Today’s guest post comes to us from Jason at Winning Personal Finance. Jason has an admirable goal of helping every reader of his blog to make optimized decisions, so they can live the life they dream of. He believes that the financial independence journey isn’t just about maximizing earnings, frugality or investing. Rather, it’s about defining a goal, setting a plan, executing and winning! Take it away, Jason!
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Imagine with me for a second. You’re retired. You’re in a fancy resort in the Caribbean. You’re sitting on a beautiful sandy beach. It’s sunny with a nice cool breeze. You have a drink in your hand and an easy reading fiction book in your lap. No stress in the world. The wait staff keeps bringing drinks and food at your beck and call.
Most people would say that this sounds wonderful. I would, too… For a few weeks or a month tops, maybe?
After that, I’d get bored and want to do way more with my time. Maybe I’d get sick of the beach food and want to cook my own. Maybe I’d get bored of reading cheesy novels and yearn for something intellectually stimulating. At some point, I’d have to hit the gym to fight my body turning into Jell-O.
And obviously, an early retirement predicated on my current annual spending, wouldn’t last very long living it up at Sandals. So there’s that “practicality thing” to consider.
What’s Missing From a Life Described Above?
Quite simply: A sense of accomplishment. The joy of feeling productive. Satisfaction from helping others.
That’s why I’m chasing financial independence, and setting aside early retirement from the equation.
I Want More Money
My target to reach financial independence (a friendlier term for “F*ck You Money”) is based on my current standard of living. My life, from a Maslow perspective, is a life of luxury. For example:
- We keep our house at a comfortable temperature.
- We have powerful computers connected to limitless information in our pockets.
- We eat whatever we want (within reasonable limits!)
- We use a car and fly to wherever we choose.
And because of this lifestyle of modest wealth, I don’t want to retire and find ourselves short of cash! Some will argue that they have everything they need. They can’t fathom spending more money on frivolous crap and indulgent experiences.
That’s not me. It’s certainly not my wife. We can imagine spending more easily.
The marginal utility of money, boiled down, means that each additional dollar you earn past a certain amount yields less satisfaction. I.e., Offer $10,000 to someone who has nothing, and the person would be euphoric (and forever grateful!) Offer that same $10,000 to a billionaire and they would be appreciative, but nowhere near euphoric.
My wife and I fall somewhere in the middle of that example. Our financial independence target is based on a comfortable life. It’s not based on a perfect life.
There is plenty that I’d like to spend money on that I choose not to today. For example, I’ve always wanted to go heli-skiing in Alaska. From a financial perspective, the cost of that trip would be insane. On the other hand, if I was financially independent and earning good money, maybe I’d be able to book that dream trip guilt-free.
Cubert says: “Heli NO!”
One thing I know: when I’m financially independent, I won’t use my waking hours for the sole purpose of making money. I’ll never do work that doesn’t give me satisfaction again. Still, doing work that I like, while earning some extra money for fun stuff wouldn’t be a bad thing
Help People, Solve Problems and Accomplish Stuff
When I graduated from college, I wanted to help people manage their finances. I applied to every job I could find with the title of “financial advisor” or similar. I interviewed with a bunch of companies and made it to the “final round” interviews.
That’s when they asked me to write a list of people to whom I could sell “financial products.” Thinking back on it now, I’m pretty sure the products they were selling were whole life insurance policies and annuities.
I’d have no problem selling the right product to the right person. I just didn’t feel like that’s what was happening even though my title was “Financial Advisor.” It honestly felt a little scammy. So, I took my career in a different direction: a new focus on faceless corporations!
This decision was great for my career. I’ve done well and moved up in the ranks. Still, my job doesn’t give me the satisfaction I need. I’m even more removed from my original plan of helping advise people on their finances.
Not giving up by a long shot though. I fully intend to dole out advice to others on how they can reach Financial Independence. In preparations, I’m working to become a (drumroll…..) CFP (Certified Financial Planner!)
In this financial independence retire early blog debate, we all WIN.
I know that many in the FIRE community are not fans of financial advisors. I’m a DIY guy myself, so I understand the apprehension.
On the other hand, I believe that almost everybody can benefit from having a 2nd set of eyes. I also think some just don’t care to do it on their own and want help.
I’d like to set up a business model where my incentives are purely in line with my client’s interests. If this results in me making less money than most advisors, that would be OK because it would be extra money anyway at this point in my journey.
