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Why the financial independence community is wrong

I have to start with a massive disclaimer in huge flashing neon letters. I am part of the financial independence community.

For those of you who are unfamiliar with the concept, we ‘FIers’ are interested in the concept of building up enough investment capital to allow us to live from the investment returns and make working for a living entirely optional from a surprisingly young age (e.g. 30). Most people achieve this by saving a massive proportion of their income from a professional job.

To learn more about the FI community, follow a few of the personal finance links in my sidebar and the rest of the article. All of the sites I’ve linked to are full of useful resources.

It’s a really intriguing idea and, indeed is probably where I was heading before finalising my own strategy for job-freedom.

I’d definitely still count myself as part of ‘the movement’:

I live below my means.
I employ a passive, asset allocation-based investment strategy.
I believe that money is ‘for’ freedom, not stuff.
My financial philosophy is built around books like Your Money Or Your Life, The Millionaire Next Door and The Richest Man In Babylon.
I believe that Mr Money Mustache, Jacob Lund-Fisker, Jim Collins, Ermine, The FIREstarter, Monevator and many more like them have added a massive amount of value to my life. Without them, my wife and I would never have banked the nest egg that is one of the main reasons I am able to sit here on a Tuesday morning writing about them rather than being in a pointless meeting.
Having never discovered the FIRE movement, I would know nothing about being a private investor and would currently be suffering from a 1% per annum portfolio management charge inflicted by a financial adviser who sold me a shit actively managed product.

The false dichotomy
…there’s a chance that some people are taking home the wrong message from the FI blogs:

You are either completely financially independent or you are not free. It is binary. Life has 2 stages: indentured servitude working full-time for The Man followed by paradise on Earth and complete freedom. There is no intermediate stage.

Now, it’s abundantly clear to me that none of the authors listed above are saying this. Most of them have stated as much. Some examples:

The FIREstarter went as far as to pretty much describe my current strategy and lifestyle in a blog post 2 years ago.
When Jacob Lund-Fisker originally retired extremely early he had a little side income from copy editing which coincidentally covered his expenses. He explicitly stated in that post that just doing the copy editing without having sufficient assets to live from passive income is a viable alternative that would allow for almost as much free time as full being fully FI.
Jim Collins has always written that the quest for FI was ‘never about retirement’ for him – just the ability to do whatever he wanted (which, for much of the time, was working in some capacity). Jim was also the inspiration for my definition of “Fuck You” money as enough cash to not worry about working for a while (rather than enough capital to keep you forever).
Although everybody who writes an FI blog puts a lot of effort into pointing out that achieving FI doesn’t magically switch off your ability to be productive, I occasionally see things like the graph in this post (from Retirement Investing Today – another blog I absolutely love) which adds some weight to the ‘it’s either complete FI or taking it from The Man’ perception. Note the ‘…you’re stuck working for the man’ wording below the FI line on the graph.

The thing is, I have a graph like that too. I’m nowhere near the FI line but I’m categorically not stuck working for The Man.

Please indulge me for a few minutes whilst I describe my process of falling in love with the FI movement. Perhaps you’ll recognise some of the feelings I describe here.

When I found the FIRE community, it almost felt like a miracle. I was already familiar with the concept of investing for income but had never taken it to its logical conclusion: investing enough to never need to work again while you’re still really young. Brilliant.

I was very disillusioned with the thought of sacrificing 5 out of every 7 days until I was so old that I wanted to sleep all the time anyway. I hated conforming to arbitrary rules and regulations just because somebody else had decided that I had to.

We already lived more frugally than our DINKY friends and were starting to build up savings.

Put all this together and you can see why I sunk my teeth all the way into the idea of building a big enough stash to never have to work again.

But there was a small problem. In order to make the numbers work, my wife and I would both have to work full-time for about 10 years. We were already quite stressed. In fact my wife had down-shifted to 60% of full-time hours as her job is physically and emotionally demanding and was taking its toll on her health.

We would also have to keep our spending really low. Now we were already sensible – old cars, planning meals, renting a cheap place etc. But to get to a 65%+ savings rate without any major career moves, we would have to maintain quite a limiting budget.

I was nearly 30 and my wife’s a couple of years older so starting a family loomed quite large on the horizon. Would we be able to tolerate the inevitable drop in income for the next 5-7 years until the kids were at school and still achieve FI quickly?

Looking back at our brief flirtation with the idea of working our arses off for 10 years to become independently wealthy, I can see that perhaps I had fallen into the trap of exchanging one type of freedom for another. We would have been pushing ourselves into an unpleasant box for the sake of reaching an arbitrary numerical target.

A better alternative?
I’m an extremely analytical person. I’m an engineer and, for some crazy reason, I like boring stuff like graphs, calculus and optimisation. I also can’t ever seem to turn my brain off (a double-edged sword, believe me!)

So I spent countless hours doing calculations in my head. I tried to work out new tax efficiency strategies. I worked on our supermarket shopping. I tried to get rid of one car. Whichever way I cut it though, becoming FI in less than 10 years would cause us to have to sacrifice other things which we valued.

However, when I started thinking about the income side of the equation, I (eventually) had a light bulb moment.

Getting better at earning
I had already spent many years failing my way to being able to profitably run a small computer support business in my spare time. The rate at which I had last billed out my computer support expertise was double my hourly rate as an employed design engineer.

Eureka! This was the side hustle to bring in the extra income to make the FI plan work. Time to start resurrecting that business.

But wait, even better… I was experienced enough to become a freelancer in my professional field! If I put those two things together, I could eventually be pulling in 6 figures (Sterling) and be FI in less than 10 years. All it would take is some really hard work.

But suffice it to say that after a couple of years of 60 hour weeks, I was very tired. I went for a routine eye examination and the ophthalmologist told me that I was overdoing it with screen time and needed to rest my eyes more.

