Financial freedom shows you the dream of living a boss-free life. Unfortunately, hoping the money to de-slave you is a dangerous strategy. Money merely changes who you are a slave to. Earlier it was the boss; later it’s money itself. Slavery persists. Just the ownership of the slave changes.
9th January 2018 was the last day at my office. I quit my software job to spend more time pursuing the work that I love, i.e., reading, writing, and building my personal projects. I received calls from a handful of friends when I broke the news. Most of them congratulated me and some showed concerns too about my seemingly hasty decision.
However, one of them asked me a sincere question – “Are you financially free to justify this bold decision?”
It’s hard to discuss money without bringing up the topic of financial freedom, isn’t it? Unfortunately, the idea of financial freedom, like the concept of God, has been abused so much especially in last 10-15 years that it has lost its meaning.
If you’re in a job or profession where you spend a significant amount of time doing things which you’d do even if you weren’t paid for it, you can stop reading here. There’s little this essay can offer you.
However, if you are spending 40-50 hours every week doing something which you’d rather not (but still have to because it pays the bills) then read on.
It was 2004, a year after I entered the workforce when I came across this term – financial freedom – for the first time. A friend invited me to a network marketing seminar. The presenter was frantically spinning a bunch of circles on the whiteboard. Being late, I had to reluctantly take the last available seat which was in the front and I became the speaker’s prime target.
“Are you financially free?” He pointed at me while I was still settling down on the wobbly chair.
“Yes. I guess.” I blurted.
It was the last day of the month and I was still high on the large dose of dopamine released in my bloodstream by the SMS that said – “Your salary has been credited to your bank account.” Neurologists have figured that the effect of sudden money and a shot of cocaine is pretty much the same on a human brain. Guy Spier, a noted value investor, calls it the cocaine brain effect. Anyways, I am digressing.
“If you are still working in a job, I am afraid you’re not. If you were financially free you would have retired.” He said.
“I thought retirement was for old people. The senior citizens.” I mumbled.
“Do you need age to retire? No. You need money.” He explained, “Specifically, there are two things you need. Your income should be more than your expenses and your income shouldn’t depend on you. Then you don’t have to work for money. You can do whatever you want. That’s retirement.”
His energy was infectious. Perhaps he had retired just an hour back and was finding it hard to contain his excitement.
In a matter of few minutes, my brain was impregnated with two strange ideas – Financial Freedom and Early Retirement.
I was intrigued by the possibility of becoming financially free. From that point onwards, early retirement became the true north in my life. I read everything I could lay my hands on about this topic.
Robert Kiyosaki’s book – Rich Dad, Poor Dad – has done a great job simplifying the idea that everyone needs to be financially literate. A lot of credit goes to him for bringing the concepts of passive income, assets, liabilities, cash flow, etc. to the mainstream.
Coming back to financial freedom, Wikipedia says –
Financial freedom means you have enough wealth to live on without working. Financially independent people have assets that generate income (cash flow) that is at least equal to their expenses.
However, most people associate financial freedom with having lots of money. Very few give a thought to quantifying that thing – “lots of money.” If you go by Wikipedia definition, then you need to estimate –
1. Your future monthly expenses.
2. Number of years you are going to live.
3. The amount that your dependents would need after you are gone but let’s keep things simple and assume that you don’t want to leave any large sums behind.
Now, I have tried to do that exercise many times. It’s relatively easier to estimate the expenses for next 1-2 years, but beyond that, you’re just making wild guesses. Five or ten years from now, you don’t know what inflation would be; you don’t know what kind of emergencies would come in your life, and you don’t know how your lifestyle will look like.
Well, I could borrow a quote from Charlie Munger who said, “It’s better to be approximately right than precisely wrong.” Munger said it in the context of estimating the value of a business but I guess it can be applied to our problem also, i.e., estimating the present value of all our future expenses. So I could quote a reasonably large sum – say Rs 25 crores – and forget about calculating a more precise number.
At this stage of my argument, let me introduce another adrenalin filled and pound-your-fist-on-the-table term for this 25 crore number. Nassim Taleb Calls it F**k You Money” (FUM).
So, if I had my FUM, i.e., Rs 25 crores, I can call myself financially free. I can retire, right?
Not so fast. What about the problems that tag along with having Rs. 25 crores?
“Wait a minute. Isn’t that 25 crores a solution to the problem? Why are you calling it a problem?” You might want to argue back.
The brilliant mythologist Devdutt Pattanaik writes about the example of goddess Lakshmi from Hindu mythology. It’s said that Lakshmi, the goddess of wealth, doesn’t come alone. She is always accompanied by her invisible sister, Alakshmi, who is the goddess of strife.
Large sums of money bring with them their own challenges and your days of financial freedom will actually be encumbered with dealing with those money issues. The primary one being – the more you have, the more you stand to lose.
