Recently, the topic of early retirement has been brought up on a few different occasions within my social circles. Often, the conversation is brought up in jest, but sometimes I find myself in a group that is openly discussing savings rate or investment strategies. When time comes for me to chime in, my standard approach has been to say I’m saving enough and investing in Vanguard index funds. Short and sweet.
Should people prod deeper, I find myself saying that I am “aggressively” building capital through 1% savings improvements at my current stage in life so that I can transition from being an employee to becoming an investor. Usually, this leads to a significantly more interesting follow up questions than if I were to retire early.
Regardless of whether I say I’m saving for early retirement or saving to become an investor, the end goal is essentially the same. Yet, in my experience, “early retirement,” is usually received as a negative.
I learned early on that, when it comes to most people and talking about retirement, people either don’t care or people become instantly stressed out. The less we know about the state of our own finances and the less thought we’ve put into financial security in our future, the more reluctant we can be to openly discuss it. This is why I prefer to leave my response brief when asked and move on from there.
Since I have been asked directly in recent weeks about a few of my ideas, I felt it necessary to expand on many of the same topics I discussed with some close friends and family members.
Since this blog is still relatively new (having started this year), I still find myself needing to define specific elements of my approach.
When I say “investor”, I don’t picture myself being a stock picker like Warren Buffett. I see it more as, “Where can I invest my time and energy to receive the greatest gain, financially or measured by another yardstick?”
From this perspective, I want to be the greatest investor possible. Nothing is as important to me as optimizing the short amount of time I have here. If it means having a savings rate of 50-70% for 7-10 years so that I can never have to work for money again, then, yes. Sign me up.
I first learned about the concept of early retirement after reading Ben Franklin’s story of retiring at 42. I started using the phrase “early retirement” when I would think about what it would mean to retire before I ended up on the AARP weekly mailing list. I didn’t discuss the idea with people, but I thought to myself, “I want to retire early.”
My definition of early retirement mirrored that of Ben Franklin, which, in this day and age was not relatable. It never really resonated with anyone else either. Generally speaking, when people think of retirement they think of free time, sunny beaches, and cocktails.
Eventually, I stumbled into a great blog run by Brandon over at MadFientist.com and the language in my head matured from “early retirement,” to, “financial independence”.
I thought of it as putting my mind to use elsewhere outside of the rat race. I believe I will still want to contribute to and improve my life and the lives of others. The only difference is, I don’t want money to be the deciding factor of what and I can or cannot do.
Financial Independence is the best term to describe this state of personal security. The word independence holds a lot of meaning because it denotes the ability to stand on our own.
If you’re familiar with the writings of Stephen Covey, then you’ll have heard of the three transitional phases we can all go through.
We start off as dependents; we rely on our parents, our families, our teachers, etc. Without these support networks, we would not survive.
As we grow older, we have the capacity to become independent. We can build a lifestyle that supports ourselves. We can develop emotional intelligence and even a high level of intelligence in whatever particular field we pursue.
Lastly, once we reach independence, we can become interdependent. We can leverage our skills and expertise towards a bigger picture.
A quick analogy Stephen Covey uses to demonstrate these phases is as follows: Dependence is when we have 1+1=0. Both individuals lean on each other and nothing can be accomplished. Independence is 1+1=2; two people can live harmoniously together and be happy. Interdependence is viewed as being 1+1=11. The whole becomes bigger than the sum of its parts.
In economic terms, interdependence is reaching the production-possibility frontier, where each individual reaches efficiency with their resources and technology to contribute the greatest utility, or output, to the environment.
With this knowledge in mind, my goal is still to reach independence. After all, I’m still in the dependence stage of my life. My girlfriend and I rely on trading years of our lives so that we can build enough wealth to reach financial independence.
In the grand scheme of things, independence is only one step along a broader path that ends with interdependence.
The transition we dream of is to go from employee to investor, and then onto philanthropist.
Once we reach the point where we have what we need, then anything extra that we produce will be beneficial not for us, but for others we love and care for.
Do you have any goals or plans for once you reach financial independence? Are you still struggling through the dependence stage much like we are?