When we think of Independence Day it is usually a positive thought. Not only of the celebrations that occur during Independence Day but also an appreciation for the battle that many had to endure and overcome to achieve independence.
Financial independence is not much different. It takes a lot of hard work and discipline to achieve financial independence. There are many positive connotations with Financial Independence but is it actually all sunshine and sandy beaches?
We will take a look at some of the drawbacks that you will have to watch out for when you achieve financial independence.
What Is Financial Independence?
If you are new to the investing world, even if you have been around for some time, you may not be that familiar with the FIRE (Financial Independence Retire Early) Movement. There are several stages of financial independence. The general definition of financial independence however speaks to the idea that there is a certain on-going income amount and savings that you need to sustain to live the type of lifestyle you would want to live in retirement.
The key is that you are able to live that lifestyle without the need to be employed as you have your own sustainable sources of income. You would work hard to achieve that level of financial stability early on in your career so that you could retire earlier than traditional retirement age. This does not come at an easy price. It requires a lot of dedication, discipline, saving and investing over the course of many years.
Why Do So Many People Want To Achieve Financial Independence?
Think back to when you were a young adult, and you were launching out into the world on your own. Previously you had to depend on your parents to provide your financial support. Once you had your own job and source of income you could be independent and make your own decisions because you were able to provide for yourself.
The FIRE movement attracts many people for that same very reason. They are able to free themselves from the dependency of relying on their employer as their source of income and instead have a source of income that is more passive allowing them to make their own decisions on their own time.
Wouldn’t you want that kind of freedom?
Well…maybe not.
What Are Some Of The Draw Backs Of Achieving Financial Independence?
While there are definitely a lot of positive aspects to the FIRE Movement and achieving Financial Independence some people are surprised that life is not what they expected once they achieve that goal. Financial Independence and the Early Retirement lifestyle may be in some ways harder for some people than continuing to work their regular jobs.
How’s that possible? Once you retire early you may find yourself with the following problem:
too much time and lack of productivity;
it may not fit your personality;
changing desires for life.
Too Much Time And Lack Of Productivity
Major life events amongst friends usually happen around the same time. This may be graduations, marriages, the birth of children, and retirement. The majority of people retire around the same time. This means if you retire on normal schedule many of your peers will also be retiring as well. If you retire in your 30s and 40s however, the chances are majority of your social network is still working a regular 9-5. This means that while you may want to do some social activity, there is no one available because they are stuck at work.
With all this additional free time and no one to share it with, it is possible you could end up having too much time on your hands without a good idea of what to do. Of course, there is that initial hit of retirement dopamine when you first retire early and can do what ever you want but after that becomes a new norm the novelty wears off. This can be resolved by picking up new passions and hobbies or volunteering your time to give back to your community.
It May Not Fit Your Personality
Some people are very self-directed and organized. They can work independently and be very productive. Other not so much. They will fall apart if there is a loss of external structure in their schedule and will suffocate without the social interactions that come with normal employment. Which one are you? If you fall in the latter category, then maybe retiring early (even if you have met all your financial goals) may not be for you. With the additional freedom and money, it also becomes even more important (maybe more so than when you were on your financial independence journey) to be considerate of how you spend your money. If you think that you may end up on the hedonic treadmill and have lifestyle inflation that will eat away your finances, then retiring early may also not be for you.
Changing Desires For Life
The journey to financial independence takes years. As humans, the desires that we have change. Maybe what you thought you wanted in life 10 years ago no longer aligns with what you want in life now. For example, maybe you were single, or did not intend to have children. After living a few years in early retirement, you may decide to get married or decide to have children. These changing life decisions obviously change the math for what type of finances you would need to sustain that early retirement lifestyle. Of course, this can be solved by going back into the work force or working with your spouse to balance finances which may mean one or both partners continue working longer than initially expected.
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