Home Personal Finance You Don’t Have To Be Extreme To Be Financially Free

You Don’t Have To Be Extreme To Be Financially Free

by Phia @ Freedom 101

There’s a lot going on in the FIRE community these days. And as more and more people are drawn to the concept of achieving FI at a young age, the interest and demand for information on ways to achieve FI have increased exponentially.

But with that explosion of interest has also come a broadening in the spectrum of opinions on how to get there. And like any trend there are many who have taken some pretty extreme measures to make FI a reality.

From living off grid in a solar equipped camper van, to selling all your worldly possessions and embracing an extreme version of minimalism, there is an FI style out there for everyone.

And while the extreme examples of how to reach FI are plentiful, I’m here to assure you that you don’t have to be extreme to be Financially Free. In fact – I’d recommend against it.

While taking it to those extreme levels may work for some, living in a 100 square foot mini-house in rural Wisconsin is not the lifestyle most envision when they think of being Financially Independent.

If it makes you happy – forge on, but if that lifestyle doesn’t scream “contentment” to you, don’t worry, there’s many paths to Financial Independence/Freedom. The most critical part of choosing that path, is knowing what you want your post-FI life to look like.

That’s why it is so important to define what exactly Financial Independence means to you.

Johsua Sheets, creator of the Radical Personal Finance podcast and website has an excellent framework in which he defines 7 stages of Financial Independence. You can check out his interview with Paula Pant where he describes each stage at the Afford Anything podcast.

Joshua lists Financial Independence as the 5th stage, followed by Financial Freedom at number 6, all of which is topped off at number 7 with Financial Abundance.

To summarize Joshua’s framework, Financial Independence simply means that your passive income sources cover your day to day expenses, and you no longer require a traditional job in order to support your current lifestyle. You could choose to continue working, or you could choose not too.

Financial Freedom on the other hand is all about having sufficient income to sustain a comfortable lifestyle, with the added ability to fund most new lifestyle goals via your income sources.

Financial Abundance means having a surplus of income over and above your desired lifestyle, with which you continue to increase your savings. So while you’re enjoying whatever your current “ideal lifestyle” may be, you continue to build your wealth to facilitate future life goals. Now that’s real freedom to choose.

I like Joshua’s framework because it provokes discussion on what you really want to achieve through your pursuit of Financial Freedom, rather than the somewhat broad application of simply pursuing Financial Independence. Although many people might be satisfied with what Joshua’s definition of what Stage 5: FI entails, Stage 6 & 7 are where true sustainability and freedom exists for the majority of people.

But what often happens is people focus all their energy on cutting their expenses to an absolute marginal level in order to expedite the time frame in which they can reach the goal of “FI”.

There’s nothing wrong with that approach, where the problems begin is when people use that extreme reduced annual cost of living (COL) as the benchmark for calculating their post-retirement COL. All while forgetting they have a lifetime to live after they retire. FI isn’t the end of the journey, it’s the start, and when you step into that new chapter of life, you want to do so on a sound financial foundation that can support your current and future goals.

I find what some people are doing in order to reach FI to be quite admirable, but I also believe that for many who fall prey to the excitement of the trend and utilize these extreme measures, it isn’t sustainable. Living in a camper van for a year or two might be fun, and an excellent exercise in self-discipline – but I’m not so convinced that it would be enjoyable to do for a lifetime.

If you’re living in the camper van temporarily in order to save as quickly as possibleto facilitate a more comfortable post-retirement lifestyle – more power to you! But if you’ve only made FI a reality because you’ve cut every expense possible from your life, what happens when you decide you want a little bit more? Or maybe you want to start a family, or your existing family’s needs unavoidably change? There’s a difference between living with less by losing the excess of life, the things that offer no added measure of happiness to your life, and cutting away everything that you enjoy.

The reality is, for those who choose to take the pursuit of FI to its most extreme level, and retire with that annual cost of living as their benchmark, many will end up having to return to a regular job because their lifestyle desires, plans or circumstances change.

The truth may be that obtaining Financial Freedom or even Financial Abundance will take longer than many of the extreme FI approaches out there, but it’s hard to argue that taking your time and doing it right is almost always the best approach, even if it means a couple extra years at that boring old J-O-B. Better that than spending a few blissful years living in Financial Independence, only to learn that your desired lifestyle requires you to get back out into the job market and start saving again.

Serious sacrifice is merely an option to expedite Financial Freedom, for most it’s neither necessary nor sustainable. So as tempting as it can be to be swept up in the craze and go all out for the goal of Financial Independence, remember that you still have a whole life to live after you reach the goal, and you want to make sure that life is one that you enjoy for the long term.

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