all about becoming “rich”. FI is only a potential, it is not guarantee. Retirement OTOH is about becoming poor. It’s a race between your portfolio’s end value and your death. Understanding the granularity of the race and how to win it, is what’s really important. The race has variables. Portfolio size, rate of return, risk, economic environment, sequence of return, rate of spending, confiscation and taxes, inflation, time till death. The race has a probability of success across some distribution. If it’s a Pareto distribution which is a very common economic distribution about 20% will be 80% successful. FI is only one variable out of many. Even though you may think it’s a big one it may prove inadequate.
FI is only a potential. I agree that so many other factors play a role. So why do we keep making it a target? Ego?
Because “we” live in an echo chamber. “We” read blogs by a lot of fairly clueless un-retired people with calculators.
It’s because retirement to the un-retired is a projection. It’s not a reality until you are retired. Not only is it a projection but it’s somebody else’s projection. WCI says…. MMM says… In planning, if you even bother to plan, you are using the projection of someone else who isn’t retired. It’s like your OHS*** moment from are kids holding you back… wait a minute for a schmancy college and grad school that’s $800K in today’s dollars PER KID and you have only $75K in the 529. Good luck on your RE daddyo. It’s like you “need” 4 x25 for 30 years but you delude yourself 30 years means you can squeeze out 45. FI has some basis in fact. You actually can look at your bank statement. You know the work that went in. Putting work in is how you generate potential.
In physics PE=MGH (mass * gravity * height). PE is like FI. Retirement is all Kinetic KE=1/2 MV^2. It’s a squared function! (Variance is also a squared function) This means changing the velocity x2 creates 4x the energy use. It’s not obvious but in retirement it’s all about precisely controlling a V^2 function over time, and you don’t have a W2 to save your bacon. A little mistake can cause a big consequence. For example: If one planned for 30 years but quit 20 years early, it’ll all work out is not a plan. When you W2 you off lay your risk onto the W2 payer. When you retire the risk is on you.
I look at FI a little differently. I believe most people feel trapped in jobs they hate, but the money keeps rolling. The idea of early retirement becomes a sanctuary to a better life.
If people consistently build passive income streams and enjoy what their doing, there is no reason to retire. The focus then is just quitting the employment you hate.
True FI then becomes how can you structure money creation and investing around you life. There never will be a concrete number. It’s about how much lifestyle pain you willing to endure to set up your ideal lifestyle in the future.
The question is can you set up the life you want without having pain? Can we set up our ideal life now and FI will come whenever it comes.