Over the past few years I have been an avid consumer of a variety of personal finance blogs, retirement calculators, and stories about obtaining financial security. I subscribe to several blogs, recommend several on my own blogroll (although I need to update this a bit), watch YouTube videos, and listen to a daily podcast on personal finance.
I have certainly learned a lot and my attitudes about finances have certainly evolved. You can see that evolution in a variety of the blog posts I have put out (e.g. I have become an avid index fund investor). I have also become convinced, nay obsessed (maybe that is too strong of a word), with becoming financially independent. I have declared my FI number. At the same time I am not sure that I will do the RE part of FIRE (retire early).
I mention all these things as a prelude to today’s post. Even though I have offered all of these tips, talked about my own anxieties with money, our debt progress, and tried to help others, one of the things I haven’t really discussed or proffered to others to discuss and that is the WHY of FI? In other words, why am I doing this? Why would people become financially independent? What is the point?
I mean you might have heard various stories where people who retired died the next day. That is certainly not the norm, but there are stories out there.
If you ever click on one of these stories about a person who “retired” in their 40s or at least became financially independent there are all kinds of trolls who argue it can’t be done or they must have inherited money or I can’t do that or whatever the idea is.
I think I have mentioned why I want to become FI, but at the same time if you are considering FIRE there are a series of questions that you probably should answer before, during, and after while you pursue FIRE (if that is your goal).
The Questions of FIRE
I know that there are other blog posts out there on this subject but I thought I would offer my own thoughts/questions on the subject.
If your goal is to pursue financial independence, particularly at a younger age (and any age below 65 is considered to be young nowadays). The first question you probably should ask is why?
Why FI?
Why do you want to pursue financial independence? Is it because you hate your job? Is it because you want to live on a boat? Travel more? Spend more time with your kids? I mean all of these questions can certainly be answered for retirement? But if you want to pursue FI and particularly the RE part of it then you should ask yourself why?
I am pursuing FI because of the choices it gives me. If I am FI I don’t necessarily have to work at a particular place, teach extra courses, do extra duties, etc? It can bring a bit of piece for your life, at least for me. You have might have different reasons. What is your true reason for why you want to do FI?
What is your FIRE number?
I think this could be broken up into a couple of things. Of course, financial independence, in terms of the number, typically means different things to different people. Conventionally, it means 25x your expenses. When you have saved that amount of money then you are at FI or a full FI? For different people there are different stages. For example, maybe you are ok with having enough money to pay your expenses and you are done working. What if it is more than that. Only you can decide that, but you need to decide what that number is?
What Would You Do in FIRE?
Another important question to ask, beyond the numbers, is what are your expectations of FIRE? What do you plan on doing? You can certainly have the overall WHY of FI, but that doesn’t necessarily fill your day? What do you think you will do? Will you pack up all your stuff and live in an RV? Travel the world? Start a new business? Just sleep and watch TV?
Generally, work is not necessarily a bad thing. Just because you are FI doesn’t mean you stop working. Maybe that working is now starting your own business or a blog or something you are passionate about.
Some people might say you aren’t “retired” but I have argued we need to change our definitions anyway.
How Will You Get There?
If you have a why of FI, a specific number, and what you would want to do then you have to figure out how you are going to get there. How much do you need to save from where you are? How much money do you spend (I strongly suggest you all track your spending no matter what). How much money do you currently save? Are you on track to meet your goals? How much money do you need to save to get to your overall goal?
If you don’t know then it is good to take a financial inventory by gathering all of your information about how much you spend, how much you have, etc. I mean most Americans spend more time planning a vacation than they do sitting down and figuring out where they are financially.
I know lots of people don’t want to do it, but it is too important of a conversation not to have.
If we are taking strictly numbers there are a number of calculators that you can use out there to figure this out. Your numbers don’t have to be perfect, but using a calculator can at least give you a guide post. And of course that can change. I mean this is your financial independence not someone elses.
Technically, I think I could be FI with about $1 Million to cover all of my expenses. Would that give me the lifestyle I want? Probably not, but if I retire to Mexico it probably would.
These are just some basic questions to ask yourself. And they seem pretty obvious, but the truth is a lot of us haven’t asked them. We haven’t done a self-inventory of what we want to do.
In many respects, the numbers are the easy part. It gives you a tangible goal, but asking yourself why you want to do this and what you might want to do in a post-FI world requires a much deeper analysis of yourself. What do you want to leave to your children? Do you want to help others? Do you love what you do? How might you give back, if you want too? All of these things require much more conversation with yourself, friends, partners?
But if you are wanting to pursue FIRE then you should really start to ask the questions.
