Definition of FI- Not all about the Money (Pink Floyd Edition)


Pink Floyd is one of my favorite classic rock bands. Financial independence is a more recent obsession of mine. Why not combine the two passions in an attempt to shed some light on the definition of FI? I want to give my personal definition of FI and also touch on some of the numbers that can get us where we aim to be. With a little help from Floyd, I think we can accomplish just that. Yeah, let’s do it.

The lunatic is in my head– Brain Damage (Dark Side of the Moon)

In the first couple of posts I have been referencing FI or financial independence. This is a somewhat ambiguous term as it has different meaning to almost everyone. Some will say that financial independence is having enough cash saved to retire from working. Some will say it is a specific number such as 2 million invested in the market. Yet others will say financial independence is the freedom to live the life they have always dreamed of. Late starters like us can have a very different definition of financial independence. There really is no wrong answer of what is deemed FI or how to hit that goal.  Getting out of the trap of the rat race and peace of mind are the real targets.  Your FI number will almost certainly be different from your neighbor depending on the lifestyle you currently live and want to continue to live after hitting your FI goal.

Money, get away, Get a good job with good pay and you’re OK- Money (Dark Side of the Moon)

FI as a number: The 4% rule and SWR

The most common rule of thumb to calculate your financial independence is the 4% rule. Using a broad brush stroke, let’s illustrate what the 4% rule is. Start by taking your annual spending, lets use an example of $40,000. Multiply that number by 25, 40,000 x 25=$1,000,000. One million dollars invested in the stock market would be your financial independence number.

So what does this even mean and where did these numbers come from? Historically, the stock market, on average, has returned between 7-8% per year in dividends and appreciation. Let’s go with the more conservative number of 7%. You would also have to factor in the inflation rate of 3% per year that would eat away at that 7% return leaving 4% over and above your base million dollar portfolio. So in theory, you would safely be able to withdraw 4% of this million dollar stock portfolio forever… 4% of one million dollars… 40,000. Pretty cool, huh? You could have 40K to cover your annual spending for life after you hit that large of a stock portfolio.

So that is the cliff notes version of the 4% rule and the safe withdraw rate.

For a more in depth look at this formula check back soon as I plan to do a follow up… if you just can’t wait check out this hallmark post from Mr. Money Mustache on the subject:

However, these numbers are not the end all be all definition of FI.

You say the hill is too steep to climb, climb it, You say you’d like to see me try climbing, You pick the place and I’ll choose the time, And I’ll climb that hill in my own way-Fearless (Meddle)

Every person, depending on their situation, can have a personal definition of FI and how to get there. There are multiple ways to achieve this state of freedom as well!

You can reach FI with real estate.  A vast numbers of people will, at some point in their journey, dabble in real estate.  Rental properties can really speed the process to FI as you can earn on multiple fronts.  Rental real estate can appreciate in value, produce a monthly rental income and someone else could be paying down your mortgage.  Real Estate is also not just limited to rental properties. Income can be produced by renting a portion of your house out via roommates or even short term vacation rentals with AirBnB.  Having another person pay down some of that monthly mortgage will surely help you to add to your savings rate.

As we touched on earlier, investing and maximizing your savings rate are some of the most common and passive paths to FI.  Living a lifestyle that allows for maximum savings and little excess consumption are a hallmark of the FI community.  Learning to cook at home, growing your own food, trading in that gas guzzler for a fuel economic ride and packing your lunch to work are some simple, actionable lifestyle changes that can lead to increased savings.  Some FI seekers take this a step further and cut costs by downsizing their home, trading in their car for a bicycle and even moving to other states/countries that have a lower cost of living.

There is only so much that a person can really cut out of their month to month expenses…but there is virtually no limit on the amount that you can add to your income.  The importance of savings and having F-U money stashed away can give you the confidence and leverage to go for that promotion, take that higher paying job, go back to school or even change career paths completely.  Side hustles are also a favorite tool in the financial independence quiver.  Turning a passion or hobby into a business is a great way to add income or possibly evolve into a full time gig!

As you can see, there are many different levers to be pulled.  Most FI seekers implement a mix of strategies.  The beautiful thing about FI is that no matter what your personal definition, there is a community built around the idea to support you!

Did they get you to trade your heroes for ghosts? Hot ashes for trees? Hot air for a cool breeze? Cold comfort for change? Did you exchange a walk on part in the war for a lead role in a cage?- Wish you were here (Wish were you here)

I like to think of FI as a mindset. Being intentional with my finances NOW to be able to be do what I want in the future.  There has to be a means to an end.  If I can sacrifice now, I can live more on my terms in the future. I’ll be able to live a life without the stress and anxiety that living beyond ones means brings. I can be content with a semi-spartan lifestyle if it means spending quality time with loved ones instead of sitting in rush hour traffic. I can forgo the siren song of consumerism if it lets me spend the holidays with my family instead of praying my time off request gets approved. I invest my savings now so, in the future, I can spend my son’s childhood on the playground with him and not in a cubicle.

Those are my “why’s”, my reasons I live my life with intention.  To really be successful and maximize your commitment to the FI lifestyle a clear and powerful “Why” should be determined.  Otherwise, if and when temptation comes knocking at your door in the form of premium season tickets to your favorite sports team, the next cryptocurrency bubble or new boat you have been dreaming about, you can think back to your “why” and weigh your decision.

And then one day you find ten years have got behind you.  No one told you when to run, you missed the starting gun-Time (Dark Side of the Moon)

Even if I never obtain enough of a stash to retire early, I will still be in a better place financially, mentally and spiritually from living by the principles of financial independence. Live life with intention and purpose and I guarantee good things will happen.

Remember have fun and live life along the way… stay the course but don’t forget to kick back, turn up the tunes and drift away every once in a while. I’ll see YOU on the dark side of the moon.

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4 Replies to “Definition of FI- Not all about the Money (Pink Floyd Edition)

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