When my wife and I first got married we decided to go on a cruise for our honeymoon. My wife spent hours doing research on the best way to get to the cruise port at the absolute lowest cost possible. She decided to take the bus from the airport to the cruise port because it would save us a fortune (or $20).
Even though my wife did the research on the front-end, we still had to “wing it” a bit when we flew into the Long Beach Airport. We didn’t have smartphones at the time, Google wasn’t just a click away, so you can imagine how we might have felt.
Despite our initial plan having some gaps, we managed to get to the port on time. Sadly, my wife was sick the entire cruise, I think because she was recovering from the stress leading up to the wedding.
So why did I just rant about planning vacations and getting sick after weddings? Well, I think that too often in life people want to know “what’s the plan?” The FI (financial independence) version of this question is, “what’s your FI number?” In laymen’s terms, that’s the amount of money you need to have before you can retire.
Why I don’t have an FI number
Like my wife and I learned on our honeymoon, we can do the best we can to plan for the future, but we can never account for every variable or curveball life will throw our way. Even when you do get there you could find that things may not be as rosy and perfect as you would have liked. So why is everyone so insistent on having it all figured out?
Too many people in the FI community pride themselves on their “FI dates.” At times it seems like a big competition of who can retire fastest. Don’t get me wrong, if I said I wasn’t pushing to be FI as soon as possible, I would be lying. But I’m reluctant to set my expectations around a concrete plan because I know that so much will change in the near future. I will be starting a family, potentially losing an income, and who knows what else life will throw my way.
The main reason why I think pursuing FI is so essential is because of the flexibility it affords you– regardless of when you actually reach official financial independence.
I’ve got a few scenarios that will help to illustrate my point.
Let’s say that you have a friend, colleague, or family member that comes to you with an excellent business opportunity, or you develop an idea on your own. This could be anything from a startup to purchasing a real estate property. Regardless of what the opportunity is, you are a huge believer in the project. You are confident that it will be a big winner; the issue is, it requires a significant amount of money in order to participate.
Even if you are “on pace” for retirement at 65, according to rules of thumb, it might be too risky to have this much of your future tied to this opportunity. Despite your confidence, if it doesn’t pan out, your timeline for retirement at 65 would be a jeopardy.
On the flip side, let’s assume you’re actively pursuing FI. Your expenses have been minimized and you’re also working to maximize your income. The gap between your income and expenses is strong.
If you are approached to invest then you are in a great position to proceed. Worst case scenario, the investment doesn’t pan out and your timeline to FI is slowed, but you’re still well ahead of what the “rules of thumb” would dictate.
Since you’ve vetted the project there’s a good likelihood that it does pan out. Because of your position of financial strength, you might get an outsized return that may shorten your timeline to FI even further.
And to think, none of this would have been possible had you not been in a position of financial strength on the path to financial independence.
You’ve been working in a career for a few years and you absolutely love what you do. You have a good friend that you work with and he loves what he does too. Even though you’re not interested in retiring early because of your passion for your profession, you want to set yourself up with flexibility in the future. Your friend doesn’t have the same urgency about achieving financial independence and decides to save 5% of his income since he likes what he does and he’ll get a pension at 65 anyways.
Fast forward a decade- things have changed with your company, you and your friend no longer love your jobs like you used to. The company has a new vision, new ownership, and the state of the business landscape has changed.
You found another opportunity you would absolutely love, but it pays less than you currently make and you would lose your pension if you left your current company. Luckily you’ve been preparing for this day and will actually be just fine making less money. You’ve been aggressively saving, your portfolio is working harder than you do at this point. You can leave your job without a seconds hesitation.
Unfortunately, your friend isn’t so lucky. He NEEDS that pension, he’s too far behind without it, good thing he’s only 15-20 years away from retiring (sarcasm).
Aren’t you glad you opted for future flexibility instead of banking on the current situation to continue on indefinitely?
You have a family member or close friend who falls on hard times. The best example of this might be aging parents who have failed to adequately prepare for the future. They thought that they had saved an adequate amount, but long-term care has been much more expensive than they would have thought and it has ruined what should be their golden years.
If you are in a position of financial strength, on pace for financial independence, you can afford to help your ailing parents without sacrificing your financial future. Sure, it will require you to work a few more years than you had initially planned, but it’s worth it to make sure your parents are taken care of.
Pursuing FI = Options
Pursuing financial independence will give you options. It will give you the opportunity to earn outsized returns, pursue your passions, and take care of loved ones who fall on hard times. Don’t feel pressure to figure out everything right now, just take steps today to put yourself in a slightly better position tomorrow and your future self will thank you.