Like many people of the millennial generation I spent more years in school then I probably needed to. I started studying mechanical engineering, then chemistry then finally settled on math. All the while I was pursuing an economics degree which I achieved in 3 years. Is was an undergrad for 5 though because I was trying to be an overachiever and get 2 degrees. My line of thought was, more degrees will have me even that much more prepared for the job market.
Oh to be young and naive. I spent many years diving into all the gory details of finance and statistics: exotic option pricing, derivatives, applied statistics, linear optimization, proofs, advanced calculus etc. Those dry, equation heavy, economic research reports even started to make sense.
However with all the finance and economic study, I found I was unprepared to deal with simple economic situations later in life: why some people stay poor, why some people stay rich and most recently, why some people retire early. I eventually ended up in the financial industry where I either worked with or sold to, people who were very rich. Yet I ended up married to someone who was not very good with money and for a time ended up in an online community of extreme savers who share tips on how to retire early.
I have had some tumultuous times on all fronts in the past two years, which has forced me to confront my own shortcomings and my own irrational beliefs and I see all the psychological issues now that tie into many people’s finances and I’m absolutely fascinated with it.
The Problem With F.I.R.E.
I could write an entire post, or many posts about each of the topics of the psychology that keeps people poor or makes them rich, and indeed I already have. In this post I want to focus on the financially independent and retired early crowd or F.I.R.E. They are something of an online fad right now. They tend to be millennials, highly educated, with good jobs yet seemingly unfulfilled in their jobs and with their post college careers. This demographic usually dreams of freedom, of breaking out of rut of a 9 to 5 and to be truly financially independent. They usually chronicle their journey through a blog or start blogging after they have achieved F.I.R.E.
The characteristics they also usually share are extreme saving and diligent investing. They save up to 75% of their post tax earnings, eschew all material comforts such as a nice home or going out to eat and spend their free time on free activities or managing their investments. The are proficient investors and use the power of compounding in the stock market to add the rocket fuel of growth to their savings to help them achieve their “F.I.R.E. Number” or the amount of money they have to have saved to retire indefinitely.
Once they are able to quit their full time jobs, they spend it on things they are passionate about. Many take up blogging, some exercise, some paint, create art or travel the world indefinitely. In fact, the inspiration for this blog was originally from another blogger who had retired early and left the stressful banking world to manage his properties and his millions full time.
However, I have come to the realization lately, as I look deeper into my own psyche and consider the motivations of people I come across, that there is a problem with F.I.R.E. and the psychological drivers behind it.
One of the issues of F.I.R.E. for me is that it may not be about retirement at all. Have you ever seen someone retire and they are just as busy if not more busy than when they were working? Their time may be filled with volunteering or clubs and societies they joined now that they have the time to dedicate to them. It kind of begs the question, if they are just as busy, if not more so, don’t you think they could have found something they could have worked for that would have involved a lot of those same passions? They’re doing even more work, yet now they’re not even getting paid for it, it’s a bit odd.
If all you do is retire early to start a blog about retiring early and talk about all the great things you do as a retired person, while your actual time is spent working on broadcasting to everyone how you are retired…..don’t they find that more than a bit ironic? Yes they may have a bit more freedom in terms of working when they want but don’t a lot of highly educated professional people have that now with work from home options?
The fact of the matter is that most of us really only get about 4 solid hours of work done a day. The rest is spent socializing with co-worker, idle time, getting coffee, eating etc. I kind of laughed when I read a F.I.R.E. blogger bragging how he only has to work for hours a day, so do a lot of us!
The other issue is that most of those F.I.R.E. numbers are garbage anyway. If you really hate work that much and all you want to do is escape, I mean truly want to escape the rat race, then you DO NOT need some amount like $1.5 or $3.0 million dollars. You need to start taking Spanish courses and save up $150,000 and never come back. That’s right, if you are truly about the retired life and can’t stand another minute of it and will do anything to get out, then I’m telling you that you can live humbly in Colombia, Ecuador or Nicaragua for about $500 a month. That’s $6,000 a year, which is 4% of $150,000. In a balanced fund, this can last you many, many years in a developing country so you never have to deal with the unbearable strain of a pointless meeting or a bad boss ever again.
