One thing that becomes astoundingly obvious if you study personal finance with a goal of retiring early, is that there are a vast number of opinions on the definition of retirement. Isn’t the internet great!
This shouldn’t surprise us too much because, Personal Finance is, well… personal. There are those that wish to retire to an extravagant lifestyle with lots of international travel, fine wines and antiques and those that wish to retire as early as possible to the most simple of lives just to escape the 9-5 grind.. Neither, of course, is right or wrong – both, however, are personal.
Much of the debate about what retirement is revolves around the desire and/or need of the retiree to ‘work’.
The most typical disagreement is that some people view any sort of work that involves getting paid as disqualifying a person from being retired, whether they actually need the money or not.
Most often, people are confusing the term retired with financially independent.
Of course that can both describe the same person, but they are not always interdependent. It is quite possible to be retired from working, but not be financially independent (obviously not a desirable or sustainable situation) and also quite possible to be financially independent, while still working! I know…who would still work if they didn’t have to, right?
Anyway, the bottom line is this. If your consider yourself retired, then go ahead and be ‘retired’. Don’t let anyone else tell you that you need to have at least one million dollars, or that you are not allowed to work for money, or that you have to travel 6 months of the year to be retired.
Reaching The Retirement Goal
As the old saying goes, there are many ways to skin a cat. There are a lot of gurus out there that will provide different avenues and ideas about how to best reach your retirement (Financial independence?) goal. Not all of these strategies will be right for everyone, some of them might be wrong for almost everyone, but it is really up to you to follow the path that makes the most sense for you.
I plan to earn and save as much money as possible from my career, a small side business, some rental property income and equity investments. If I can see that my end game is in sight (Income from investments greater than expenses) I may decide to downshift to a lower stress job, or work the same job with less intensity it means that I will enjoy my life more.
Obviously, there are two ways to increase the efficiency with which you reach financial independence – earn and save more money, or spend less. Ideally, one would do both at the same time. It is really a simple formula, but mixed in with all of the math is this little thing called life!
Life Money Balance
As we just discussed, the formula for reaching financinal independence is very simple. However, we need to make sure that we are enjoying our lives while we get there. Of course, enjoying our lives does not necessarily mean spending more money. However, what it does mean is that we use our money to enrich our lives with the things that we value. And, everyone values different things.
On the flip side, we need to ensure that we are not spending all of our money ‘enriching’ our lives, succumbing to a life of wage slavery and a lack of freedom. If you plan carefully, you can have anything that you want, you just can’t have everything that you want!
Somewhere in the middle lies a balance that is right for everyone.
Some people are willing to work a little longer to have a nicer house, or car, or to take extravagant vacations. Others want to leave the rat race so badly that they live on rice and beans in a small apartment, socking away all of their money into retirement savings. Both options are fine, if that is what the person chooses to do. The problem is that most people don’t actively choose a path.
It probably doesn’t come as much of a surprise, but most people are not actively working toward a financial goal. Sure, some will say that they are saving for a down payment on a house. But, if you quiz them about what that house looks like, how many square feet, what neighborhood, exactly how much it will cost etc. they likely can’t answer you. The same conversation happens around retirement savings. We say we are saving for retirement, but mostly we are just going through the motions, blindly adding money to our RRSP or 401K plans without a specific plan.
Do You Have A Plan?
It is hard to have a plan if you don’t know exactly what you want. If you can answer the following three questions, then you are on your way. If not, start working on your answers and take action!
1.) What do you want?
2.) When do you want it?
3.) How are you going to get there?
They may seem like very general and broad questions, but you might be surprised with what you discover when you try to answer them in detail.