The (Real) Downsides of Financial Independence

ByScout & The Squire

Financial Independence is all rainbows and unicorns, right?  Isn’t that what we always hear from the media or from everyone in the FI community?  Don’t get us wrong, Financial Independence is a wonderful concept that can provide overwhelming benefit to almost all who pursue it, but are there any downsides to consider?

The Squire

I’ve enjoyed pursuing Financial Independence since Scout introduced the concept to me. Hearing his and other peoples’ stories gives me inspiration that at some point we won’t have to work for another dollar. But is Financial Independence really all it’s hyped up to be?

  • I like my Job – For those who found their dream job or just look forward to going to work every day, the whole idea of Financial Independence might seem irrelevant. Why spend time building up a nest egg when you could just work until your social security kicks in?  If you don’t like your job, find one you do like.
    Counterargument:
    Yes, having a fulfilling job is fantastic. However, being Financially Independent doesn’t have to do with whether you have a job. If you are able to secure fun jobs throughout your entire career, congratulations, all the power to you!  … You still need to have a financial plan. You still need to make sure that you can make ends meet if your job doesn’t pay enough or set you up for a good retirement when you finally are ready to take a break, whether it’s in your 50’s, 60’s, 70’s, or 80’s. Are you ready to take some time off if you have a kid, if you’re forced to deal with your or someone else’s change in health, or if you lose your job? Wouldn’t it be nice to know how much you’re relying on your paycheck?
    In my life:
    Yep, I’m one of the lucky ones, I really do like my job. But I don’t know what the future holds, and I want to know where we’re at with money. We have a house with regular small and large maintenance costs. We have kids who like to travel and participate in activities and require housing, food, clothing, and possibly college in the future. Knowing when we no longer need to rely on a paycheck may help us to spend more time on the job at hand, and give us more freedom in decision making.
  • Don’t want to focus THAT much on money! – Someone just observing the Financial Independence community might notice people referencing spreadsheets and talking about retirement accounts, backdoor Roths, and various other terms that can be a bit hard to understand. At first look, it might seem like you need to have a degree in finance to be able to come up with a plan for being financially independent. Dedicating hours and obsessing over money doesn’t sound like a great way to spend life just to have a little more money in your bank account. It sounds like you’re taking on another job.
    Counterargument:
    Having a basic financial plan is important for everyone, period. If you’re saving more than you’re spending (or if you think you can get there), then you may be on your way to Financial Independence. Your timeline can shorten by learning about ways to save more, spend less, and investing your savings in a smart way.
    In my life:
    It took me a while before I started to keep track of money. Eventually I did learn some basics about investing by reading some books and listening to podcasts, and eventually I started to actually invest. At the end of the year, I would put down how much money we had in our accounts, and after a few years I saw that the numbers were going up. So I knew we were in a pretty good financial situation. We don’t make a large amount of money, and we haven’t ratcheted down our spending much, so we aren’t going to reach Financial Independence anytime soon, but it is fun to find times when we can contribute more money to invest in our future. Rather than obsessing about money, we’re in a space where we are looking for ways to spend money in a meaningful way.  This way of thinking makes a lot of sense to me.
  • Too Much to Save! – One of the rules of thumb that is commonly noted in the Financial Independence community is the idea of smartly investing twenty-five times your expenses (called the 4% rule), as a starting point of what you might need to save before Financial Independence is achieved. That’s a lot of money. If your expenses add up to $100,000 a year, you would need to come up with $2.5 million using this concept. This may seem impossible. Who could ever save up this much money? I could see how someone might do this calculation, get discouraged, and decide this Financial Independence won’t work for them. 
    Counterargument:
    Yes, that’s a lot of money. Remember though, you may have some say on how much you make, how much you spend, and how you invest. If you could reduce your spending to say $80,000 a year, that would bring your number to $2 million. Investing that extra $20,000 a year should help you save hundreds of thousands of dollars over a number of years. There are obviously many more factors to consider. The amount spent on kids can change over time. Social security and pensions are other numbers to think about. The timing of when a mortgage is paid off and reducing car payments are a couple more factors.
    In my life:
    For my family, we use the general number of twenty-five times our expenses as a starting point for our Financial Independence number. It is fun to map out how spending and needs may change over the years, and as we get closer we’ll adjust the number accordingly. We happen to like our jobs and we aren’t trying to reduce spending or increase income as much as we could, and we aren’t sure if we would change our work schedules at all once we reach Financial Independence. However, we are intentional with increasing investments as our wages slowly increase, and we can see the progress we are making. Even if we aren’t able to reach our Financial Independence number at a young age, it gives us a lot of confidence to see that our financial situation is improving.
Scout

