Your money or your life? Strange choice, isn’t it? But it’s a book by that very name that gave rise to the FIRE (Financial Independence, Retire Early) movement.
By definition, those that follow this movement aim to achieve financial independence at an early age, say in their forties, by saving the majority of their income in their twenties and thirties, so that they can live off this accumulated money for the rest of their lives. Sounds like a straightforward concept. So what’s the flaw?
Let’s dig a little deeper.
There are clearly two components to FIRE – Financial Independence being the first, and Retiring Early being the second.
Financial Independence
Being debt-free and having the ability to pay for your living expenses without depending on anyone but yourself is what financial independence is. There is no denying that financial independence is something that we all desire. Money gives us the freedom of choice. So it’s only natural for us to veer toward a future that seems to have a plethora of choices waiting for us.
The more we save, the faster we are able to get to these choices. Which is why FIRE propagates an aggressive savings rate. Normally, one would set aside around 15-30% of their income every month. However, FIRE advocates for rates as high as 50-75%.
The flaw?
FIRE tends to overlook the practicality of having a high savings rate. It is quite easily possible for those with a high income. But for those struggling to make ends meet, saving even 10% of their income can feel out of reach. The first thing to then focus on must be to live well below one’s means. And while there is great virtue in living frugally, it must not be at the cost of developing a scarcity mindset.
Retiring Early
Retirement is a modern concept that has been around for less than 150 years. It was introduced by the German Chancellor, Otto von Bismarck, in 1889. Back then, the average life expectancy was 70 years. And the retirement system was brought in as a way to provide financial support to those that could not work anymore. Even with this system, most people continued to work until they died.
Over the years, healthcare improved, and people started living longer. But the retirement age remained the same. Today, retirement has taken on another meaning altogether.
When asked what they’d like to do when they retire, most people will say, “I’ll travel the world”, or “I’ll live on a farm/beach/<insert other such place> for the rest of my life and enjoy nature.” Many of them say they would like to start a small business of their own – like a bakery, a pet care, a homestay or an online business.
If you consider these responses carefully, you’ll notice that retirement is not a phase where you would stop earning. What would change are your sources of income, and perhaps the fulfilment that you get out of doing something that matters to you.
The flaw?
If this is what retirement is all about, why postpone it to a time in the future? What is the guarantee that you would even live to see that future? There is much more sense in pursuing work you value today, than delaying leading an ideal life you’ve built up in your head. Sacrificing your now for an imaginary future may not be the best way to live life. Moreover, as per a study conducted by the UK Institute of Economic Affairs, retirement itself increases the risk of depression by 40%.
Which brings us back to the book, Your Money or Your Life. Written by Vicki Robin and Joe Dominguez in 1992, it became an instant bestseller. One of the more brilliant ideas in this book is the differentiation between “work”, “job” and “income”.
Summarising what Vicki Robin says in this article, work is what gives life meaning. We do it to contribute to society, to expand our knowledge, to make the world better in whatever little way we can. A job on the other hand is something you do to earn money. When your work is the same as your job, that’s great! “But income doesn’t make your work suddenly worth more.” Income is what we need to live the life we envision for ourselves.
So, if we envision a life in which we have more autonomy and feel more fulfilled, why not take steps toward that life today? Simply look at the FI of FIRE and drop the RE. Let’s retire the concept of retirement entirely and choose moderation over extremism. And let’s understand that money is only a means to an end, not the end in itself.
