The following is a guest post from Financial Journeyman, the creator of K.I.S.S. approach to handling your finances. This post was inspired by a conversation we had about reaching financial independence and early retirement. From one early retirement seeker to another, we found common ground on the topic below.
Are you Financial Independent Retire Early or Self-Employed?
There are many personal finance blogs out there. I know of at least 1,500 and new ones seem to be popping up every day. Personal finance is an extremely broad topic. There are personal finance bloggers who write about paying off debt, travel hacking, real estate investing, passive investing, dividend strategies, budgeting, and many other topics.
Personal finance bloggers come from many different walks of life. There are farmers, doctors, engineers, former Wall Street traders, people who are retired, and just about every other type of profession you can think of. Most of these bloggers share a similar goal; they want to retire early. To retire early, a person must first reach financial independence.
The general definition of financial independence is to have enough money to live without having to work.
The accepted rule is to have enough money to cover 25 years of living expenses. That money must be able to cover your current lifestyle and keep pace with inflation. The 25-year period is based on a 4% investment portfolio withdrawal rate.
Once an individual or family reaches that level of wealth, they have many options. They can live life on their own terms. Financial independence enables a person to decide if they want to keep their current job or not. They also have the option to keep working, but in a less stressful job that might be linked to a hobby or social cause they are interested in. They also should be able to retire.
So, what is retirement? Retirement is when a person steps down from their job or profession.
They no longer actively work. Semi-retirement is reducing the number of hours worked when a person is close to the traditional retirement age. Early retirement is to step down from active employment before the traditional age of 65 in the United States.
I read many personal finance blogs. Writing is hard work and I admire anyone who gives it a try. I have even more admiration for those who stick with it.
The same can be said for reaching financial independence. To reach financial independence, you must commit a couple of decades to living a lifestyle that is in stark contrast to how most Americans live.
Debt needs to be avoided.
An above average salary is helpful.
A high savings rate is a must.
A prudent yet aggressive approach to investing is required.
There is one issue that I have with the FIRE movement. There are some bloggers and I assume people who do not blog that label themselves as being financially independent retired early (FIRE), but they are not. They are simply a financially independent entrepreneur (FIE).
The financial independence community is made up of many noble people. They thrive off helping others. In many cases, however, the title of early retirement is a mischaracterization. It is an error in employment status.
If you are managing a monetized website, running a few side gigs, developing a real estate empire, or working to grow any other business, you are an entrepreneur. There is nothing wrong with that. It is something to be tremendously proud of. It is just not retirement. You are simply a financially independent entrepreneur or (FIE) if you have the required financial means and own a business.
My issue with the FIRE status is that it confuses people. I read comments on blogs that are written by people who are in their prime earning years and are walking away from their jobs. They are doing so because they read about some top earning blogger who did it and all their dreams have come true. They feel that they have saved enough and can do it too.
Deep down, I can tell that these people who are writing comments truly know that they are not ready to call it a career. I am writing that because a bad day in the market causes my Twitter account to blow up with panic about market crashes and the Bitcoin bubble. The people who I truly feel bad for are the ones who write about how terrified they are about walking away from their job. Some have already walked away and now write fear laden comments about their sleepless nights. I think that going to work is easier than living in that type of mental torment.
It is possible to earn money blogging, but it is hard work.
Some blogs are making big money but like with most things in life the exception just reinforces the rule. Those blogs that are making big bucks are run by expert marketers who are mostly producing successful educational courses.
Starting any type of business is hard. Most fail. Before you quit your job that provides income and benefits, ask yourself if you want to be an entrepreneur. There is not a right or wrong answer to that question. It is just personal decision.
I generally do not give advice. In this guest post, I will break that trend and give some trite but true advice.
Be true to yourself.
If the situation appears to be not right, it is most likely wrong.
Look before you leap.
Don’t try to put a square peg in a round hole.
When in doubt, have no doubt.
I can go on and on, but I think you get the point I am trying to make.
Also, do not believe everything you read online. It is still the internet. Learn to develop a discerning eye when reading financial websites, blogs, and forums.
Before you make a major decision, be sure that all your bases are covered. Seek professional advice. Talk to more than one advisor. Schedule to meet with a Financial Planner to be sure your financial house is in order. Talk with a spiritual advisor to discuss your motives for this change. Make an appointment with a therapist to be sure you are not running away from some deep-rooted problems. It is a life changing event, make sure your mind is right and perform your due diligence.
If you are not happy in your life, retiring early to open a dog walking business or some other type of business is probably not the answer. You will just be hurting yourself and probably those around you. Stop treating symptoms. Where ever you go in this world, you take yourself with you.
I have found that instead of looking for happiness in external situations, it is healthier to focus on enjoying the moment and to practice acceptance. After a person learns how to practice total acceptance, they can start to implement positive changes. Otherwise they are just making changes for the sake of changing.
The purpose of this post is to not talk anyone out of retiring early. Reaching early retirement is still my goal too. I am just not going to call it a day until It makes financial sense and I am mentally and emotionally ready. Until that point comes, I will just keep working, saving, and investing, while enjoying the peace of mind and freedom that comes with being financial independent.