A Bone to Pick with the FIRE Movement
Truthfully, I think 90+% of the FIRE bloggers out there are focused on FI not FIRE. Blogging for income is work, even if you enjoy it. If you are writing for, marketing, maintaining and monetizing your blog, you are self-employed.
According to Wikipedia, “retirement is the point where a person stops employment completely.”
I hate to break it to you but if you are employed, self or otherwise, you are not retired. I’m confident that almost everybody who has put systems in place to reach FI at a young age is too ambitious to retire. Think about billionaires like Mark Zuckerberg, Richard Branson or even Donald Trump.
All of them are FI. None of them have to work. Yet, they all do because they want to. This is similar to a FIRE blogger who may quit his or her 9-5 job but keeps blogging and earning an income from it.
Early Retirement Includes Some Work
In my dream world. I’d be FI and not have to work. But I’d still spend about 20 hours a week doing “work” that I enjoyed. I’d want it to be somewhat challenging. I’d want to have a sense of accomplishment when I do well. I’d want it to help people and improve their lives.
The rest of my time will be spent with friends and family. I’d ski, hike, cycle, and run. I’d play board games and poker. Learning would be front and center. All of these leisure activities would be more enjoyable if complemented with purposeful work.
What would I do with the “extra money” I earn? While I’d be fine living on my current spending, having a little extra wouldn’t be upsetting.
It would be nice to pay somebody to clean our house instead of doing it ourselves. I get no joy in cleaning toilets. It would be nice to go out for a nice meal without thinking of a budget. Oh, and the beach scene at the luxury resort I described in the first paragraph? Earning extra money means I’d be able to afford a vacation like that once in a while.
When I’m FI, I’m going to do whatever I can to live as close to the dream outlined above. My 2018 goals, including the savings and education targets, were designed as steps towards that dream. Still, my path to FI is not a race. Nor is it about making sacrifices.
I don’t want to retire early. I’m trying to live a great life now and end up with the freedom later to live my dream life!
Editor’s Note: I respect and appreciate where Jason is coming from here. Many of us still want to enjoy the “extras” that life has to offer, while helping others, and calling our shots. Financial Independence is a powerful concept that enables us to retire early from employment-at-will arrangements, so we can pursue meaningful work.
For anyone with this misconception, know that very few among us ever truly “retires”, if you believe that “retirement” is the complete absence of “work.” Tell Grandma she’s retired when she’s busting her butt taking care of grandkids to help working parents. Tell Grandpa he’s retired, when he’s off volunteering at Habitat for Humanity. Grandpa – get that tool bag and let’s go!
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Thanks for allowing me to post Cubert. I love your interjections and additions.
I’m all signed up for FinCon. With two kids and a budget I needed to pick just one event this year. Will I see you there?
Oh, and the goal for my coaching business model is intended to be a bit more strict than the fiduciary rule. I’m looking to set up a system where clients pay for advice only. No commissions. No assets under management fee. No BS. If you think about it, for many people paying a small fee for a second opinion on tax optimization, asset allocation, draw down strategy or even budgeting could be much less expensive in the long run than making a mistake.
I actually enjoyed my job a lot so I only slightly early retired and was well past FI. But I set up consulting side gigs immediately that take about 16(not 20) hours a week and that keep my withdrawal rates at zero. I blog but just for fun and never plan to monetize it. My career was great fun but the last three years since I retired are at least 2x as good. Even though I work some, it is fun stuff and I consider my state of being as retired! Although I don’t know how to mansplain my situation to anyone.
You spend your time doing what you want. You have enough money for everything you need plus some extra. Just say you are #Winning.
You know you’re my idol right?
Thx, It is a good place to be, I might should have retired a lot earlier when I first became FI. Trouble with life is you can’t do anything both ways and you never really know how plan B would have gone!
Jason, I’ve got a finance degree and have often thought about the CFP career path as well. The only world in which I could see that making sense for me is one that was fee-based only. There’s a wide world of people out there who are not DIY with their finances and could benefit greatly from spending a few hundred $ on financial advice. Good luck to you!
I agree 100%. I’d only consider fee-only planning.
Jason, I’m kind of in the same boat. It might be because we live in a very high-cost-of-living area, but early retirement would be a stretch. And there are plenty of things, experiences, and services that I could imagine spending money on, especially experiences for and with the kids.
