Is Money Apathy The New Financial Independence?
Money Apathy
In a previous post I discussed the magic of market apathy. When your path to financial independence is long-term and you have chosen the right investments, the momentary swings of the stock market lose importance. While this concept certainly is quite powerful unto itself, the true goal of financial independence is something completely different. It is neither freedom nor control over time. It’s Money apathy.
The ability to be indifferent to money is what we all strive toward when we start to calculate our safe withdrawal rate. It is the goal post to which we calibrate all our plans.
But how do we reach this nirvana?
And how is it different from basic financial independence?
Enough
The concept of enough means different things to different people. To some, enough means saving up 25X current yearly spending. To others, it may be a solid figure like ten million dollars. The point being that sometimes this number is actually uncorrelated with financial independence.
There are many people out there who are technically financially independent but don’t think they have enough. They worry about sequence of returns risk or use terms like lean FI. There is both an emotional as well as a fiscal component to financial independence.
I think the true definition of enough is when money apathy sets in. The market had a good day, the market had a bad day. Who cares! The W2 produced a bounty this year, there was no W2 this year. Who cares!
Money is an Intermediary
One of the quickest paths to money apathy is to realize that money is an intermediary. It is only as relevant as the goods and services that you provided in exchange. That money can then purchase other goods and services that you are in need of.
What happens if providing the goods and services that you exchange for money is pleasurable? What if your true life’s calling happens to create this work product, and yet you don’t picture it as work at all. in fact, to you, it is joy.
You now have money apathy. By living your best life, you create monetary benefits that can be used to fund your lifestyle. You would no more consider retiring than you would consider quenching the flame that burns inside of you.
You have extracted yourself from the concept of sacrifice. If you just keep doing what you love to do, you will be provided for.
Perpetual Money Machine
For those not lucky enough to have found a calling which provides for us automatically, there is always the perpetual money machine. All it requires is basic planning, earning, investing, and a touch a frugality. Over time you can build an investment portfolio of stocks, bonds, and real estate that spin-off enough cash to fully fund the lifestyle you choose.
This process is simple although not easy. It may take years of front loading the sacrifice to reach this vaunted plateau. But once there, true money apathy sets in. You no longer care if you make a little more or less each year. Your finances are on autopilot.
Final Thoughts
The goal, in my mind, is not financial independence but rather money apathy. Enough means more than just financial freedom. It’s means no longer worrying about the influx and outflux. The pathway is two-fold. Either recognize money as an intermediary and find a life calling that naturally provides. Or build a perpetual money machine.
And when your done with all that, what should you do?
Enjoy life.
The problem of course is the one more year syndrome. Ie enough is very hard for most people to come to grips with.
In some ways I am money apathetic. In the short run I’m insulated and have no money worries. In the longer term I’m basic fi, so sequence of returns is still a risk as is surprises. So in the long run I’m not apathetic . But I’m not sure I could be apathetic entirely even with what I have defined as far Fire. I know I’ll always worry to some extent if I had enough when I’m done. It’s just the relative ness of the worry will be much lower.
I think there is always some worry. The apathy hopefully sets in over time when you see that the world is not falling.
Retirement is a projection. It’s a projection that revolves around Bayesian statistics which is how humans operate. Bayesian probabilities start out with a belief that is “true”, and those probabilities are modified as new evidence comes to light. The a basic belief is 4% x25 has produced an adequate retirement in all but 6 of 118 (94.9% success) tested 30 year periods dating back to 1871. The modified belief is there is no guarantee the next 30 years will be mirrored in the 118 subsets. Normal retirement at 65 gives you therefore a projection to age 95 and the bet is you will likely run out of life before you run out of money, and that loss of life may predate money Armageddon by decades. Basically without lifestyle and genetic modification, there is a 25% chance a 65 yo man will live to 93 and a 25% chance a 65 yo woman will live to 96. So that’s kind of a basic starting point for normal retirement, and will likely work out.
