There’s a lot of talk within the FIRE community that says that in general work is bad and how life would be so much better. But I think that that’s not the whole story. There’s something to be said about earning money through work.

Save, Invest, Retire

The 3 pillars of financial independence we “save hard, invest wisely, retire early” but that is definitely not the whole story. To save hard you need to first spend less than you earn and that means you need to earn money in the first place.

Having a savings rate of 40% when you earn £100,000 a year is a lot better than having a 50% rate when you are earning £50,000 a year. The orthodox view is that it’s the % and not the £ that matters because if you play your cards right and need £25,000 a year to live in you’ll only need £625,000 to retire vs. £2,500,000 on £100,000 a year.

Lifestyle Creep

The problem that I have with this view is that lifestyle inflation or creep isn’t permanent. Most people will spend less in retirement and those who have early retired show this.

At least I don’t think it is. I also believe that our cost of living is in some ways based on our status anxiety (see this great article for a better perspective) but our costs are in some ways structural.

Need to have two cars for family life? That means a min of £5k a year to run them.
Want Gas and electicity, council tax, insurance, internet at home?? Another £3k a year.
Want an annual ski holiday? That’ll be £2k easy

I see these as layers and slices of monthly spending. Building up the costs like an unstoppable bar chart which shows where your money goes. Some of these areas you can avoid – nobody is forcing anyone to go skiing. But I don’t think that lifestyle creep is permanent – and certainly the things I spend money on now are not what I spent money on 10 years ago. I’ve even shown that with kids, I’ve saved money.

Even when it comes to spending money on something that we need – shelter is a basic necessity. Spending less can be penny wise and pound foolish. And we’ve seen this with house prices, where being frugal can be counterproductive to try to save money. You might think that buying a cheap house in a cheap area could be a key to financial fortunes – your mortgage will be low and you’ll be fine – but it might be low for a reason, most probably poor local employment prospects is a factor. Anyone who bought a property in London (ever maybe) has been hit by both higher mortgage costs but massive HPI gains as well as having access to better employment prospects.

Unfortunately, the meek shall not inherit the earth but can rent it from their BTL landlord property owners.

Better way to FI

A better way towards financial independence is to earn lots, save hard, invest wisely, quit the rate race and retire early. If the cost of work is an extra £20,000 a year and you can get an extra £50,000 from doing it – do it. Those costs can fall away once you move out of work or downshift to something else. But where can you find that extra income?

One very good way to earn money is to work for it. Making money by speculating on the price of gold, bitcoin or FCOJ is a good way to lose money. You can always trying working more – taking overtime, weekend shifts or running a side-hustle.

Making money through inheritances of either rich elderly relatives is a great idea but it’s a lottery. Starting a business if you are creative and entrepreneurial is great or a franchise if you are evil are options too. But it’s all a lot of hard work. Gambling itself is a bit of a lottery and a good way to lose money – each-way better is one way to get money but you can’t really get rich from it. You could start a lifestyle business – but they don’t tend to be great money makers and in the case of one friend of mine, his spouse’s “business” eats up about £10,000 a year and has never made a profit.

And if you could scale up your money making ideas to make more and more then it would be a business. But making £20 sniping at each way bets is a profitable hobby and not something you could retire on (you’d just be swapping one job for another which may disappear as better players enter the market with autobots which will decimate you!

Imagine you had a great investment that guarantees to double your money every year. What would the cash-flow for that look like? It would be terrible. You’d want to invest in it – all your money, borrow money, steal money – feed it into the investment. Any returns would be fed back in to keep your money growing. You’d be rich (on paper at least) but you can’t eat paper profits.

Back on topic, the Importance of Being Earning.

If you want to amass a fortune you can always do so by working for someone else. If you paid attention at school, you might have gone into STEM subjects and got yourself a nice job in computing, engineering, medicine, finance or whatnot. It’s not the only way by the way but it’s one for the masses that’s for sure.

You might need to take risks, move away, work hard, learn new things, invest in yourself and become single-minded. But the result is that should not only get paid for the work you do but also make yourself more valuable due to your knowledge. I spent 10 years at one company and besides saving a lot of what I earned, I have a lot of employ-ability – something that sells to future employers (warranted or not – I can’t say). I’ve spent 4 years at a new company that has given me more knowledge and access to people in the industry which could be very useful in future job hops.

All this time, I’ve been rewarded for my own learning, development and networking by being paid for it. Fantastic. What it doesn’t make all that easy is quitting. Once you quit and stop working you can be at risk of losing it all. Your skills get old, tools get blunt, contacts move on and younger more eager kids take your place. That’s why you need to invest your spare money in something that will pay you when you aren’t paid yourself.

I asked in work recently to go 3-days a week. The result was a no so emphatic that I decided to leave the company. Luckily I managed to find a new job – it is back to what I do best and it pays a lot more plus it’s contact. Perhaps the future for me is along the lines of notables who have winters of work and summers of pleasure? Work is not all that bad – but only when you have the choice and make it. Money should enable you to have the freedom to choose (and the right to say no) but the best way to get there is through £s and not %s.

Thanks, GFF

Published by GentlemansFamilyFinances

Happy family man, trying to navigate the family finances towards early retirement against the odds.

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