Financial Independence (also known as FI): The ability to cover your financial obligations in perpetuity without needing to be employed by others or yourself.
Sure, you want FI. Who doesn’t want FI? But, the real question - the one that matters - is this: Do you know why you should want it? I’ll endeavor to answer that question today.
Why FI Matters…Let Me Count the Ways
Do you fantasize about one day walking into your boss’s office and letting them know you don’t need their job anymore? This can be an especially delicious prospect if you dislike your boss or the job itself. However, achieving financial independence shouldn’t be about the ability to perform a satisfying walk-off, mike drop, or retribution against a bad boss or place of work.
Rare is the person who can find the discipline to make FI a reality if hating their job is the primary motivating force.
I’ve been fortunate that for the majority of my career I’ve actually enjoyed the work, the people I worked with and for, and felt what I was doing served an important purpose in the community. My pursuit of financial independence was never about walking away. I’d be lying if I didn’t admit there were moments when I thought “How great would it be if I could tell my boss to stuff it!” But those moments have been relatively far and few between and not enough to sustain the discipline needed to achieve FI.
And yet, there came a time when my having achieved financial independence quite unexpectedly spared me and my family from experiencing tremendous stress and worry about what might happen next when I “lost” my job.
Lost might be an inexact way to describe what happened to me. I did not so much lose my job as it was taken from me when I would not agree to do something I considered to be unethical. I refused, and as a result was fired. The situation developed over a short period of time, less than 60 days. Far too little time for me to rearrange my finances if I had had the typical debt service of a car payment (maybe two), a mortgage payment, a second house (a common asset for my fellow high-earning colleagues to possess), college tuition for the kids and all the normal expenditures that never end even after these debts have been retired.
There have been millions of people who have faced this same dilemma. In a world where ethics are relative to one’s world view, it is not as rare a problem as you might imagine. My values are grounded in the sacred scripture of the Bible, and while Western civilization was built on these same values, the corporate and political denizens currently in power have found such values to be antithetical to their interests.
A perusal of the more sensational daily headlines is an easy proof of how many people are now being forced to embrace things they wholeheartedly disagree with and that go against their moral code, so many resign, or, in my case - possessing above average stubbornness - are fired.
Of course, losing your job need not be so dramatic as refusing to do wrong. It can be a simple as the work you do being no longer needed. In every generation there has come a time when entire industries have been washed away by “progress.” I put progress in quotes because the term implies a good change, but in the world of geopolitics and global economics, it can be a simple function of lower labor costs someplace else. “Progress” speaks to the profits of the corporation, the wages now earned by the lower-cost newly employed, and perhaps even for the buyer of the end product in the stores, but not for the workers who have been displaced.
Sometimes the leadership of the company or organization you are working for fails to make the right decisions, either from a business standpoint, or from the increasingly fluid “ethical” standpoint, and the company is ruined and unceremoniously shuttered.
A natural disaster, major loss to a facility by fire or explosion, or legal decision can transform you from gainfully employed to foreseeably unemployed overnight.
When President George W. Bush signed a free trade agreement with South Korea, with the stoke of his pen I saw a massive computer chip manufacturing facility in Eugene, Oregon go from a thriving facility - employing over two thousand high-skilled, high-paying jobs - to a ghost town a week later.
Perhaps the worst of all circumstances, at least at a societal scale, is when the entire economic system contracts as a result of prior over-expansion and a large swath of the population finds themselves out of work at the same time.
Have I offered up enough reasons beyond the take-this-job-and-shove-it variety to demonstrate the importance of achieving financial independence? Life can, and does, take many unexpected turns. Setting yourself up with enough income not tied to your primary work to get by can help you make those turns with minimal injury.
Allow me to recap the reasons above and add three more important reasons:
FI allows you to better live according to what you believe, to not be forced into actions that go against the values core to your life.
FI provides a backup plan to counter the unexpected, and, as you just read above, there is a whole lot of unexpected out there waiting for you.
FI provides peace not just for you, but your family and those in the community who have come to depend on you, even in hard economic times for the society at large.
