You have seen it in magazines, TV shows and movies. They always portray someone in front of a yacht near crystal clear water on a cloudless sunny day sipping champagne as the picture of financially freedom. This is a gross distortion of reality. Most financially free people (especially FinGho Walkers) will shy away from advertising their wealth.
Financial freedom does not mean you have to leave your job. In fact, you have no reason to leave your job except when it sucks energy from you and if so, by all means leave the job to enjoy your freedom. However, for many people, their jobs provide meaningful activity - physical, mental and social. These forms of activity keep you plugged into the real world rather than being alone on a yacht or a golf course. They also help keep your sanity. Try golfing every day for a week. I guarantee you, it will drive you crazy (no pun intended!).
Before we get into what financial freedom can do for your work life, let us first define in the simplest way what it means. How do you know when you have achieved financial freedom? No need to rush to the complex spreadsheets that 'experts' develop to justify their existence to define it. Here's my simple formula:
You have achieved financial freedom when:
Annual Expenses '<' SWR x Total Financial Assets
('<' means "less than")
SWR = Safe Withdrawal Rate, which is 2% if you want to be financially free in your 30s, 3% if you do it in your 40s and 4% if you are in your 50s and beyond.
Before anybody complicates this formula by several additions and subtractions (some are valid, which I will get into later), let me propose that if you are pondering this when you are 55, you have achieved financial freedom when your total financial assets (not considering your home) grows to a level where withdrawing just 4% of it annually fully covers your living expenses. Put another way, you should have total financial assets of at least 25 times your annual expenses.
As you can see, there are two factors contributing to financial freedom. Increasing your assets is just one piece of it. Controlling your living expenses is an equally important piece. This is why some smart retirees who made their money working in developed economies choose to retire in developing countries in Latin America or Asia, where their living expenses can shrink by a factor of 2 to 5 compared to U.S. Consider this example: to support $60,000/year in living expenses in U.S., one needs 25 times that figure or $1.5 million in financial assets. If you choose to live in a low cost location where your living costs can be cut to 1/3rd of your current costs with no noticeable change in your quality of life, you need only $500,000 to achieve the same financial freedom. This cost-of-living arbitrage is one of the advantages for those working in high-wage economies like U.S. or Europe. It is one of the very few "free" lunches available in the world today. I am not advocating that all baby boomers pack their belongings and head to the third world but I wanted to point that option as it has increasingly become feasible in today's connected world.
Note that I have not included any passive income you may receive. This includes social security and company pensions, neither of which an a person younger than 40 should rely on given the shaky SS system and fast disappearing company pensions. If you are fortunate enough to get anything from social security or company pension, consider it as gravy.
Regardless of whether you achieve financial freedom by growing assets or cutting down your expenses (or preferably doing both), there is no requirement that you leave your job. This is especially true for long-time FinGho Walkers who have amassed substantial wealth over their working life and find themselves in an enviable position of having achieved financial freedom before they turned 50. Naturally, I have not seen many 'experts' talk about the benefits of working after achieving financial freedom. So, here is my list:
- You can truly speak your mind at work and not worry about adverse consequences. You have no reason to suck up to anyone.
- You can ask for and work only on the projects that you care deeply about and say 'no' to ones that do not interest you (If you are really good at what you do, most organizations will give you this freedom anyway).
- You will become the envy of your fellow workers who desperately need their jobs
- The income, health and other benefits (however, meagre) from your job are gravy for you. Each year you spend without depending on your financial assets means more moolah for you (and your heirs) to enjoy later.
- You can indulge in several luxuries that you denied yourself while achieving the financial freedom. (yes, FinGho Walkers can finally buy the luxury cars!)
2 comments:
KRV - Excellent views on Financial freedom. I agree with you that financial freedom is important and we can do what we want to do in our life if we achive FINDE. However, if we work in any organization do you think that we will have work freedom (Ability to choose our projects/work that interests us) if we achieve financial freedom alone?
Don't we feel that organization needs depend on the broad skills an individual possess and if an individual has multiple skills, versatility, communication, have great attitude and get along with people well - which matters most than an individual's who just have money?
The skills such as versatility, communication and attitude are not lost on 'financially free' workers. These are the essential requirements for success in any job regardless of whether one is financially free or not. However, the ability to achieve financial freedom requires much of the same skills that one uses in their job, skills like perseverance, long term vision, ability to "see the forest from the trees" and ability to "tune out the noise" and focus on what's important. So, I would argue that a worker who has achieved financial freedom by practising the FinGho Walker principles is the kind of employee most organizations would love to have on their payrolls. People who can barely manage their own finances are not the ones I would like to hire or retain on my team.
My point of this post is that achieving financial freedom does not necessarily mean you have to leave your job but you can use it to actually increase your job satisfaction. In fact, if you see your job as more than an opportunity to make money, then you will really enjoy working after financial freedom!
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