The problem is with RE. RE is also a projection where the nest egg is likely too small, the retirement period is likely too long, and the assumptions are too rosy. There is a lot of experience with 30 year post 65 retirements not so much with 50 year age 45 retirements. The probabilities therefore toward religion instead of statistics. The smaller the nest egg relative to longevity and the longer the longevity relative to death means the variance (likelihood of failure) goes up. I wrote an article over on xrayvsn site which ties to quantitate this using Monte Carlo analysis
https://xrayvsn.com/2018/06/14/guest-post-gasem-a-quantitative-method-to-look-at-retirement-portfolio-risk/
I calculated 3 different time periods 30 45 and 50 years using 4 different SORR conditions (0,1,2,3) and looked at failure rate. The Monte Carlo calculator I used analyzed 10,000 probable futures which is pretty robust. So apathy comes with a cost. The cost of apathy is being able to live with your probability of failure. Modifications include living shorter (aka retiring later), spending less, bigger pile, picking a good SOR (another article I wrote addresses a means to re-index your SOR once retired)
https://xrayvsn.com/2018/07/19/guest-post-gasem-a-modest-proposal-for-sorr-portfolio-insurance/
Of course you can always have business income from a small business like a blog, consulting, or some rental property which changes once again the Bayesian calculation. Here is an article that introduces Bayesian concepts:
https://blogs.scientificamerican.com/cross-check/bayes-s-theorem-what-s-the-big-deal/
In my retirement I had to come to terms with my failure rates and extending it to my wife’s failure rates. So far my predictions are exceeding my reality, meaning I over budgeted. Thus far I’ve exceeded apathy.
“Exceeded Apathy”. I like that. We will all likely die with either way to much or way too little.
I think I may be starting to become apathetic which I guess is a good sign. Big losses used to bother me in my stock portfolio. Rarely does anything but elicit an “oh well” from me. I always figure it will bounce back up at some point and don’t need to sell it so I won’t lock in the losses.
Apathy can definitively be a good thing!
I’m mostly apathetic about it but until healthcare insurance changes drastically in our country I think total apathy is dangerous
Good point. Healthcare is still an issue.
It’s great to be at a point where you no longer worry about money. I don’t think I will every come to the point where I become apathetic though. To me it’s a hobby and a game. It’s interesting and a key driver to measure my success with what I do.
Of course, if you only invest in index funds there’s only so much you can do. But if you’re already in a good spot, maybe already obtained financial independence, investing in local projects are quite interesting and you have a good chance to learn something in the process and even meet new people.
I wonder if apathy for you will set in once you have won the game. What happens when you have enough that fluctuations no longer move the needle?
Great question. I obviously have no chance of knowing that before it happens.
Currently I have a feeling that I will simply raise the bar to keep the game going forever. I’m inspired by growth and money as a way to measure stock. With money apathy there is no motivation. No motivation could mean no personal growth. I’m living to express my full potential. I think I need this driver to live a longer and happier life.
I could be wrong though. Time will tell.
“and money is a way to measure it.”
See, I think that money can be a mirage. By focusing on the “game”, I know I spent a good number of years avoiding the harder, deeper questions in my life. Like what am I about and what are my true life goals. Focusing on money just took my eye off the ball. You, however, may be different. Growth and money may be your true inspiration. if so, this makes a lot of sense.
I think apathy is an insightful word, DocG, because that’s where I find myself now. And since I have a surplus of what I need in my early retirement state, I have found that I am spending in much more intentional ways, many of which would get me in trouble with the frugality hardliners. But I don’t care, I have extra, and tipping 100% on my take out order for a restaurant I love, to help support the owner but also the serving staff who are filling the take out orders, feels like the right thing for me to do. When things were especially volatile (when was that March/April?) I remember everybody saying, don’t look at your accounts, etc. And it just made me want to look at my account, and the large drop felt less personal, if that makes sense. It was like, oh hey, that’s a big drop and it created a tiny bit of shock value for me but because the actual impact was nothing, I quickly moved on. Getting to apathy is a huge privilege and gives me a whole lot of confirmation (and confirmation bias!) that the strategy I pursued, though conservative, was a good one.