My Why for F.I.

Many of us fantasize about retiring near a beach, drinking margaritas and waking up when we feel like it. We want to run our own businesses and call our own shots.  Or, we might want to live in the country and farm acres of land, or have a condo in the city in the summer and travel to foreign countries on a whim.  No matter what your fantasy of the good life might be, it will always require a financial investment and a way to sustain yourself.

I want to be rich.

Most of us say we want to be rich. Simple enough. We hear terms thrown around about being rich, being wealthy, financially independent, or self-sufficient.  While these terms are interrelated, there are some differences.  I’ll explain them later but, first, I want to tell you what made me get out of my desperate financial situation.

So, what’s my story?

Like many Gen-Xers, my family didn’t teach me anything about handling money outside of balancing a checkbook…and barely even that.  Our parents taught us to go to school, learn a trade, work hard and advance at one company for 30 years.  Then, retire with a pension handled for you by a financial professional through your employer.  Back then, families made enough to meet their basic needs and take summer vacations to the Grand Canyon.  Money wasn’t a big issue for a lot of Americans even if you were in the lower middle class as I was.

Things weren’t as good, though, if you were poor.  For poor families, money discussions were about making enough to cover the necessities.  There was nothing left to even consider investing.

Starting in the late 70s, large corporations began moving from the retirement pension model handled by a sole fiduciary hired by the employer, in favor of the 401-k model where the individual employee is responsible for their own retirement investments. Handling your own retirement investment account sounds like a good idea if you understand investing.  But because I, and many others like me, did not learn about investing, I simply put a little bit of my money in a savings account and thought I was doin’ somethin‘!

In the late 90s, I was making a great salary and even had a couple of real estate properties under my belt.  However, because I wasn’t responsible with money at the time, I kept spending it.  I spent until my car got fancier, my house got bigger, and I started filling that house with more and more expensive things. 

Then, I lost my job.

The dotcom bubble in 2000 burst and my well-paying tech job was collateral damage.  Soon, I was broke and in heaps of debt because I had taken out home equity loans and charged up my credit cards.   For someone accustomed to being independent, this was a very painful situation.  My expenses far outweighed my income.  (Wait…WHAT income???  I didn’t have a job!) 

That feeling of helplessness sucked to the core of my soul.  I was desperate to get out of that mess! To escape my despair, I started listening to podcasts. Fortunately, I ran across podcasts by Dave Ramsey, David Bach and others.  I heard the term “financial independence” and it changed my mindset about money. I packed my brain with everything I could learn about personal finance and investing and being wealthy, rich….ALL OF IT!  I wanted to get to a place where I didn’t owe creditors and I could tell an employer to “stick it” if it ever came to that.

As I studied about money, I learned there was a difference between being financially independent, wealthy, and rich. Here are my thoughts on the differences:

What is Rich?

A rich person is simply someone with, comparatively speaking, a lot of money.  A rich person has enough cash or assets at their disposal to do things or buy things that most people cannot afford.  A rich person, though, only has enough money to cover their needs and desires for the short term. They probably make the majority of that money actively via a job and a paycheck vs. passively via real estate or stocks.

What is Wealthy?

To be wealthy is to have a lot of money and resources at your disposal to live like a rich person – but in perpetuity.  Simply put:  You have enough money and assets to cover a high standard of living even when you’re not working….for the rest of your life.

What is Financially Independent?

To be financially independent is to have money and resources at your disposal to live the standard of living YOU choose for AS LONG AS YOU CHOOSE.  You have enough passive income to cover ALL of your expenses even when you are not working.  It doesn’t matter if your standard of living is low, middle, or high.  As long as your expenses are covered for the time period that you designate, you are financially independent through that period of time.  You can change the timeframe to reach your financial independence threshold simply by adjusting your standard of living and investment rate. 

What did I choose….?

I chose financial independence because, at this point in my life (in my 50’s), I can set an easier retirement target by simply adjusting my standard of living.  And I’m happy with that! I started my journey to clean up my finances later in life (40s), so extraordinary wealth is probably out of the question. But, living below my means has left me with no debt and the relief of knowing that, even if an employer kicks me to the curb again, I can wake up in my paid for house, drive my paid for car, and pay my light bill. Argentina is not crying for me!

I’m still working to reach my financial independence goal. But, with a good financial plan, some discipline, and financial education, I’m well on my way!