Written by: Corey Janoff
I know someone who currently has a net worth of about $6 million in their early 30’s. We looked at retirement projections because they wanted to know how much they might be worth when they are 50 years old.
“There are a lot of variables that impact these projections,” I explained, “So it is hard to say exactly. But if you keep saving at the rate you are saving, it wouldn’t be crazy to have a net worth of $30 million by the time you are 50.”
“That would be awesome! $30 million. Let’s shoot for that.”
“I agree, that is awesome. But why?” I asked. “What do you need $30 million for? Why that number? What will that do for you? You will be financially independent well before that.”
“I don’t know. It would just be cool.”
I’m all for it. For some people, accumulating wealth is a game (which is a game I can support playing 100%). As Warren Buffett once said, “Making money never gets old.”
The above conversation about retirement projections originally started because this person wanted to get an idea of how much money they would need to retire by age 50. I showed them they could potentially retire well before 50 if they wanted to because they don’t need $30 million to support their lifestyle.
There’s nothing wrong with continuing to work after you reach financial independence. Many financially independent people do continue working. Once you no longer need to work for money, it takes some of the pressure off. You can be more selective in the work you do and find the job that is most fulfilling or accommodating of your lifestyle, rather than the one that pays the best.
The reason I asked, “Why $30 million?” was to try and get them thinking about what financial independence means to them. What do you want to do with your life once you have enough money? How much is enough? Will you ever be satisfied (unlike Alexander Hamilton)?
What Is Financial Independence?
The first step to achieving financial independence is to define what financial independence means to you. It’s going to be different for everyone. How do you want your life to look? What do you want to do for work if you could choose? What would you like to do in your free time? How much free time do you want to have?
Carl Richards defines financial independence as spending time with family and friends, mainly outside, doing activities he enjoys, such as skiing and biking. If you want to spend your time doing physical activities outdoors within driving distance of your home, then how much money do you need to enable you to spend all of your days doing those activities? That’s where a good financial planner can help you figure out what it will take to get there.
If you enjoy international travel and living in other countries for months on end, the amount you need to be financially independent may differ from the outdoorsman.
What if you can have enough time to do all the things you enjoy and work part-time to cover your bills and expenses? In that scenario, you may be able to achieve financial independence a lot sooner than if you plan on quitting work cold turkey to pursue your hobbies. If you can earn enough money to cover your bills and expenses for a decade while your nest egg compounds, you could potentially double (or more) the amount of retirement income that nest egg can produce for you when you no longer earn any income from working.
In the above example, that could be the difference between retiring at 55 versus 63. You could either work and save until you are 63 and then stop working and have fun. Or you could scale back at work at 55 and have almost as much fun starting eight years earlier. I don’t know about you, but I kind of like that gradual ease into retirement and start the pre-party sooner.
What’s Important About Money to You?
As discussed, everyone is different. People have different goals, different hobbies, different lifestyles, different dreams. Financial independence isn’t going to be the same for everyone. A question that can help narrow down of what it means to be financially independent is, “What’s important about money to you?”
A common answer maybe something along the lines of, “Money gives me freedom.” That’s great, but let’s narrow it down. What specific freedoms does it give you that are important to you?
“It gives me freedom over my time.” Now we’re getting somewhere, but we’re not quite to the “why” of money for you. What about freedom over your time is important?
“I want to be able to spend time with my kids before they grow up and then be able to spend time with my partner doing the things we enjoy.” Boom, I found it. Time with family, doing activities you enjoy is the driving force behind all of this.
You may not have the financial means to scale back at work today to spend more time on leisure with family. Life isn’t perfect. But if that is why money is important and that is what being financially independent can enable you to do, then you can start to narrow your focus.
Maybe you have some unnecessary burdens in life that you could do without because they don’t aid in your mission to spend more time with family. Perhaps with the next job, you keep the time with family in mind as you look at the workload and job duties—some food for thought to help you baby step your way into that financially independent lifestyle. You may be less likely to burn out that way.
The Kinder Questions
George Kinder was (is?) a life planner and is most famously recognized for his three questions, known as The Kinder Questions. He helps clients discover their true values by asking three questions:
1. Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours.
2. Now (in your current financial state), imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life, and how will you do it?
3. Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?
Most people have similar answers. They are spending more time with loved ones. Doing that thing (or multiple things) you always talked about doing but still haven’t done yet. Some people answer about trying to live a more meaningful and fulfilling life by helping others and giving back. Whatever your answers are, it can help you narrow your focus on what is really truly important to you.
Money is great. It’s an excellent down payment on happiness, but happiness and fulfillment can’t be bought with cash. The $30 million net worth would be absolutely fantastic, don’t get me wrong. It would give you a lot of financial freedom. But what you do with that money and those freedoms is more important.
You don’t need $30 million to start enjoying life more now and pursuing your hobbies. Now, if your favorite hobbies include gambling trips to Vegas, maybe you do need to keep grinding until you get to that $30M mark. Most people don’t need a ton of money to start making those happy memories. Playing with your kids in the backyard doesn’t cost a dime. Going sledding down a hill in the snow is an activity that can provide hours of enjoyment for the cost of a $15 sled at Walmart.
Don’t completely sabotage your future goals, but you can find a balance instead of working and working away until some official financial independence date in the future. None of your patients, clients, or customers are coming to your funeral. Be sure to take some time for the fun stuff now with the people who will show up.