Happiness on the Path to Financial Independence

Since the FIRE community was my inspiration to start a blog, I thought I would write about financial independence. FIRE stands for ‘Financial Independence, Retire Early’ and it seems like this movement has gotten a lot more media attention recently. (Or maybe it just feels that way to me because my phone is sending me more articles on this topic!) I first discovered this world in 2015 when a co-worker mentioned the famous Mr. Money Mustache. I gave it a passing glance but I truly love my job and didn’t have any desire to retire early so I barely read any of it.

Over the past few years, I started to come across more blogs that resonated for me in terms of the values of intentional living and not conforming to the ‘standard path’ in life (e.g. get married, have kids, buy a big house in the suburbs, climb the career ladder, etc.)  Madfientist really drew me in because it was interesting to hear interviews with people who had pursued unusual paths in life. I’ve also come to realize how much things can change so even if I love my job today, that doesn’t mean I am guaranteed to love it for the next 20+ years.

I’ve also seen that my values align with many in the FIRE community. I have always been naturally frugal. I’m not sure why: perhaps being the child of immigrants, maybe because I have inherently neurotic tendencies, and probably because I have a strong connection with my future self and want to set myself up well for the future. I have always hated shopping and my natural inclination is to save, or if it’s something really important to me, to look for the best possible deal. I get joy from finding a good deal (e.g. travel rewards on credit cards, etc), and I think I get more happiness from seeing my savings increase than from actually buying things. That said, I certainly have my areas for splurging. Before the pandemic, my major spending areas were travel and a nice gym. (I miss them both! Sigh.)

When I first moved to San Francisco, my top priority was to aggressively pay off student loan debt from business school. It was my first time having debt and it weighed on my mind. So I kept my habits pretty frugal and paid way more than the minimum payments. I ended up paying it off a lot faster than I expected. So then I kept my habits frugal and started saving aggressively. My initial thought was that I was saving to buy a place, but real estate in San Francisco is absurd. I got very lucky with an AWESOME rent-controlled apartment in SF and that makes it a pretty straightforward decision to continue renting and not bother trying to buy. So then I didn’t really know what I was saving for…

When I binged on MadFientist and another great blog called Our Next Life and learned more about the concept of financial independence (FI), it gave me a purpose for my saving. The basic rule of thumb is the 4% rule. There are MANY blog posts about the math behind it, so I won’t go into the details here. But the gist of it is, you take your annual spending and multiply it by 25, and that’s the amount where you can consider yourself financially independent, i.e. you could live off your investments (assuming a portfolio split of 50% in stocks, 50% in bonds). The common examples are, if you spend 40k a year, you need 1 million to retire, or if you spend 100k a year, you need 2.5 million to retire. You get the idea.

There are also a lot of articles and blog posts saying this rule of thumb is outdated. Personally, for me, it does not seem like enough. By this 4% rule, I reached financial independence in July 2019. However, I have no intention of leaving my job anytime soon. Mostly because I love my job and it brings me deep fulfillment, joy, and a sense of connection with my colleagues who feel like family to me. Also because I agree with the analysis I’ve read that the 4% rule is not foolproof enough. And also because current stock valuations feel insanely high. It seems like there’s a reasonable chance that we could have a major market crash given the circumstances. This means sequence of return risk is a big concern, i.e. needing to withdraw from investments during a down market early on and increasing the odds of running out of money.

Another rule of thumb is the 3% rule, or to save 33x your annual spending. This is my target for when I might consider leaving traditional employment, although the most important factor would still be my happiness level at my job and if I had something in mind for my next chapter of life that seemed more compelling. A big consideration for me is the unknown inflation rate of health care costs. Ever since my own health crisis, I am acutely aware of how fragile our health can be, even if we do all the right things. I have factored in the current cost of premiums and out-of-pocket max for the ACA (Covered California). But we have no idea what will happen to the viability and pricing of these plans in the future. Thankfully I was born in Canada so if needed, I can return to my homeland and get health care there. But man it’s cold in Canada 🙂

Does FI increase happiness?

I’ve noticed that my focus on FI has exacerbated my neurotic tendencies so I have been reflecting on whether discovering it has been correlated with more happiness for me. In many ways, I think it has but I’ve also had to do some course-correcting along the way.

FI gave me a purpose for saving and helped me to get back to my values in terms of spending. Before knowing about FI, I was sort of loosening up on what I spent money on and I was being a bit more careless about whether those decisions were bringing me happiness. I noticed that I was caving to others’ cajoling to go to restaurants more than I wanted, and to a friend’s big push to go shopping and revamp my wardrobe. Once I got focused on FI, I would say every decision has been a lot more intentional and therefore felt better to me.

FI also helped me reflect on what is important to me in life. In the US in particular, there’s a common mentality that our job is core to our identity. Before discovering FI, I had a default mindset of wanting to continually be promoted at work, because that just seems like what you are supposed to do. But as I thought about it, I realized I would get more happiness from investing in personal growth and interests outside of work- mindfulness/meditation, yoga/exercise, reading more, traveling more, learning a new language, etc. Climbing the career ladder might bring happiness to some people but I realized it wasn’t the right focus for me. To me, it seems like more stress, less sleep, and less time for healthy habits like exercise and cooking. I now feel a deeper sense of peace with enjoying where I am in my job, and I’m grateful for the space it gives me to get enough sleep and dedicate time to other interests outside of work. 

As I mentioned, there have also been some downsides for me in being so focused on FI. The biggest thing is that I’m already wired to be too future-oriented. One of the reasons I’ve been interested in mindfulness is because I need to practice living in this moment rather than constantly fixating on whether I’ll be ok in the future. I’ve had stretches where I obsessed too much over my FI spreadsheets and was constantly leaning into the future, analyzing what financial milestones I could hit at various points. As I noticed this, I tried to dial it down and scale back how often I was looking at my Personal Capital account. As a side note, I highly recommend Personal Capital as a free personal finance tool if you don’t already have it, this link will get you a $20 Amazon gift card if you decide to join. And in full disclosure, one for me too. 🙂

I also noticed I started to have more anxiety associated with spending. Before discovering FI, I did not actively track my spending or savings rate. Once I got into my spreadsheet zone, I had targets for myself and would get anxious when I spent more than usual. This was not productive and was detracting from my happiness. To counteract this, I told myself since I was only spending on things that were important to me, I wanted to allow myself to fully enjoy whatever it was and not worry too much about the numbers.  

On the whole, I do think FI has been a positive force in my life. It has caused me to become a lot more educated on personal finance and I am making more intentional choices, both on spending and where I put my savings.  It is also liberating to know that if I ever felt like my job was no longer the right fit for me, I would be able to leave. Most of all, FI helped me reflect on what is most important in life overall and live according to those values, which will hopefully spare me a mid-life crisis. (I guess we’ll see.)

Your turn! What are your thoughts on FI?

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