Free Your Inner Financial Prisoner

Growing up, my views on money were nothing different than the conventional wisdom seen today. It was something you made after going to college for an indefinite period of time, and then you probably had enough once you turned 70 and could stop earning it. I could “invest” my money by picking a stock of a company I liked, wait for the value to increase a few dollars, and sell it for a small gain (although in my case the value went down more times than not). I would keep climbing the corporate ladder to be able to buy a big house on the water, a second home up north, a boat, and other things that would impress my “friends” (generic people I could not point out specifically in my mind). When I had around $10 million, I thought, then I would be set.

My mindset has changed gradually over the years, but the two biggest drivers of the change were discovering The Four Hour Workweek by Tim Ferriss and The Minimalists. The combination of these discoveries made me realize that I did not have to follow the conventional wisdom to lead a happy and fulfilling life, and that living my life on my own terms with less distractions and clutter was going to bring me much greater fulfillment than a big house on the water.

What It Means to be Financially Independent

From these sources, I eventually found the Financial Independence movement and some of the topic’s more well-known bloggers like Mr. Money Mustache, JL Collins and the Frugalwoods. As the name of the movement suggests, becoming financially independent means being able to live your life without the necessity of working to make an income.

How is this possible? Most financially independent individuals and families accrue some combination of investment income, rental income and other forms of passive income that outpaces the amount that they spend. Those living off investment income use a combination of dividends and investment growth from a large investment nest egg that they have built up over the years. According to the Trinity Study, those folks that can keep their annual spending below 4% of their total portfolio value have a very good likelihood of never running out of money. Therefore, a good rule of thumb to figure out how much you need in order to be financially independent is to figure out how much money you spend annually, multiply that number by 25, and the result is how much you’d want to have in your nest egg to never be required to work again.

Of course, anyone who is able to successfully get to 25x will also be motivated by the corollary benefits of financial independence, not just the drive to get to an arbitrary number. They will be motivated to break free of wage slavery and the need to work for someone who at the end of the day is mostly out for themselves. They won’t be handcuffed by a lack of financial resources when deciding what they want to do with their lives. They will be able to contribute their resources (both money and time) to family, friends and causes that are important to them. They are not financial prisoners to debt and trying to upgrade their “stuff” to impress people that don’t actually care. They have more freedom to live life on their own terms.

Redefining the “American Dream”

In the Great Gatsby, the American Dream was originally a pursuit of discovery, individualism and happiness that eventually morphs into greed and a fleeting pursuit of pleasure. I believe there has been a similar metamorphosis in real life as well, as evidenced by the first financial mistake mentioned in my last post. As a society it has become so easy to meet Maslow’s first two levels of needs (physiological and safety) while our drive for success that got us to where we are today has not left. We feel like we need bigger and better things to be happy and we need them now, even if we don’t have the cash to pay for them. We then go into debt and have to work to pay for the things we eventually figure out don’t actually make us happy, and it was the things we had all along: our friends, family and hobbies that don’t cost a lot of money that made us feel fulfilled.

The American Dream needs to be redefined away from images of a white picket fence and back to the individuals pursuing dreams of fulfillment. The “Dream” as I would define it would include:

  • Living life and making decisions on your own terms
  • Using your time and resources to help your community
  • Taking risks without proverbial chains on your feet

The most effective way I can see of achieving the “Dream” as I just defined is to remove the obstacle of financial burden in your life and become financially independent. The pursuit of financial independence is a pursuit of discovery, individualism and happiness. It forces you to discover where you bring the most value to others, where you derive the most value from spending your resources, and frees up the time and energy so you can live your life as you would dream it would look like. When you are financially independent, you can say with a straight face that you are “living the dream”.

Free Your Inner Financial Prisoner

You do not need $10 million to retire. If you spent $40,000 per year, you would need 1/10 of that amount and in all likelihood not need to worry about money ever again.

Our brains have been trapped by societal conventional wisdom to need certain things to be happy, which ends up making us believe we need to go into debt, which makes us believe we need to work forever. We end up sacrificing the best years of our lives trying to make an impact for someone else that may not line up with our own goals and values so we can buy shit we don’t need. We build up prison walls around ourselves in the name of “comfort”, not realizing we’re trapping ourselves anywhere.

Free the financial prisoner that lives in your mind. Free yourself from debt and discontentment. Pursue financial independence. Pursue happiness. There is no other pursuit that is more important.

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