This episode/article is part 1 of the Financial Independence Series on the Millennial Life Podcast.
What is financial independence? Is financial independence right for you and how do you go about pursuing it?
That’s what we are going to be talking about today!
In this kickoff episode/article to this series, we are going to be talking about why financial independence is something that you should consider as a part of your career and financial plan…even if you don’t ever fully achieve it. I will be discussing more parts of the Financial Independence journey including how to calculate your FI number, and how abouts going to achieving it.
Financial independence is when you have created enough streams of passive income that allow you to no longer rely on working for your income.
Sounds enticing right?
Well, there are pros and cons to FI. The pros are obvious and great, the cons really come with the journey of pursuing FI and the time, energy, and sacrifices involved.
So is FI right for you? Here’s everything you need to know before pursuing your Financial Independence journey.
1. Understanding The Difference Between Financial Independence and FIRE
In the personal finance community, there is a group of people who actively pursue FIRE which stands for Financial Independence Retire Early.
As a disclaimer before we start, I do not actively pursue FIRE for many reasons. I don’t have anything against anyone who chooses this lifestyle I wrote a whole article about it but ultimately it leads to a key few reasons:
I love my job and don’t really have no plans on stopping anytime soon. I can’t wait to get 5-10 more experience in my field to be able to work on different projects.
I believe in living a balanced lifestyle. I travelled a lot when I was young, and it cost money (I fully paid for it by myself). And I’m so glad I did; I don’t believe in saving all of your life experiences for later or spending all of your money trying to experience it now, there’s a balance in-between.
I also truly believe that no one can predict what happens in the world. You may be saving everything for the early retirement but the truth is you may not make it to retirement (morbid, sorry)
However, Financial Independence is the component of FIRE that has always intrigued me. I have no interest in retiring early so I can sit on a beach in Bali, I think I would be bored to tears after 3 days (not to mention 30 years). But I think Financial Independence, the pursuit of passive income that can actually fulfill your expenses, is a great journey, even if you don’t achieve it. Here’s how to get started:
2. Know Your Why
Before you start your journey on to Financial Independence, you have to really understand why you are doing it.
Financial Independence requires a lot of work and time, it’s not something that can be easily accomplished in 1-2 years (unless you win the lottery or choose to live in a box on the brink of survival). It’s something that takes hard work and time and if you do not pursue Financial Independence for the right reasons, you may
Reasons to not pursue Financial Independence
You hate your job.
Contrary to popular opinion, I don’t think people should pursue FI if they hate their jobs or careers. A lot of people try to pursue FI or FIRE to be able to have the freedom to pursue the career they love. I’m so passionate about career coaching and planning and truly believe that if you hate your job, it’s easier to just switch careers and not be miserable trying to work a job you hate to pursue FI.
You dislike your life or situation.
Financial Independence is not the answer to hating our life situation or circumstances; they are probably deeper reasons that financial independence will not solve. I read a fantastic article from a woman who gave up pursuing FI because she realized she was trying to find a way to fun away from her problems. Money doesn’t solve everything, sometimes those problems are still there.
You are looking for a quick-fix solution to your money problems.
Achieving FI is difficult and it takes a lot of work. It’s not a “get-rich-quick” way to get out of work. And anyone who tells you that is is probably trying to convince you to buy a stock to inflate the price (*ahem crypto*), invest a lot in their course that will “guarantee success” or join their pyramid scheme that is not so lightly disguised as “network marketing.”
Like most of life, if it sounds too good to be true, it probably is. Achieving FI legitimately and with integrity, takes work.
Reasons to pursue Financial Independence:
You want more security.
The great thing about FI is the security it can bring. As COVID has shown us, the world can change very quickly and jobs that were once very secure can now be very volatile. And even during times of non-COVID, many millennials have short term contracts instead of permanent positions and FI can help with the security.
You would like to have more time.
For whatever reason – to travel, to spend more time with your family, to volunteer, pursuing FI is great because it is in pursuit of a commodity that no one can ever buy – time.
You are willing to make the required sacrifices.
Achieving FI takes a lot of short and long term sacrifices (which we will be talking more about later) and you have to be making sacrifices for FI.
My why when it comes to FI is because I want to have the freedom of choice to either spend more time with my family or do development work abroad. A few weeks ago, my brother asked my sister and me what would do if we won the lottery (it was very high in my province)? And I, without hesitation, said I would use it to invest so that I can travel and work on development projects abroad. I’m not a fan of voluntourism (which I’ve discussed before), but I have previously worked in microfinance and I’m really passionate about helping people create viable economic and also regarding democracy.
So if you’re not sure about your why, think about what you would do if all your current expenses were covered (not that you had extra income), what would you do with your time?
Developing a strong why is so important, because pursuing FI takes a lot of time, energy, and sacrifices and will test it. So if you’re not pursuing it for the right reasons, you’re more likely to stop.
3. Assess Your Future Goals
And the last thing you need to do when looking at beginning your FI journey is to assess your future goals. Like I mentioned at the beginning of this article, FI takes a lot of time and hard work. It’s not something that can be easily achieved with the snap of your fingers and within that time frame, your life could change – whether you expect it or not.
For me, one of the things I’m super conscious about is that I will probably never fully achieve financial independence because I might want to have a family one day. And that’s something my partner and I discuss and I don’t want to say it’s set in stone because I know there are many people who want children and have infertility issues so that plan might change – who knows?
But because it’s a part of my goals in the next few years, I probably won’t ever fully achieve FI because children are expensive. And although my family grew up very poor, we moved into the middle-class range when I was a teenager and I got do a variety of things – one of them is doing a lot of music classes. I was in band, choir and took piano lessons and if that is something my future children are interested in, I wouldn’t want to not spend money on it because we are trying to reach FI. The same goes for the education funds, sports, or whatever they are interested in.
Now it’s not impossible to achieve FI with children, but there are also people that no longer pursue it because of kids and there are some that do.
This is obviously a super personal decision, but even if having a family is not in your future goals, you may have other goals:
- To travel more when you’re young (as COVID has shown us, this is not something to take for granted).
- To go back to school
- To start your own business
- To live and work in a different country and pursue your career.
And the list goes on and on.
This is why I am not actively pursuing FI, because like I mentioned at the beginning, while I really value the security and time, I’m not willing to make the sacrifices.
Why I’m Pursuing Financial Independence Even If I Don’t Plan On Fully Achieving It
So why is this something I’m talking about, even though I don’t think I will fully achieve FI? Because I think it’s worth going for and that goes back to my why. Even if I don’t fully achieve FI, I think the pursuit of it is worth it.
My plan is to try to achieve a level of FI, but continue working so that I’m able to better support myself, partner and family in the future in case one of us doesn’t end up working for one reason or another. Maybe one day I will want to be a stay at home mom? Or if my partner and I can reach a level of FI that can sustain our family, I could dedicate more time to volunteer and development work – especially in the causes I’m super passionate about.
That’s my why and that’s why I’m pursuing it. I also think it’s quite fun and I enjoy a challenge. Learning about investing has not been easy and it’s come with a lot of ups and downs. I’m also currently creating course material for my clients and while it’s challenging, I love doing it.
So even if you don’t ever achieve FI, I think the pursuit and the lessons that come with it are worth it. That’s why I’m so adamant about choosing an FI strategy you actually enjoy because it takes a lot of work.