Finding the why in F.I.

Live like nobody else now so you can live like nobody else later


16 minute read

It’s time for a new American Dream

Go to college, study hard, get an internship, land your first job, save 8-10% of your income every year, work for 40 years, and finally spend the last few years of your life living comfortably. That’s the American dream… right? Well, I don’t know about you, but that’s the American dream I was told about growing up.

Here’s the thing - I want more than that. I don’t want to be lying in bed at 70 years old kicking myself; wishing I had chased my dreams instead of working and sort of… existing. I’m not saying you can’t live a rewarding life if you work until you are 65 or so, but what if your whole day was free to dedicate to anything?

I know what you’re thinking, “Okay, yeah - sure - that would be great… But it’s not possible. I have bills. I have debt. I have commitments…” Well, what if you didn’t? What if you restructured your life so you were financially independent?

What is this “Financial Independence” I am speaking of? I’ll start out with a story about Joel, a successful software engineer who lives in Florida. He wrote a letter to his younger self, which paints a beautiful picture of two outcomes he could face in his life:

A letter to my 22 Year Old Self

Future 1

Picture this: you graduate from college, move to a new town, and get a high paying software engineering job. You immediately buy a beautiful new house, new furniture, and new cars. You live in a fancy gated community with elaborate fountains and walking trails. Friends and family to come visit, and they marvel at all the nice things you have!

You buy all the newest tech toys every year, and consider yourself an ‘early adopter’ of technology. Sure, you pay a premium for the privilege, but you can afford it with your salary. You’ve always loved the latest computers, gadgets and gizmos. It’s why you got into computers to begin with!

You get married to your high school sweetheart and enjoy an extravagant wedding, a tropical honeymoon, weekly dinners at 5-star restaurants, and monthly massages at the spa. You are also quite the jet-setter: you travel nearly every other weekend, all across the U.S., visiting friends and family. Your credit card has no limit, and when you think of something you desire, you buy it. This future is high-class living: you blew past the Jones’ years ago.

Future 2

Picture this: five days a week, your alarm clock wakes you super early, and you stumble from bed groggy from lack of sleep. You get dressed, make coffee, and race out the door to sit in traffic on your drive to work. When you finally arrive, you sit in a cube and write code for hours on end. Same sights, same sounds, day in and day out. Same people, same faces. Same widgets, different day.

You would think a technology job would interest you, but over the years you realize it’s all the same: write yet another version of an already existing widget for a program that is behind schedule and over budget. You’ve tried changing jobs, but it’s no use. New code, new cubicle, same prison sentence. The fluorescent lights flicker above you glance down at your smart watch and notice it’s 73 degrees and perfect outside. Your legs ache to run outside and enjoy it, but you can’t: you are too behind on your milestones. You are always behind, actually. You’ve tried coming in earlier, staying later, working through lunch. Nothing works.

You check the clock every ten minutes, hoping time would move faster. All you want to do is go home. Tick, tick, tick, tick. The watch hand moves so slowly. When the day is done you still haven’t completed your milestones, but you are happy to leave. You get back into your car and sit in traffic on the commute home, driving past all the same sights and sounds. You do some mental math and realize you’ve driven this route over twenty five hundred times. You’ve seen all these same sights and sounds over twenty five hundred times. You’ve gone home and vegged out in front of the TV to clear your stressed out mind over twenty five hundred times! You’re in an infinite loop, and in just a few hours, you’ll be waking up at the crack of dawn to do it all again.

Your health is not what it once was. You don’t have enough time to exercise regularly. Hell, you don’t even have time to go on walks anymore. You don’t have enough time to cook healthy, either. You can actually feel your health slowly slipping away. It’s gradual, and it sneaks up on you over the years. You’re mind isn’t as sharp as it once was. You look in the mirror and you realize you aren’t quite the person you remember. You notice all the grey hairs starting to come in. You think about the email you received from your department administrator earlier in the week, breaking the news that one of your coworkers passed away over the weekend. He was only in his early sixties, just a few years away from retirement. It’s the third email like it this year.

Which future do you choose?

Future one sounds a lot better, right? Well - surprise - these are actually the same future. The second future is the price he had to pay to fund his lifestyle. Vicki Robin addresses this topic in her book, “Your Money or Your Life”: Think about all of the years you have worked in life until this moment. Now, think about what you have to show for it. Is it worth the life energy you have invested to have the money, house, car, experiences, etc. you have?

Reflecting on the above questions led me to an abysmal realization: I don’t have much to show for the life energy I have expended thus far…”

Now - the point of this post is not to make anyone feel bad about financial decisions they have made, or to make anyone feel guilty about purchases or items they like. It’s to help you figure out what matters in life so you can spend your life energy focused on those things instead of wasting your life energy on consumer goods that advertisements try to convince us are important.

