In Steven Covey’s book “The 7 Habits of Highly Effective People“, he talks about beginning with the end in mind. That’s Habit 2, specifically. Have you done that when it comes to financial planning? When you began your career, your life planning, what was the end game you planned for? Was there a financial goal? Was there a finish line? How do you define “enough”?
More importantly (in my mind) is the question “how much does enough cost”? Because we could all very easily say that a billion dollars is enough, but what are we willing to sacrifice for it? How about $10 million, is that enough? How about $1 million? “That’s wonderful! Only 40 more years of leaving your family at home all day, using your best energy to make someone else rich, pouring your life into a cause that likely won’t be remembered, and you’ll have arrived!”
Putting serious thought into this question is what has drastically changed my mindset in recent years about how I manage, pursue, and plan for my family’s money.
Enough for Retirement
If you’re like many people, you might go about this based on a timeline as opposed to a fixed amount. For many folks the answer is a moving target. “I’m a wildly successful business-person! My goal is as much as possible by the time I’m 65 or 70“. Most people blindly accept the reasoning that their lives will inevitably consist of working a steady job until the government releases their retirement savings, and at that point they will decide how they would like to finance their lives. Until then, who cares? To that, I say “challenge your thinking!”
Retirement planners do this all the time for their clients (remember the ING ads about “your number”?). They sit down and discuss your goals with you, your plans, your savings, your investments. They they help you define what is “enough” for you in retirement. Plan to live a luxurious lifestyle from age 65 to 95? Better save more!! Would you like to live a quiet lifestyle during your retirement years? You might be well on your way already. But is establishing a number for living as a senior citizen the only way to determine what is enough? And is the only solution to this problem “earn more money”?
A Better Way
What if there was a way to change your thinking, your spending habits, your lifestyle, so that you could live comfortably on less money than you currently do? That sounds sort-of-attractive, right? Could you live on $20k/year? $30k? What would it take to comfortably provide for your basic needs? Can you define it? Let’s call that income level “enough”.
Instead of only looking at the income side of the equation, what if we also took stock of the expenses side of things? In our culture of consumerism, more is always better. And in the rapidly changing world of computers and electronics newer is always better. But we don’t often stop and consider just how much we’re paying for the “stuff” we so quickly dump our money into.
And what if you figured out that by sacrificing some things in the short-term, you could save enough or invest enough to provide for that lifestyle in the near future? You could “cut the cord” as it were, no longer needing to work in order to provide your basic needs. You would have achieved FI!
FI and Enough
Financial Independence, as we’ve previously discussed, is achieved when you no longer have to think about how you’re going to make money to survive. You’re free! You’re retired, in a sense. But how do you know where that “finish line” is? My response to that question is: How can you know where the finish line is until you establish one? How (and why?) would you run a race without knowing where the finish line is? And how could you run it well? You would have to be motivated by other factors that probably aren’t worth spending time thinking about.
But the key is figuring out what enough is for you. No one can dictate that for you. We live in a culture that says “the more the better”, both in regards to lifestyle and retirement savings. But I recommend that you challenge that thinking. There are plenty of more worthwhile and productive ways for us to spend our lives than padding our portfolios for “someday”.