Add to this list a reason politicians don’t want us to understand: A person who has achieved FI doesn’t go to the government asking to transfer someone else’s wealth to them, because they are now that someone else! Society as a whole becomes healthier when fewer people must lean on the government for their sustenance and shelter. A financially independent society is a financially literate society. Good luck to politicians trying to pass pork barrel projects in such a society. Instead, the citizenry demands more a fundamental focus from their government, like transparency, providing and enforcing a just legal system and defending property rights. Instead of colluding with corporations, regulators are checking them by ensuring markets are free of corruption and unencumbered by monopolistic business practices. There is no “too big to fail” corporation in such an economy.
When FI is the norm, banks face customers who only borrow money on their own terms (hopefully in the acquisition of yet another productive asset!). Instead of the customers being consumerist prey for big fees and interest payments, they become true partners in the pursuit of shared profits.
Finally there’s one more truly glorious reason to achieve FI: When you reach financial independence it can fundamentally change your relationship with work. Instead of being an unwanted obligation, slow torment, or soul-sucking slog, you get to meet work on your terms. How much you make gives way to what you make of each day. Every type of work you choose to engage in from that point forward can be fulfilling to you in ways that your prior job may not have been.
Sometimes you get lucky, like me, and fall into a job that you would do even if you didn't need to do it, but then, like me, that same job might be taken from you in a sudden and unexpected way.
I could come up with more reasons to embrace Financial Independence, but I wanted to wrap this post up with an explanation of why I don’t promote the RE in FIRE.
Ready, Set, FIRE!
There’s a growing number of people whose fascination with Financial Independence is tied to a fixation with retiring early. There’s an entire movement called Financial Independence Retire Early (also known as FIRE) that has grown by leaps and bounds over the past decade. The pages of FIRE blogs are filled with dreams and stories of perpetual vacations or wandering the world in search of the next experience.
Now I’m not opposed to either travel or new experiences in doses, but I am dead set against making a decision to no longer work. Before this post you might have mistaken me for a FIRE guy, looking to pull you into the Retire Early nation, but no. I respect the importance of work too much for that.
Work is one of the defining characteristics of man, acting not merely to survive like the rest of creation, but to contribute to the cultural and moral elevation of society in ways big and small. Simply put, to retire early is to deny our very purpose in life. Our Creator made us for work and commanded us to subdue the earth (Gen 1:28).
I remember reading Plato’s The Republic. In that classic work Socrates spends the entirety of it “dialoguing” with those he encounters on the topic of justice. I’m sure others have drawn different conclusions from this work - part of what makes it a classic - but for me the definition of justice Socrates seems to arrive at is simply doing one’s job. If everyone does this to the best of their abilities, the world becomes a remarkably just and productive place, teeming with productive assets to be had by the financially independent minded!
Work requires discipline, and that discipline keeps us sharp. Those who do not work often fall into depression as they are faced with questions of self-worth and become more prone to vice in their despair. Countless charities and government agencies have been created for the sole purpose of helping the unemployed or even unemployable find work. One of the truly great moral dilemmas of our rapidly advancing technologies is what will happen to society if all the work has been taken over by machines? Those who understand the dignity work brings to man know this is no small issue.
Work comes in many forms, some just, some unjust (like slave labor). Work can be the raising of children in a household, tilling a field or researching the cure for a deadly disease. All just forms of work are necessary for a society to thrive. But for someone to choose to sit back and deny themselves what builds them up, is not something I will endorse.
Some of the more amusing entries on blogs where the writer had achieved FI with the intention of RE come a few months down the line when they realize working wasn’t so bad after all, and inevitably return to it…only in the ways that are more meaningful to them.
Don’t let FIRE get you fired up. Go for the FI and then do the work that matters most to you.
Besides, there will come a day when work is no longer possible. Old age or poor health eventually catches us all. But your heart will not be troubled by this change if you gave it your all when you had the chance.
Until next time, may peace and prosperity be with you.
The Natural Economist
Next up, a look at speculative assets and why most investors lean into them too much.