Finding out what matters

You know - there are a lot of things I really enjoy:

  • Driving Cars
  • Travel
  • Food/Dining
  • Technology/Gadgets
  • Music/Concerts
  • Exercise/Sports
  • Time with friends
  • Learning
  • Art
  • Life under the sun
  • Nice clothes

I’m sure most of your lists look fairly similar; I don’t consider any of these interests unique. If I were to narrow down the 5 most important things I needed in life my list would look a little different though:

  1. Time with loved ones
  2. Exercise/my health
  3. Personal growth/learning opportunities
  4. Traveling/seeing the world
  5. Time to pursue new hobbies

Some of the items in my first list are luxuries: a new car, the latest technology, going to nice restaurants, expensive clothes, etc. Sure, I can afford paying for some of those luxuries… but - when I consider the 5 most important things in my life those “luxuries” don’t show up anywhere. Instead, I want the ultimate luxury: complete freedom to do what I want every day of my life.

What exactly is financial independence?

FIRE (Financial Independence Retire Early) has grown to have a large following over the last few years. You can find an ever-growing list of blogs, podcasts, and forums digging very deep into different aspects of this subject. A few of my favorite FI resources are:

The idea is simple - focus on reducing your spending while increase your savings rate until you hit a magic number in your bank account that allows you to quit your job and sit on the couch and watch Netflix all day… All the while eating beans and rice because you can’t afford to spend anything over exactly what you budgeted for food each month. Hold up - how is this enjoyable? Okay - I’m joking, but that is seriously what I thought FIRE was when I first heard about the concept in 2016:

“Retire early? But why? I actually like my job… And how would I afford to retire early when life costs so much? I want to travel when I am older - like I travel now. And I want to have a nice car when I am older, because I LOVE cars. Plus that sounds so boring - what would I do all day? Watch TV? All of my friends would be working.”

I’m sure many of you have had similar feelings about the concept. And… to be fair - I still think the idea of sitting at home watching TV all day sounds absolutely miserable. But - what if you had all day…EVERY day to pick up a new hobby, exercise, and/or travel? That sounds more like the American Dream that I want.

Okay but at what cost?

Okay so you’re probably thinking, “Yeah - that sounds great and all, but what are you sacrificing to get there?” I always considered early retirement to be a life of frugality and misery over the next 20 or so years. I figured it would require me to live on an incredibly strict budget; eating beans and rice every day to save money, never going out with friends, not traveling - not really doing anything that I currently enjoy. In fact, most of the critics of FIRE will mention many of these lifestyle sacrifices as reasons why FIRE isn’t a realistic goal.

“Why would you want to cut your lifestyle later in life? You can’t live on that little of expenses every year. Don’t you want to enjoy life when you are older?”

These same people tend to argue that “life is too short” and that “you should enjoy the money you earn now.” But… why can’t you enjoy life the entire time? That’s the real secret of financial independence; it’s about building a life you want now and changing what you do and what you spend your money on to make sure those things you value are at the center of your life.

Why FI

F.I. is not about sacrificing and giving up everything you enjoy in life or about grinding out and suffering until you hit some magic number that allows you to retire. We only get one shot at this life, so we should focus on enjoying the entire journey. If you slave away for 10 or 20 years so you can stop working a few years early you have missed the point of FIRE. I think a lot of people that are aiming for financial independence consider it a means to an end; they want an escape from the life they currently have.

Maybe you don’t love your job; maybe you are trying to get by until you save enough… or until you hit that magic number. Unfortunately, if you aren’t happy with your situation now that probably change in the future.

FIRE isn’t the silver bullet answer to happiness - just like money isn’t. The real power of financial independence is to give you the freedom to pursue your passions full time instead of just a few hours a week.

Where to start

The premise of financial independence can be boiled down into 2 things: reduce your spending, increase your saving.

How much should you be saving? As much as you can that allows you to live a happy, fulfilling life. Remember, you don’t want to make life miserable right now - that will just lead to burn out or depression.

Some simple math explains the concept pretty well: Say you have a 10% savings rate - that means it will take you 10 years to cover 1 year of your expenses. (Obviously as long as you are investing this money it will grow every year, but that still isn’t a great trade-off for that life energy of yours.)

Let’s say you bumped that savings rate up to 33% - now all of a sudden you are covering a year’s worth of expenses every 3 years - quite a bit better! Major players in the FI community aim for a 70-80% savings rate - which may sound impossible now, but every small step will help get you there in the future.

Cutting out lifestyle creep

“We act as though comfort and luxury were the chief requirements of life, when all that we need to make us really happy is something to be enthusiastic about.