An Arbitrary Goal
There are some rich country workers who do try this, they’d rather go it alone and reduce their expenses to the minimum and try their luck on an online business. They are known as digital nomads, but they are usually not F.I.R.E. Usually the F.I.R.E. folks have a number based on the cost of living in the high tax, high cost, rich country that they are from. Fair enough, but it starts to show cracks in the logic of people who just want to escape. Many can easily escape now if they want to based off of what they have already saved, they just want to escape with conditions now. The conditions that they have to be in their rich country and they have to have the basics that they have been accustomed to there.
So they pick their F.I.R.E. number and get to work for years or even decades of tirelessly grinding away in the hopes that if they just ride this horrid, well paid 9 to 5 out for a few more years, they will achieve their true happiness by being retired and finally getting to set their own terms.
As per my developing country example though, this is an arbitrary goal. F.I.R.E. people want something but they want it with conditions and to their credit, they often work very hard to achieve it, but it may be at the cost of something else.
The Real Fuel to F.I.R.E
What’s driving the motivation behind F.I.R.E. for many people though is not always healthy, it’s often based on one thing: fear. I started to realize this as I came across a F.I.R.E. blog about a woman who retired, who noted that as she came a year or two out from her retirement, she actually started to excel at her job. She turned down meetings that weren’t important, she told co-workers no to requests that weren’t worth her time and she spoke up on things she wasn’t right. Was it really the money that did this? She freely admits in the blog that the knowledge that she would be “all right” financially if things went wrong, allowed her to be more bold and assertive at her job which ironically made her better at her job and had she stayed, may have moved her up or made her a star.
That person who didn’t take crap from other people and pushed her way ahead was the same person as her first month on the job with a difference: she worked without fear for the first time. Imagine if, rather than fear for losing her job and being broke, she was that same assertive and big picture oriented person from day one. It may have completely changed her life path. Maybe then she would have enjoyed her job after she started to build momentum and see success after success, but we will never know because 90% of her time there she was playing defense and letting fear rule her actions.
F.I.R.E. people are mostly people who are driven by fear. They don’t have the same fears of most people though. They don’t mind being socially ostracized by the spendthrifts but they usually have a deep seeded fear of being jobless, of being broke or of being homeless. F.I.R.E. is a way to compensate for this yet unrealized fear of not being in control of what happens to them. If they practice extreme saving and investing they can the gain total control over their financial life and their future as long as they hit their number.
These same talented and smart people though, if they were able to let go of those fears, and start to pursue their passion instead, could be even greater contributors to society than they may have ever realized. In fact some of them actually do this, achieving more fame and notoriety after they retire and pursue their passion, than when they were working and saving all those years.
Its Time for F.F.I.T.
Given that many of the our F.I.R.E. friends are spending their time whittling away, wasting their talent and energy on achieving some arbitrary number they think will save them, I think it’s time we maybe thought about adjusting our perspective and embracing F.F.I.T. – Fear Free Independent Thought.
This involves losing the fear of not having the structured 9 to 5 but also being ok with not having $1.5 million in the bank. As long as you are pushing towards a goal and working on your passion, you can start to realize your dreams and live the life you really want to, now. Not in 10 years to 15 years but now.
It may take some discomfort and take away some certainty but if you can afford to work towards F.I.R.E. you likely already have the talent to meet these challenges. Allaying your fears of not being in control and taking the next step into a situation you can’t necessarily control with 20 years of living expenses, is where life gets interesting and much more rewarding.
Don’t let fear control your life, even if its good for your wealth manager. The things you have always wanted to do and have a passion for are worth chasing, even more so than the 10 or 15 years you need to achieve your number. Start to embrace the fact that you can’t control everything and that’s ok, F.F.I.T. is a much more rewarding place than F.I.R.E. for many of us.
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