But I’ve wondered whether it would be more psychologically motivating to set an early retirement date, like other bloggers do. No one’s saying I have to hand in my resignation on that date, and I think I do better with a clear goal in mind.
I’m also in a high-cost area. Looks like we are on opposite coasts though.
Oh and I do have a date. It’s about 10 years from now. It’s just a FI date and not a FIRE date. If things work out as I hope, I’ll change from a cube to more “meaningful work” long before I hit FI.
Jason – I’m FI and I agree with you. To me,
FI = Freedom to do whatever you want
Cubert – I injected comments gave me a good chuckle. Thanks for that.
At FI, do you currently work in the profession that got you there?
Agree that the comments were great.
Hey Cubert – Can you offer the free 7-day class on writing with humor?
Jason – I don’t work at the same profession anymore. I got tired of it so I used my FI Freedom to stop working.
Nice post Jason. Similar to your thoughts, I am a fan of FIRO. Financial independence retirement optional. Tom
Thanks Tom. I don’t see myself using the option to stay long after FI at my current job. Just like Cubert, I’d love to abandon the cube. On the other hand, I can’t see myself not actively making money for a long long time.
Having started my own engineering consulting firm 30 years ago, I’ve been FI for at least the last 20. Now winding down, but still dabbling and only doing what I want to do. As my old college roommate, a retired attorney who still dabbles in law says, “If you don’t do something, your mind will soon go to seed.” But we both have other things we enjoy too.
I offer Jason encouragement of becoming a CFP. I have worked with one for years. His fee is based on a per cent of my portfolio, which eliminates any conflicts of interest. He lives and breathes finances, while I live and breath engineering. Thanks to expertise, he has made me more money that I might on my own — and with a lot less stress for me. I consider him a valued advisor — just like my doctor and my attorney.
The motto my late business partner and I had for our firm was, “Do some good — have some fun — make some money.” Pretty much in that order. It served us well. Best wishes to all.
Thanks for sharing Daryl. It sounds like you’re doing some winning yourself.
I’m really glad to hear you have such a good relationship with your advisor. When everything is working properly, you should see your advisor as a team member just like a doctor or attorney. I keep using the example of a “financial doctor” when I explain to my friends and family what I’m trying to do.
I do have some hesitations with the AUM (charging a percentage of assets managed) business model.
1) It’s possible that the “best” advice for you (the client) could cost the advisor money. For example, if it makes financial sense for you to sell investments and pay off your mortgage, doing so would take money right out of the advisor’s management fees. Similarly, an advisor in this model is incentivized to talk you out of a big purchase (second home, boat etc.) just to keep assets invested, even if you could afford it .
2) Fees can get out of hand. A fee of 1% on $100K may be great value for the advice and service received. That same 1% on $10M, well that advisor better be doing something special for that money. While, there’s probably some additional work involved in managing more money, I don’t think a client should pay double just because their assets doubled if their advisor is putting in a similar amount of time.
I have not solved this business model conundrum yet. I’m leaning towards a retainer or hourly rate model where I’d charge clients for advice. I don’t think I want to get into the business of asset management at all. This is not really a formula for me to make huge money but that would not be the goal anyway. I’d like to set up a business in a way that clients know exactly what they are paying for and know they are getting incredible value from it.
Hi Jason,
Let me share some perspectives as a financial advisor client. Not to be critical, but you may be overthinking the problem.
RE #1 – Never been a problem. Yes, putting my interests first has cost my FA a little bit. But that “little bit” has been way more than offset by new clients I have referred his way.
BTW, if you are not dealing with a FA who ALWAYS acts in your best interest, find a new advisor.
RE #2 – My FA works on a sliding scale. Fixed rate for the first million, the it drops in steps as the AUM increases. While twice as much does not take twice the time, the time does not remain constant.
RE Hourly Rates – As a client, I do not like hourly rates but prefer project rates. For example, if I am having a kitchen remodeled, I don’t care what the hourly rate is — I want an estimate for the job. I don’t want to be nickeled and dimed.
RE Retainers – As a client, I prefer the AUM model to retainers. With AUM, the FA shares the winnings, but also the losses. A good incentive to stay on top of the portfolio.