FUM shows you the dream of living a boss-free life. Unfortunately, hoping the money to de-slave you isn’t a good strategy. Money itself isn’t the agent of freedom; it just changes who you are a slave to. Earlier it was your boss; later it would be money itself. Slavery persists and the slave doesn’t die. Just the ownership of the slave changes.
Excess money often turns into handcuffs. It’s a tangential topic and I don’t want to digress again. You can read our post called Inverting the Money Problem where we had explored the problems associated with having too much money.
Too much money might seem like a good problem to have, writes Nick Magiulli, “but getting to that point is almost never costless. People tend to overlook this fact at their own expense.”
David Hanson, author of brilliant book Rework and creator of famous programming framework Ruby on Rails, writes –
There’s an irresistible allure to the concept of fuck-you money: Being able to tell anyone off for any reason without risking your livelihood. What’s not to love about such audacious freedom?
But is this actually happening? Who are all these newly-minted millionaires that suddenly start telling people to go fuck themselves? I don’t recall many notable examples. If anything, it’s the opposite.
Shortly after that glorious fuck-you check clears, they’re off to the next thing. With new venture capital chains. Yanked about by a new board. Shackled to a new set of hockey-stick growth expectations. You do what you know.
So the fuck-you money dream doesn’t so much seem like a goal as a perpetual fantasy. And excuse for why now isn’t the time to rock the boat, bolstered by the illusion that someday you will. Yeah right.
The premise of financial freedom is to be free from having to work for money, forever. But as far as your financial freedom is concerned, forever only means until you are alive. Ironically, no one knows how much time they are left with on this earth. So the promise of financial freedom is resting on a shaky assumption.
I am not asking you to stop saving for the future. What I am saying is that tagging a number to your freedom is a fool’s errand. The best one can hope to estimate is the cost of freedom for next 2 to 3 years? Beyond that, it’s just smoke and mirrors.
Here’s a thought experiment.
A thirty-year-old man puts together a solid and workable plan to retire by age forty. On his fortieth birthday, he finds himself financially free and just when he’s getting started on the next 40 years of retired life, his doctor reveals that he’s got only a few more months to live. Ideally, if he had worked out the numbers with a 40-year lifespan in mind (instead of 80), he could have retired much earlier say at the age of 35 and spent remaining five years living a financially free life. Let’s say he did that. But what if he found that he’s perfectly healthy at 40 and might live for another 40 years? Well, he could repeat what he did at age 30, i.e., crunch the numbers for next ten years and begin again. That sounds much safer planning, doesn’t it?
I call it the chunked-financial-freedom. In a jargonish language, you are striving for a local optima rather than global optima. It’s like driving a car cross-country. You don’t start the journey will the destination in sight. You keep the general direction in mind and only worry about the visibility of the next few hundred meters.
Almost everyone who is running the rat race today has a mental image of how his retired life will look like. Many even chart out the details of the activities they would indulge in once they have their FUM. The problem is that most people overestimate their ability to forecast their future likings and disliking.
A man dreams of spending his retired life in a library reading his favourite books. Another man imagines himself traveling the world. But when the time actually comes the first man realizes that he likes reading but not as much as he thought. And the man who wanted to travel the world quickly gets tired and bored after visiting few countries. Now they don’t know what to do with their free time and that’s a dangerous place to be in. Remember, a plan that promises freedom at the expense of knowing what to do with it may not be as good as it seems.
Money is like fuel in the car. We don’t want to get stalled in the middle of the road with an empty tank but at the same time we don’t want to turn our drive into a fuel station hopping trip. Neither do we want to attach a huge 16-wheel fuel tanker (a metaphor for FUM) to our car.
If you look beyond a specific amount, fuck-you money can be a state of mind,writes David Hanson, “One that you can acquire well in advance of the corresponding bank account. One that’s founded mostly on a personal confidence that even if most of the material trappings went away, you’d still be happier for standing your ground.”
Nick Maggiulli said it in few lines that took me two pages to communicate. He wrote in his recent post wrote:
Investing without considering your values is like having the fastest boat in the middle of the Pacific Ocean with no set destination — no matter how fast you go, you will always feel lost….Though you may not be trying to amass wealth at the scale of Bernie Madoff, this idea still applies to you and the choices you make. Because without asking yourself why you want to invest, you could end up living your life based on someone else’s values. You could end up chasing their dream instead of chasing your own. You could end up slaving away for 40 years, sacrificing your health, sacrificing your personal time, sacrificing your passions…for what?
If I have given you an impression that I am making a case against saving the money for future and growing personal wealth, that was not my intention. My purpose was to make you think about the unnecessary price that you might be paying by deferring life in the name of delayed gratification.
Thanks for reading.[/show_to] [hide_from accesslevel=’almanack’]
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