Happy New Year! If you’re looking for a New Year’s resolution, then make it a goal to find your “Why of FI.” Remember that FI stands for Financial Independence.
One of the first questions I often hear people ask is “how much do I have to save to retire?” That’s like jumping in my car (yes, I own a car in case you’re judging) and asking how long the drive is going to be without having any other details. If I said it’ll take 20 hours, you might just get out of the car and ignore anything else I had to say. That’s what would happen if I said you needed $x hundreds of thousands or $x millions to be FI.
There are many questions that need to be answered before determining the length of the trip. The most important is where you want to go. Then we can talk about the mechanics – how fast is the car, can you buy enough gas to get there, what are the speed limits, where do you want to stop along the way, dangers to avoid, etc.
The same questions apply to FI – where do you want to go? What are your goals? How fast do you want to get there? What is the limit of your income? What are the risks to your finances? Most of these I cannot answer for you and I still sometimes struggle with myself.
What is your why of FI?
Your why is going to make the journey much easier. It will provide purpose and motivation on days when you feel like giving up. There isn’t much purpose to FI if you don’t have a why. It is easy to skip this and go straight into the math, but don’t bother scrolling down…there will be no math today.
The ChooseFI podcast, which does a good job of curating guests and topics from the FIRE community (Financial Independence & Retire Early). They have a great episode about the Why of FI. Just a note that this episode does reference the retiring early (“RE”) part. I try not to focus on the “RE” part of FIRE, you are free to work as much or as little as you want after you reach FI. Whether or not you retire early, the reasons are very similar.
Some common whys:
- Pursue your hobbies
- Making art, furniture, etc.
- Reading / Writing
- Hiking / Jogging / Swimming / Golfing
- Camping / RVing
- Spend time raising your children or grandchildren
- Taking care of ageing parents
- Start a business you’ve dreamed about
- Change careers
- Live somewhere else
- Keep healthy (avoid workplace emotional or physical stress)
- Mitigate job loss risk (ageism and technological obsolesce)
Notice that some of those still involves working and/or making money? Just because you’re FI doesn’t mean you’re forever barred from making money. The point is you don’t have to make money. You can if you want to, but you don’t need to.
I’m still working on my “why” but I like the idea of spending more time talking to people about finances and working on people’s financial plans (whether or not they can afford to pay me). Also, moving to a smaller community and getting involved is also an intriguing idea. I’ll likely still stay engaged in my current career, but may scale that back a bit to make room for other things.
At this point, you might not have any idea. You might be like an eight year-old wanting to be an astronaut when they grow up. What makes sense, what is realistic? Liz over at Frugalwoods had a great post about how to figure out what to do with your life. This would be a great first step towards figuring out your why of FI.
Even the idea of early retirement may strike a chord with you. However, you have to think about why that is. Is it because you loathe your job and can’t wait until you flip off your boss, sleep in and Netflix all day? That thrill will only last a few months until you start to get bored. There has to be some overarching plan of what you’ll do with the extra 10+ hours per day.
Many of your goals will likely come down to happiness. The Happy Philosopher talks about this in the context of alligators and kittens. That is, alligators make you unhappy, kittens make you happy.
Assuming you have both alligators and kittens in your house, you have two options:
- Remove the alligators
- Add more kittens
Suppose it to say, that if there are any alligators in your house, adding more kittens will not make you much happier. You need to remove the alligators first. Then, you will get much more happiness from your existing and future kittens.
Frederick Herzberg, is an American psychologist best known for his motivator-hygiene theory. This theory has been in business school textbooks for decades. The idea is that there are both satisfiers (kittens) and dissatisfiers (alligators) in your life (or job), which act independently. For example, if you remove an alligator, you will not automatically become happy. However, having an alligator in the house can prevent you from being happy, even if you have lots of kittens.
Say you have a horrible boss, so much so that you think, “if only my boss wasn’t such an asshat, then I would be happy.” If you did get a good boss, you’re not automatically going to be happy. You still need satisfiers/kittens to be happy (such as interesting work, engaging colleagues, proper compensation/recognition, etc.). However, having that asshat boss can certainly prevent you from being happy.
Another, even more common business theory is Abraham Maslow’s hierarchy of needs, which is depicted by the following pyramid. This is equally important in your personal life.
The goal is to reach the top of the pyramid. Self-actualization or “achieving one’s potential” is the definition of success and happiness. However, you cannot achieve that if you don’t already have the building blocks below it.
For example, it would be hard to achieve a feeling of safety if your physiological needs (food, water, shelter) are not met. It would be hard to feel loved or have a sense of belonging if you fear for your physical or financial safety.
Money can help you reach the top of the pyramid, but truthfully, its biggest contribution is to the first two layers, physiological and safety. You’ll need to look elsewhere to get to the top.
Take the time to assess your life and determine what building blocks you need, or what dissatisfiers/alligators you need to get rid of. Only then, can you move towards happiness.
If you can figure out what makes you happy, then you’ve probably figured out your “why of FI.”
The goal of FI is to be happy. Money cannot make you happy by itself, but it is a tool to let you pursue the things that will make you happy. Only you can decide what those things to pursue are. I can’t tell you how much money you need to be FI until you can describe to me the life you want to live after you’ve reached it.