Ever since discovering Financial Independence, I feel that this movement has provided numerous positive impacts in my life including increased technical knowledge, clarification of financial goals, concrete examples of what a non-traditional life can look like (both leading up to & after retirement), and a welcoming community where I fit in & feel right at home.  However, as with everything else in life, along with the positives come some potential negatives.

  • Loss of Identity – Work provides an identity for many people, especially those who have advanced degrees, work in a highly-specialized field, or are very passionate about their chosen career path.  Some examples include doctors, lawyers, teachers, etc.  Whether this professional identity is consciously or unconsciously attained over the years, it tends to become interwoven into many people’s lives, develops into a part of who they are, and for some it even contributes to a large portion of their self-worth.  These identities are constantly reinforced when others ask “what do you do for a living?” and someone can proudly & confidently answer “I AM an (engineer, nurse, or whatever it may be).”  For those who eventually leave their career, I can completely see how some could feel a sense of loss because it may also feel like they are leaving part of their identity behind.
    Counterargument: 
    Financial Independence can provide a fresh start for everyone.  This is especially true for those whose identity isn’t closely related to their career and/or for those who dislike their jobs.  Similar to moving to a new area or starting college, there is a chance to start from scratch to build a new life to be proud of.  A new identity can be based on a hobby/passion, new job, etc.  Even for those who have strong ties to a previous identity, creating a new simultaneous identity (without completely dropping the old one) could be beneficial since one day most of us will leave our old careers whether we like it or not.
    In my life:  
    I am one of those people who never felt a strong connection to my career.  Instead of having a passion for engineering, I chose that field because of its practicality and always viewed working as more of a means to an end than anything else.  So when I finally left my job I never struggled much with identity and this issue rarely even crossed my mind.  However, on the other side of retirement I have been enjoying trying to forge a new identity for myself based on current projects (podcast producer/editor & blogger).  To be honest it’s been strange, occasionally awkward, and sometimes seemingly unrealistic transitioning into a “new” person after all these years, but it’s also been extremely fun & rewarding.
  • Loss of Friends/Community – In addition to our professional identities, part of who we are is influenced by the people we surround ourselves with.  Motivational speaker Jim Rohn states that “You are the average of the five people you spend the most time with.”  We tend to lead similar lives with similar goals & habits as those around us and also tend to make similar lifestyle choices.  When we discover Financial Independence this typically means leaving behind old financial decisions & habits and gravitating towards new ones.  While acknowledging that we are moving towards a better future, it can be hard to leave the past behind, especially when this includes our old friends & community that we’ve spent years or even our entire lives cultivating. 
    Counterargument:
    Based on the odds, I think it’s safe to surmise that many of us grew up immersed in the typical consumer culture of saving very little, focusing on consumption first, with a tendency to spend every last dollar as it comes in, and perhaps even living paycheck-to-paycheck.  For many others, like myself, perhaps we simply grew up in households that just didn’t even talk about money.  Neither of these two scenarios is ideal when thinking about the goals of Financial Independence, so I don’t think abandoning either culture is a real loss.  If Financial Independence is the ultimate goal, moving towards this community is a good way to be surrounded with more positive financial influences and a way to obtain new friends with similar objectives & lifestyles.
    In my life:
