What is financial independence?
I suppose it’s up to each individual to define that for themselves.
In terms of pure numbers, I’ve already defined financial independence for myself:
Financial independence is being able to cover personal essential expenses with passive income.
As long as I can cover my basics in life, like rent and food, I’m good. And I am good. My passive income greatly exceeds these basics.
I don’t need to make sure that I can cover, say, the cost of a new computer down the road with passive income. Being able to pay for a trip somewhere with only passive income is unnecessary. So on and so forth.
I didn’t feel the need to be in such a position when I retired in my early 30s. And I still don’t feel that way, almost six years after quitting my job.
Of course, I’d argue FIRE is much more than simple numbers. Anyone who sees it as only a money thing is missing the big picture. Unfortunately, way too many people I’ve come across are blind to this.
FIRE is actually life-altering platform that sets oneself up for an amazing lifestyle. It’s the foundation upon which you can build a customized life for yourself.
But I digress. I’ve delved into all of this before.
What I really want to do is, take a few moments today to clear up a huge misconception.
This misconception appears to be pervasive, based on comments I’ve received here at the blog, as well as emails and conversations I’ve been involved in over the years.
It’s a misconception that relates to having enough passive income to cover every single expense for the rest of one’s life.
Let me be explicitly clear.
FIRE does NOT require being able to cover every single expense from now until judgment day with passive income.
Some people apparently believe that once you pull the trigger on quitting the job, you’ll have to be in a position to cover every foreseen and unforeseen expense alike with passive income. Furthermore, they’re under the impression that not being able to cover every single future dollar spent with matching future passive income somehow invalidates or nullifies being financially independent.
Wrong. And wrong again.
For example, when I have a high spending month, like this past November, which ran me north of $1,800, I’ll get the unavoidable comment or email that goes along these lines:
“You earn $1,500/month in passive income. But you spent more than your passive income this month. You’re not financially independent. You’re a liar!”
Needless to say, these same people never show up when I have the super cheap months, like this past February, when I spent around $1,200.
The months with surpluses are great. Pop the champagne and have a party.
But the months in which deficits occur seem to, according to certain people, suddenly invalidate one’s financial position, as if financial independence is this membership card that you have to renew every month. And if your spending for a particular month goes over your passive income, your membership is revoked by some mysterious council of judges.
It’s silly. Beyond silly, really. But this is the perspective that a lot of people operate with. More people than you might realize. Trust me. I’ve had way too many inbound communications from them.
I think it’s fear, envy, ignorance, and/or one’s own shortcomings that lead to these viewpoints and responses.
I always assumed that it would go without saying that anyone who’s going to achieve FIRE would be skilled at budgeting. Likewise, anyone who’s skilled at budgeting would be able to deftly manage monthly fluctuations in cash flow, whereby surpluses would be rolled over into months with deficits.
Yet I had to write a post on this very subject not too long ago.
Well, after some emails that came my way, I’m here, to my complete bewilderment, writing another post tackling another silly misconception.
Look, if you want to spend time at your job until you’re old and used up, just to make absolutely sure that every single expense you could possibly imagine will be offset by passive income, be my guest.
But that’s overkill. And totally unnecessary.
In addition, I don’t even think the financial independence part of FIRE is necessary.
I’ve personally met or had discussions with countless people in the FIRE space over the years.
I’m not exaggerating when I put that number well into the hundreds.
Many have retired from their primary careers and now find themselves in a post-FIRE phase of their lives.
Almost none of them are living completely off of passive income. Just about every single person I’ve ever been in contact with has some kind of active income in their life, even after they retire from their main profession. They’re consulting, blogging, coding, vlogging, marketing, graphic designing, etc.
Active income, after all, complements passive income.
The person out there who quit their job at a young age to live off of passive income alone, without ever lifting their finger again to earn a dollar, is a unicorn.
If you think FIRE is this thing where you quit your job at a young age, live only off of passive income, and never engage in any kind of work again for the rest of your life, you believe in a myth.
Frankly, “early retirement” is a euphemism for spending more time on hobbies/activities you enjoy (and probably make money at anyway).
It’s easy to understand why this is.
If you’re driven enough to accumulate a significant amount of wealth and passive income at a young age, you’re not going to be content with sitting around.
You’ll feel the need to continue adding value to society.
You’ll feel the gravitational pull toward passions, productivity, and progress.
And you’ll make money as a result.
It’s an inevitable conclusion for almost everyone. Even The Wall Street Journal recently pointed this out, stating we are coming upon the end of retirement as we know it.
You can call it what you will.
I call post-FIRE work “funemployment”. Perhaps “recreational employment” is a better way to look at it.
Either way, you’re going to have hobbies. And some of these hobbies can and will pay you money. It’s a natural evolution.
This isn’t about money. It doesn’t matter how much money you have. I mean, it’s not like Warren Buffett shows up to Berkshire Hathaway HQ each weekday because he needs the money. As he puts it, he “tap dances to work”.
There is a difference between work and a job. And doing something you want to do is very different from doing something you have to do.
I have absolutely no goal in my life to make sure all future expenses are completely offset by passive income.
I’ll continue to live my best life, regardless of what it costs.
That’s because my essential expenses are covered by passive income, and I plan to remain productive for decades to come.
Those essential expenses, by the way, are very low because of who I am and where I live. I’m frugal by nature. Moreover, I’ve taken advantage of geographic arbitrage, which means I’m not blowing a fortune on basics like housing and food (which I probably would be if I were still living in the USA).
When I publish future expense reports, keep this in mind. If the overall expense number comes in lower than passive income, great. But if the expense number is higher, that’s also just fine by me.
And it should be just fine by you, too.
What do you think? Is financial independence even necessary? Is the early retirement math moot? Must you cover every expense with passive income for the rest of your life?
Thanks for reading.
P.S. If you’re interested in achieving FIRE, check out some awesome resources I personally used on my way to becoming financially free and quitting my job in my early 30s!