Bottom line — think like a partner to your client, but always put their best interests ahead of yours. Do so, and as your reputation spreads, you can be very successful. Nothing wrong with making good money as long as you do so with integrity.
Thanks for your perspective Daryl. I agree with your points about finding an advisor that always puts your interests first. I’m also very glad to hear that you’ve found one.
As a client, I’d never want my advisor to have a potential conflict of interest with me. I’d prefer a fee structure that prevents one.
With AUM the FA makes more when you have more. The key drivers to that will be your savings/withdrawal rate, asset allocation (risk tolerance) and market performance. Uness your advisor is investing in a way that’s very contrarian, his performance will not impact the fees he collects nearly as much as these other factors. If you have $1M invested and it loses 50% you just lost $500K and your advisor will still make $5K with a 1% AUM fee.
FI is all about options. It gives me the chance to concentrate on things that matter the most to me. I am not sure if I would retire early … I might change to a less strenuous job. I might just bored sitting at home.
Yes sir. It’s all about the options.
Nice, Jason. FI puts one in a super position to be a blessing. Imagine an FI doctor who could work 20 hours a week tending to the sick and charging Mexico-like fees for his or her services? Or how about an FI car salesperson who works 20 hours a week at a dealership steering customers to cars that are appropriate for their financial situations, not cars they can “afford”? The world can only get better as more people achieve FI. Cheers, my friend.
Love this! Please let me know when you find one of those altruistic FI car dealers.
An altruistic FI car dealer would be so freaking fantastic.
You know my take on this. My life didn’t change at all when we became financial independent. It got tremendously better once I early retired from my engineering career.
Yes, I’m blogging, but that’s okay. I’m with Cubert. Nobody is ever really retired if you look at it that way, unless you’re bedridden. That’s no fun.
I’m not there yet so everything I say is speculation on how I think I’ll feel at FI. I obviously can’t argue with how you feel about your own life, nor do I want to.
My dad’s been retired for years. He’s still active. He plays tennis. He plays chess etc.. When he retired, he just stopped earning an income and used his time in other ways. He’s far from bedridden and is probably in better shape than I am.
My wife is not “working” right now. She’s staying home and taking care of our kids and managing the house. Doing so is rewarding and exhausting. If I called her “retired” I’m pretty sure she’d slap me. Truthfully, her “workday” is much harder than mine is today.
I think blogging could be a “hobby” or “self-employment” depending on how you approach it. I believe some treat it like a business while others really just do it for fun.
Would you put the time and effort into RB40 that you do today if it cost you $1K a year instead of making money? If so, then it’s clearly fun and not work for you.
Agreed!
IMO it is *much* more important to focus on financial well-being, financial independence, than early retirement. For one thing, financial independence can make a retirement possible but early retirement does not guarantee financial independence,
And I think we as a country, as a culture, are too focused on “saving for retirement.” We should be focused on “building wealth”… Building wealth leads to financial independence, which can lead to whatever retirement you want. Start in the right place.
Interesting point that early retirement does not guarantee FI.
I’m with you on building wealth over savings for retirement.
I look at it just a little differently. I want to maximize long-term happiness. In many ways, building wealth and having options in the future is the best way for me to do so. Sometimes spending on myself today is the best option I have.
Is it worth living to spend your 30-35 years of the adult life in struggling for a better retirement?
First of all, yes it’s worth living.
I think the key is finding balance. I’m not trying to make extreme sacrifices and suffer today to become FI. I make decisions that maximize my overall happiness including both my life today and my life at retirement.
I really enjoyed this post! I too, am all about FI and less about RE (even though my blog name may say otherwise. Ha). We don’t even do the traditional “retirement life” during our short vacations now because we get too antsy, so that kind of never-work-again ideal has zero draw for me. Not ever being stuck doing something I hate? Now that’s something else entirely.
Love it. Being FI prevents you from doing work you hate. That’s why FI is so important. Retiring early, no matter how you define it is optional.
This is a great perspective on the difference between FI and RE. We are mostly concerned about FI, but are ready to RE from our current jobs. We are excited about the prospect of choosing something we love to do and potentially make a little money from it, but we will be glad when we don’t NEED it to make money for us to live.
Me too Jess. Nice to know I’m not the only one. I’ve been wondering if I’d enjoy my current 9-5 more once I’m FI. Knowing you don’t need the job could bring down the stress levels significantly.