Ok, ok I’m a day late but I thought I would quickly share some thoughts on Financial Independence Awareness Day. The 25th of April (or April the 25th – 425) represents the 4% SWR and 25 times annual income needed to become FI. Introduced by GetRichQuickish it’s an awareness day and here’s what FI means to me
425 is a great number – very easy to understand and it may one day be as popular as 420. I’m not a great fan of Awareness Days because they are a bit meaningless and don’t really raise that much awareness. Like that ice bucket thing – what was that to raise awareness for? I didn’t do it, don’t remember and I’m probably not alone.
But, since I’m a FIollower, I think that 425 is a good time to stop and take stock in the “movement” (if you can call it that).
GetRichQuickish asks the following questions:
- Write about what FI (or FIRE) means to you
- Write about the day you learned about the concept & how you felt
- Write about how the idea has changed your life for the better
Others have written about it already but here’s my answers.
Financial Independence means that you are not relying directly on others for your financial situation. That’s paid salary in my mind. If you are financially dependent it puts you in a weak position. You can do jobs that you don’t want to do but do because you need the money. Anyone who has worked offshore, night shifts, never seeing the sun for 3 months of the year due to early starts and full working days, “going the extra mile” without getting an extra penny because you want to keep your boss happy (and richer than you.
The funny thing is that once you have some Financial Independence – saved a bit of money, start getting some dividends coming in or a side hustle it becomes easier and easier to save/make more money.
I think that I always had this idea in my head. Certainly from before I finished school, I knew that (with crude knowledge of marxism) that the owners of capital got their dividends and the workers got their wages. It sounded like it was better to be an owner of capital than a provider of labour. Ideally, I’d prefer it if people weren’t born with millions in the bank but if you can’t beat them join them.
So, if you work and earn money, save money, invest it wisely and keep that up for many years then you can reach financial independence.
Except it’s not that simple. You need to make big life decisions in that time. Things like, go to University or not and if so, which university and what do you study? Take out student loans and YOLO it all? Enter the workplace by applying for jobs but which career path will you take.
You need to move and need to live somewhere. Do you go get an unaffordable 95% LTV mortgage at an eye-watering 6% interest – borrowing as much as you can or rent forever and regret it when house prices collapse and your leasehold property is in negative equity or feel smug in your canny investment that has doubled in value and your mortgage is now at 0.5% and costs less per month a round of drinks at the pub.
When it comes to investments, do you invest at the top of the market in solid companies like Northern Rock? Or keep it all in cash and miss out on the bull run. Do you fall for a get rich quick scheme that is guaranteed to make your rich. Do you put all your money in gold or bitcoin or FCOJ or shipping containers or car parking spaces at Gatwick airport or on P2P lending (to the iminently dead and defaulting).
When it comes to your money, there’s no shortage of people looking to take it off your hands.
You will want holidays and travel and gizmos and gadgets and inebriation and a fancy car and a big screen TV and an entertainment package and expensive hobbies to fill your cupboards and designer clothes and suits and season passes and shirts and a Pret loyalty card and soggy sandwiches in a box lipstick and asskissing lessons from a guru.
When it comes to love/sex you’ll need to spend money here. How do peacocks attract the best peahen? Do it yourself and if you find that right person – hold a big f**k off wedding for all your family and friends – making sure that at this crucial juncture in life that you spend at least £20k on it not including the honeymoon, stag/hen parties (Prague and Paris respectively).
You might even decide that there’s no enough people on the planet already and you’d like someone who is (hopefully) half you and half your partner. Be sure to go on another BIG holiday to Machu Pichu before you do it as you’ll never travel again with kids.
Kids are great and in terms of money they are financially independent – it’s you that pays all their bills until they are 16/18/21/late 30’s (in the case of two of my cousins).
If you do have kids, you’ll need childcare and that costs a bomb. It’s grotesque how much it costs and in my opinion it’s the very reason for mid-life crisis happening. If you have kids, you might need to either have your partner or you stop work or fork out a grand a month in nursery fees. The worker(s) is then indentured to their employer to pay for their life. It’s called getting ahead or knuckling down or going the extra mile – you can’t afford to lose that job as you have all the bills to pay.
In a few years when the kids are at school you don’t have to pay that childcare and your partner can be back at work. You’ve now got the work experience and the free cash flow to blow it all on a bright red sports car, a holiday home or daft hobbies like keeping horses with an optional divorce. Who can blame you?
But I don’t want to go down that route. I don’t have very strong career ambitions any more and I would rather spend this time now with my family. But it’s very hard to step off the rat wheel. Financial Independence is not only a monetary figure like 425 but a state of mind. You can’t pretend to be FI if you don’t have the money but you also need to liberate yourself from Dependence on everything that needing to work brings.
So the original brief of just earn, save, invest, retire is not so straightforward. There’s more than one route to FI and it’s not a race with anyone but yourself. But FI is the easy part. You just need to consistently save money because saving money means you have money in the bank and if you don’t spend everything you can then you build up a resistance to spending – it’s a good habit. Reducing spending is a better way to FI than just about anything else.
But, Early Retirement is a totally different kettle of fish. This is where you need to say that the life you’ve lived for the last 20 years maybe was all to prepare you for something completely different. Like Rocky training hard and chasing that chicken and climbing that mountain all so that he can turn his full attention to playing chess full time.
It’s that shift from what is normal and comfortable and easy to something that is out of your comfort zone. If your savings rate is 50% and you FIRE then your savings rate looks like this in Excel. #DIV/0! – how comfortable are you with that?
That’s why I don’t pay too much attention to FIREes who are earlier on their path to FIRE. It’s easy to get caught up in the idea of FIRE – it’s a bit like a cult or religion and if you are young and don’t have the baggage of life then you can live on pennies a month and save a lot – if you are still as enthusiastic in 10 years time then I’ll start reading again.
So that’s it from me. I’m moving towards either an extended career break, Stay at Home Dad, Early Retirment or Career Suicide. The future is up to me.