Imagine yourself on a looooong road trip.
Let’s say you’re driving along on an interstate, headed from the east coast to the west coast of the United States. You’ve got thousands of miles ahead of you, several days of driving. For the sake of this illustration though, let’s also say that you’ve got enough gas in your tank that you’ll probably make it all the way to your destination without running out. Oh, and there are no gas stations along this interstate.
One issue you might run into on your trip has to do with your driving habits. You need to be checking your gas levels every few minutes along the way, to make sure you’re not burning through too much gas. There’s a tinge of regret in your mind as you look over your luxury sedan– an economy car would have made this trip a tad more manageable.
The other issue that may come up is that you might need to head up the coast for a few hundred more miles once you reach your destination, so you won’t really know how much gas you need total. It’s more of a guestimate.
Financial Independence vs Early Retirement
In my mind, this is what I imagine early retirement feeling like. In the traditional sense, retirement involves storing up enough money before retirement so that you can spend that money after retirement, and no long have to work. That involves planning your lifestyle, setting your life expectancy, and managing your expenses very closely (as well as how your funds are holding out) to make sure you aren’t going to out-kick your coverage. Better not live too long, or lose too much in your retirement account, or you’ll be working as a greeter at Walmart to make ends meet when you’re 80.
Financial independence, on the other hand, starts with a different mindset.
Going back to our imaginary road trip, financial independence is more like taking that same coast-to-coast trip in an electric car that’s charged by solar power!
Is that electric car as sexy as the luxury sedan? Probably not, but there are some great features that this car provides. If you decide you need to hop on a transport ship and keep driving through Asia, you’d be equipped to handle that. You won’t have to check your tank and your driving habits nearly as often, and the stress of running out of gas before you get there is totally off your mind.
So What’s The Difference?
Financial independence is setting an annual income goal for yourself, and putting your money to work in such a way that you can live off the proceeds from your investments without ever reducing your retirement account. If you started your “retirement” with a million dollars in the bank, the idea is that you would die with a million dollars in the bank, whether that was 5 years or 50 years later.
Instead of living on the edge, financial independence involves making extra sure that you’ll have enough to provide your basic needs for a long time to come, and then if you’d like to splurge or save up for something extra nice, finding a way to earn some extra so that you can make that happen.
But early retirement could leave you stranded, with no gas stations in sight. Is that gas-guzzling luxury sedan worth that kind of risk?