Neither the business nor the freelance career was the silver bullet to reach FI quickly because I really wasn’t enjoying life then, whilst I was young enough to enjoy it.

I felt somewhat dejected. I’d put work into boosting my productivity and we didn’t spend a lot. But this had just left us quite cash rich (and nowhere near FI). I was about to throw in the towel and accept that I would be working more than 40 hours a week until I was in my late 40s or early 50s until… wait… the solution had been staring me in the face all along.

I had stupidly never put together the concepts of having a high-earning professional skill, being good at building small, efficient, flexible side-businesses and being sat on (by normal people’s standards) a mountain of cash.

But there it was – the solution.

We didn’t need a lot to be happy
We had plenty of padding
We lived way below our means
We were good at earning income efficiently and in flexible ways
I love the technical bits of engineering
My wife likes being a vet so long as she doesn’t have to do too much of it or be on-call at night
So why had I accepted the limiting belief that we needed to be FI to escape the grind?

We were already free if only we chose to be!

Pareto Financial Independence
I describe our current financial/work situation as being Pareto Financially Independent. I haven’t knowingly plagiarised this term but do let me know if I’ve just subconsciously adopted your terminology!

The Pareto Principle (commonly known as The 80:20 Rule) states that many observed phenomena display a common property: 80% of the effects can be explained by 20% of the causes. The exact numbers are irrelevant, but the concept is that a small amount of the total causes can usually explain most of the effects.

You can leverage the Pareto Principle, for example, to be happy with spending 2 hours writing a report, safe in the knowledge that it’s probably 80% as good as one which it would take you 10 hours to produce. The extra effort to achieve perfection is, although not completely wasted, much less effective at producing corresponding improvements in the output.

In my opinion, our current financial/work/business situation offers us 80% of the benefits of being completely FI:

We are stable. We can tolerate our income switching off for a long time
We can choose to only work with people we respect on projects which are interesting
We can choose to spend a lot of time on non-income-producing projects
I can avoid most office politics. My wife can ditch her job and look for something else to do at her leisure if the politics get too bad at her place of work.
We can take extended periods of time away from work
Neither of us have to work anything like 40 hours per week if we don’t want to
We can say ‘No!’
The question I had to ask myself when considering this approach was

What more would being completely financially independent give us that we don’t already have?

I’m certainly not saying that being completely FI wouldn’t give us any more benefits – it would. If somebody wants to throw me a few hundred grand so I never have to work again, feel free! However, to get the extra benefits in 10 years would cost so much that I don’t feel it would be worth it.

I also feel that our approach has some advantages over the ‘hit the number and then abandon the career’ approach.

Throwing out your assets
I don’t know about you, but at the moment, the best asset I have which I can combine with my labour to bring in very big chunks of cash is my professional skill. I have spent literally half of my life learning about computer architectures and electronics and all that effort has put me in a position where people will gladly pay me very well to solve problems for them. To completely replace this asset with something that could generate as much cash flow would take many times my FI number.

If I stopped doing any professional work completely for, say, 5 years, I wouldn’t be going completely back to zero, but I certainly wouldn’t be able to command a weekly pay rate in the thousands of pounds any more. It would take some time to get my skills up to date and rebuild my network. Dipping in and out of my engineering career would be almost impossible.

For this reason, even during the brief phase when I was contemplating going all out for full FI, I had at the back of my mind that I would never abandon my skills completely.

I wanted a hedge against investment returns not living up to expectations and a way of paying for some luxuries (like extended periods of travel). Also, as I mentioned previously, I enjoy the work.

I thought I could just aim to do a project every year or so after FI which would earn a bit of extra cash and still leave me with the option to ramp up the income production if I felt like it. But running the numbers, it was clear that just doing that would probably almost cover our minimal expenses anyway.

So why bother about being independently wealthy first?

Don’t waste your 30s
If I had one wish, it would be to be able to climb into a time machine, visit my 18 year old self and explain the concept of financial independence. Seriously though, if a wise 30 year old Mr Money Mustache could have reached me when I was in my early 20s, we’d probably be FI (or nearly there at least) already. I found this concept quite late. There’s nothing I can do about that.

The thing is, I know I’m not the only one.

There are many people out there in the FI community who also found the concept when they had already locked in a lot of big lifestyle decisions, such as having kids and becoming single income families to allow one parent to stay at home. I’m not for a moment suggesting that either of these choices preclude these people from reaching FI relatively young, merely that aiming to achieve it in 10 years might not be the best approach if they consider all of the costs and benefits involved.

So if you’re older than 25, have kids, have a good savings cushion and are a well-paid professional, I would strongly suggest that you at least think about changing course and doing something similar to what we have opted for to free up a large chunk of your time almost immediately. I can’t even imagine what it would be like trying to contend with 2 kids under the age of 3 whilst both of us held down full-time, stressful professional jobs.

Add to this this the fact that your kids are only little once. I’d imagine that a lot of time with them now is going to be more valuable than being constantly available for them when they’re grumpy teenagers who don’t want to know you.

Remember this
Here’s the takeaway: if you’re smart and talented enough to command a high salary and you’re willing to think outside the box (aren’t we all already thinking outside the box even considering early FI?) then a bit of learning and experimentation can lead you to being able to work extremely part-time very soon. This could easily allow you to live a balanced life with plenty of time for rest and hobbies and still retire wealthy before you’re 60.

I would imagine that for 80% of you, that approach will get you the majority of what you want in terms of freedom, autonomy and a low-stress life in a lot less than 10 years (and with the necessity for less bullshit along the way).

As for the other 20% – well we don’t pay any attention to them anyway. Thanks Mr Pareto! 🙂

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