    My friend group has changed over the years, both intentionally & unintentionally, with most of the change occurring near retirement.  Although I was a natural saver & had frugal habits coming out of college, my mix of “real-life” friends included a wide-range of financial dispositions including both big spenders & big savers.  After discovering Financial Independence I made new (virtual) “friends”, which were personalities from the podcasts I listened to as well as those I interacted with on social media.  As I approached retirement, I felt subtly drawn more & more to this newer group of friends from the FI community because I had so much more in common such as similar pursuits & goals.  After retirement this shift in social groups was even more pronounced – not only did I lose acquaintances from work, but I also lost some old friends.  Letting go of work friends was natural & understandable because we no longer had our jobs as a common bond.  What really hurt was losing non-work friends, which would always occur after I mentioned that I had retired – the news would be initially met with shock & disbelief followed by diminishing contact afterwards.  I am still not sure if this was due to jealousy of my situation or perhaps not having the ability to comprehend how I was living & feeling that our lives were just too different.  The good news is that the loss of old friends was eased by the new FI community I became a part of and why I believe finding the right community is so important.
  • Neglecting the Present to Focus on Achieving FI – When we first learn of Financial Independence, I think most of us have a natural inclination to start pursuing it full-speed.  It feels like a secret life-hack has been revealed and I think most of us are impatient (as with most things in life) and want to jump to the end & get to the finish line as soon as possible.  In fact, “old school” Financial Independence culture seemed to focus on this with many popular FI bloggers such as the Mad Fientist and 1500 Days To Freedom leading the way.  The danger of this strategy is that FI usually takes MANY years to achieve.  On one hand, while I honestly applaud the strong level of commitment it takes to rush to the FI goal, we must also acknowledge that time continues to march forward in parallel.  Because our heads can get buried in the sand trying to pursue FI, it’s easy to forget about the present and miss out on opportunities to live life today such as spending time with friends & family (especially our kids), traveling, etc.  Time is a non-renewable commodity and there is no way to create more, so we need to ask ourselves whether the rush to FI is worth missing out on life experiences in the present moment.
    Corroboration:
    Although the Mad Fientist and 1500 Days To Freedom both rushed to achieve their FI goals, each one subsequently reflected on their journey and stated that they would’ve done things differently.  The Mad Fientist described part of his journey as “Dark Times” while on the fast-track to FI because he found himself miserable due to all the sacrifices he made along the way.  His ultimate lesson was “Don’t put off happiness until FI”.  Mr. 1500 Days described his journey as a “Death March to Financial Independence” also citing how miserable he was and how he “forgot to enjoy life”.  Fortunately this “old school” FI mentality is starting to give way to many new variations of Financial Independence such as CoastFI (having enough saved in the present to provide for a comfortable retirement at a traditional age, i.e. front-loading savings & investing and letting compounding work its magic) or SlowFI (a philosophy that focuses on using financial freedom to intentionally design a better life NOW instead of waiting to hit a FI-number/early retirement sometime in the distant future).
    In my life:
    I am one of those people who subscribe to the old ways of FI, primarily because of my personality.  I’ve always been someone who keeps my head down and goes “all-in” whenever pursuing any important goals I have.  I also have a strong tendency to delay gratification and front-load in other areas of my life, meaning that I prefer to put in most of the work up front in order to enjoy easier conditions in the future (i.e. finishing homework as soon as I got home from school so I didn’t have it on my mind throughout the evening).  I don’t completely regret rushing to early retirement because it has provided way more benefits than not and I also have a sense of relief knowing that most of the hard work is behind me.  However, I do acknowledge that I missed out on a lot of things in life over the years such as working to cultivate stronger relationships with friends (I lost a good number due to this negligence) and a work-life balance that leaned primarily all the way towards work (resulting in missed travel experiences, missed opportunities to spend time with friends & family, missed opportunities to say “yes” to random/fun things, and life sometimes feeling mundane & a relative blur).  Because of my past “mistakes”, I am now trying to live life more in the moment & trying to create memorable experiences, while also acknowledging that I can’t truly make up for lost time.

Links/Resources

Reader Questions

  • Are there any other downsides to Financial Independence?  
  • Have you or anyone you know experienced something negative associated with FI?  If so, has it deterred your financial journey at all?

Leave your answers or comments below – or email us directly at info@epicfinancialjourney.com

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