-Charles Kingsley”

Marketing and advertisements have tricked us into thinking that spending money is fun and exciting compared to the boring life of saving. It isn’t exciting to tell your friends you saved $500 this month… But - driving around in that new BMW would definitely turn some heads. That may seem impressive right now, but how impressive is that $500 a month lease payment? Fast-forward a few years: now that you have driven a luxury car why would you ever go back to a low end econo-box? Taking a step backwards after living the high life? Impossible! You are now the victim of lifestyle creep.

Cutting out lifestyle creep may seem like torture at first, but it’s actually a fun process. I know what you are thinking - “How can this be fun? You are literally cutting back on any fun that you were having…” I turned it into a game: How much can I save each month? How much can I average per meal when I cook?

Unsure where to even start? Try having a spending cleanse - cut out every expense but your absolute necessities (food, rent, debt payments) - then, figure out what you really miss and slowly add it back in. You will be surprised by how much you won’t miss after a few weeks.

Maybe the cleanse is too much. You don’t have to completely re-define how you live your life - this needs to be achievable. Consider a few of these changes:

  • Start cooking instead of eating out
  • Buy/rent a smaller place and/or get a roommate
  • Consider downgrading/downsizing your car
  • Cancel your rarely used memberships
  • Go out even a few fewer times each month
  • Pick up a hobby that is cheap or free
  • Get a less expensive phone and/or internet plan
  • Buy used things (when applicable)
  • Surround yourself with others that prefer to save money instead of spending it

The world tries to convince us that we can only enjoy life when we are spending money; that is such a lie. Consumerism enslaves millions of Americans who feel they need to “keep up” with everyone around them. The sad part is that most of the people we feel we need to keep up with are just as in debt (if not in worse debt) as everyone else.

You don’t have to do everything on that list - even if you can start with two changes you will be lightyears ahead of so many others around you.

Take a smarter approach to saving

So at this point you should have some areas in mind where you can start saving. You’re motivated to make some changes in your spending… until it’s 5 PM on a thursday and you don’t want to buy groceries or cook and Chipotle is sounding SO tempting.

You have a few options:

  1. Screw cutting back - I need that burrito. Now.
  2. Flex with your plan - find somewhere you save $7 to make up for the cost of the meal
  3. Suck it up and go to the grocery store

The problem with options 2 and 3 is you don’t see any immediate reward for the sacrifice you just made. “Seven Dollars? Big deal. It’s not like that is going to help me get much closer to FI.” Well, $7 is nothing in the big picture, but those small expenses add up!

Now - try this instead: take those $7 you would have spent on a burrito and put it in a different savings account. You will immediately see the impact of your decision. Saving money AND instant gratification; that’s a win-win!

PSA - I’m in no way perfect about reducing/cutting back my expenses; last year I had a few months where my expenses added up to nearly the amount I would spend in a semester in college. I’ve gotten significantly better about it this year, but I still have a long way until I hit the savings rate I want.

What’s the end game?

The goal in FI is to hit a magical number in your net worth called the 4% rule. This number comes from something nicknamed “The Trinity Study”, which calculated the likelihood that an investment of money would last when invested in a mix of stocks and bonds (depending on the percentage withdrawal rate one decided to take). According to the study, an individual has a nearly 95% chance that their money will last for at least 30 years if they withdrew at a rate of 4%. Some in the FI space argue it would last indefinitely because you would withdrawal less than your dividends and investments every year - other argue you should be conservative and shoot for something like a 3% withdrawal rate, but it’s a good rule of thumb to find out what your magic number is.

So - what does that mean?

Let’s say my expenses are $30,000 a year - I need to have an investment large enough to give me at least $30,000 if I withdrew 4% or less of it in a year. Doing a little bit of quick math we know that 4% (125) leads to 25 x $30,0000 so - $750,000. So - if I were to have $750,000 in investments I should be at a place where I am financially independent.

Now maybe you are thinking, ”$30,000 a year? How can I live on that?” Well, it’s easier than you may think. Remember, this is after taxes - and you won’t have to worry about saving; that has been taken care of thanks to your hard work up to that point.

Some of you quick thinkers probably realized if you could drop you living expenses to $20,000 a year you would only need $500,000 to hit that 4% rule. Decreasing your lifestyle expenses not only provides money for you to save now, but also lowers the threshold you need to be financially independent!

Obviously this is just a rule of thumb - but it’s a good way to gauge where you think you are in your path to FI. $750,000 may seem like a huge number, or that saving that much money is nearly impossible. Like anything else in life, you don’t have to do everything today - you just have to start.

Ready, set, FIRE

The reason I am so excited about FIRE is because it aligns so well with what I already value: spending less, focusing on fewer and more quality activities, personal development, and time with those I love.

So - you’re sold on FI too, right? Best thing since sliced bread? Even if this post only encourages you to make one small change that is still a great step for your future. What will you miss by giving FIRE a shot? Dinner at few expensive restaurants? An overpriced car/insurance payment? You never know - you may just like it.

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