I got to visit Vicki Robin for a couple of days and talk about taking the RE out of FIRE. Her message was that FIRE people should stop talking about early retirement. Early retirement simply isn’t attractive to people with the motivation and ability to reach financial independence early. It’s freedom to do what you want, with integrity, without regard to needing to make money.
One of the big takeaways in FF1 is “It’s just math.” It’s something I repeat multiple times to people. Personal finance is just math. And not very hard math. You just need two numbers, your income and your expenses, and from that you can figure out when you hit financial independence.
But I’m wondering if it’s really not about the math at all. It’s really about the principles you live by.
At the age of 44, I feel better and more optimistic than I have in years, and it all started with personal finance.
A year ago, the story I told myself was one of false starts, could-have-beens, and unrealized potential.
A lot of people choose not to learn personal finance because it’s feel complicated and exhausting. It’s both anxiety-producing and avoidance-producing.
Here’s three steps to making personal finance sustainable:
One of things we talk about in FF1 is the hedonic treadmill, the idea that no matter what we get, we quickly return to a base level of life satisfaction. We believe that when we get something, we’ll be happy. And it’s true: getting things or experiences we want makes us happy. But only temporarily. Then we need to get something else to make us happy again.
The big news in consumerism capitalism this week is that Instagram is introducing Checkout, a new feature that will allow users to buy products directly within the app.
Our minds can’t wrap around how fast compound interest happens. It’s basically magic, both dark and light. Seth Godin this week shows it in a great post about the $37,000 latte.
The one crazy outlier: someone told me yesterday that she and her husband have saved $64,000 in the 18 months since they took FF1. Holy crap. It was a combination of improved defense and much much more offense.
We believe in the “pursuit of happiness.” It's in our founding document. Read that again: the pursuit of happiness. Doesn't constantly pursuing something sound exhausting? Doesn't constantly reaching for something make us uncentered? If we’re always wanting, are we ever settled? Do we ever catch happiness and possess it?
It occurred to me on my trip that financial freedom fits within prospect-refuge theory. In the course I talk a lot about FIRE (financial independence, retiring early) in terms of freedom, the ability to own every hour of your time. You get to do what you’re passionate about, with the people you care about, in the amount that you want. You get to live your life creatively. But I don’t think I emphasize the security portion of FIRE enough. Since I “crossed over,” I simply worry about money less. Of course I still have a budget. I don’t spend frivolously. But having financial freedom means I simply feel safer in the world.
The miracle of compound interest means that saving $5,000 a year and consistently earning 6% on it (after inflation) creates a $841,000 nest egg after 40 years. Using the 25x rule, that produces $33,000 in yearly retirement income. The key is earning 6% after inflation.
One great idea from the book "Your Money or Your Life" is the concept of "real hourly wage." You probably know your nominal hourly wage, what your employer pays you. The book makes you calculate how much extra time and money it takes for you to make that hourly wage.
Someone in my current cohort of Financial Freedom 1 asked: "Wait, so you are saying that with a life of ascetic virtue I can quickly (somewhat quickly) 'retire' to live a life of… ascetic virtue?"