Financial Independence vs. Financial Freedom: Why Chasing a Number Could Hurt Your Retirement & How Coast FIRE Creates Balance

Balancing Financial Independence and Fulfillment: The Key to a Meaningful Retirement

Of Dollars and Data Blog

In this episode of the Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner, delves into the nuanced topic of financial independence. Inspired by an article from the Dollars and Data blog, Kelly explores the potential downsides of aggressively pursuing financial independence at the cost of personal fulfillment. He discusses the importance of balancing present enjoyment with long-term financial goals and introduces the concept of Coast Fire as a middle ground. Kelly explains the differences between financial independence and financial freedom and provides actionable steps to incorporate retirement dreams into present-day life. He emphasizes the importance of envisioning a fulfilling retirement life and taking steps to live that life today rather than sacrificing current joys for a future number. The episode encourages listeners to seek a balanced approach to financial planning that prioritizes both present and future well-being.

00:00 Introduction to Financial Independence
02:04 Defining Financial Independence vs. Financial Freedom
03:50 The Pitfalls of Chasing Financial Independence
05:44 Understanding Financial Freedom
08:37 Envisioning Your Ideal Retirement
14:58 Exploring the Concept of Coast Fire
17:35 Putting Coast Fire into Practice
21:31 Conclusion and Final Thoughts

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Transcript

0:00

And welcome back to the Retire Early Retire Now podcast. I'm your host, hunter Kelly, certified financial planner and founder of Palm Valley Wealth Management. And today we're talking about a big idea in personal finance that doesn't always get the nuance, it deserves financial independence. This podcast idea or thought came from reading a blog of Data and Dollars by Nick Magini. I hope I'm saying his last name correct. but he's with Ryan Ho hol 12th, and, it's titled why Financial Independence is Overrated. I read this a few weeks ago and it's, been pondering over, this idea, not necessarily from a number standpoint, but but from a philosophical, thought process and. And so I want to explore the trade-offs between sacrificing too much now to get there faster, versus focusing on building a life today that already looks a lot like retirement that you envision. And so obviously this podcast is all about retiring early. Hopefully retiring now and building that retirement. And so retirement doesn't always mean leaving your job and playing golf every day or doing nothing. it can mean a lot of different things to a lot of different people. And so I, I like to ponder on this and Nick did a really good job of writing a good article about why financial independence is overrated. So I just wanted to. Ban on those ideas, and give my 2 cents. So hopefully you enjoy it and it gives you some really good food for thought on, Hey, am I building, the life that I want to live? whether that be through retirement, financial freedom, financial independence, things of that nature. we'll talk about. also a middle ground that gives you best of both worlds. something called Coast Fire is also something that Nick talks about, and so I'll actually include, that blog link in the show notes. So if you wanna go back and read that, he does a really good job. So if you're into reading financial blogs and things of that nature, Nick does a great job. First couple of things I wanted to do is, define what financial independence is versus what financial freedom is. And so let's start with the problem with an all or nothing pursuit of financial independence. So financial independence means your investments cover all of your expenses so you'll never have to work again. Sounds great. Right. And there's definitely positives. To pursuing it. For one, it's very easy to measure. You can calculate your retirement number and you can track your progress over time. So as you check your net worth, your investible assets, the things that you're, you're accumulating over time to help you with that financial independence, you can easily say, okay, I need to get to$2 million. I'm at 500,000, and then the following year you make some progress and the following year you make some progress and it can give you an easy metric to see how am I making progress to toward this financial independence, right? And so that can give you clarity and be very motivating. it can help you see the finish line that you're getting closer toward with every dollar that you save and invest. For some, this is a concrete, uh, target that helps. Uh, people stay disciplined and keeps them focused over a long-term goal, which is very difficult, right? So if you think about, uh, things 15, 20, 30. Potentially 40 years for some people that are listening to this podcast, it is very hard to stay disciplined and focused on something for that period of time. And so having a number that you can hit and, and measure and know that you're saving toward that goal, is an easy way to help you stay on track for that. But here's where things can get tricky. Some people become obsessed with hitting this number as fast as possible, that they neglect other parts of their lives, right? And so the fire movement became a big thing. I, I would say probably about 10 years ago when, social media started getting bigger and so on and so forth. if you're not familiar, it's financial independence. Retire early. people really, whether they just want it to be free or have control of their lives, maybe they, they had a job they didn't like and didn't want to do, but was making decent money where they could save a significant amount of their income. they were skipping trips with friends, passing up dinners, cutting, spending to a, a minimum so that. If I can hit this magic number, I can relax and live how I want. And so the problem here is that, these people retire early and they still felt e empty. it, they gave up on meeting full relationships along the way, hobbies and experience to get to this number. So there wasn't a lot of balance. to the way that they were saving toward this. and again, saving and getting to financial independence is a good thing. But what is the trade off, right? I often think, and I don't necessarily have data to, to back this up, but these people that are, sacrificing to the point where they're giving up relationships and things of that nature, they're getting to financial independence, but they're such a small subset of these people that I think that they just don't have the community or maybe they're not, envisioning something that. Hey, after I hit this number, this is what I'm going to do with my life. there's ways that we can start to build this and still have that fulfillment, have community around yourself, and we'll talk about that here in a little bit. so if financial freedom or financial independence has these risk, what's an alternative? Well, part of it comes down to understanding what you're really chasing. And that means separating financial independence from another often misunderstood con, concept. And that is financial freedom. So financial freedom, often gets confused with financial independence. And again, financial independent has makes, is defined as, investments covering all of your expenses so you don't no longer have to work, but financial freedom. You have options. You have security with your money. Maybe you still work, but you can choose how, when and things of that nature so you have more choice over your life. financial freedom lets you live the life on your terms earlier without extreme sacrifices. So the question isn't. How do I never work again? It's how do I make work optional while still enjoying life now? this is a, a question that I ponder a lot myself. Again, this is partly why I made the concept of retire early. Retire now. I can see, and I'm sure people listening to this have seen their parents work, grandparents work until they're 65, 70, probably 75, and then they don't know necessarily what to do with themselves or they work till long that their health is become, to a point where they can't do the things that they want to do. Right. And then, not recently, but a long time ago on this podcast, about a year. Or two ago I talked about my grandmother and my grandfather retiring from their job as they did a great job of saving, they had pensions from the employer that they worked for. So financially they were a okay fine, but they had worked so long and sacrificed so much that they could not, go do the things that they want to do. One of the things they wanted to do, they lived, or they live in southern Alabama. And they wanted to build a, home on their property in Tennessee. And so they worked to such a point that by the time that they retired, they could not do those things. And so that has motivated me. and it's probably similar to a lot of people that are listening to this podcast to start building. That life now. So my li my my motivation or the things that I envision is not building a home in Tennessee, but there are things that I want to do that I don't wanna wait until I'm 65 to do. And so how can I start building that life now? We will talk about that here in just a second. having that option is how we want to, or having those options gives us the most freedom and flexibility. And so once you understand the difference between financial independence and financial freedom, the next step is figuring out what you actually want life to look like. just like I talked about my grandmother, my grandfather, we want to envision. What do we want before and after retirement? Because if you're not clear on that, then hitting this number that you have in mind, if you're just working toward financial independence is just a number, and that number can change. Some people say, oh, I'm gonna work two more years. I'm gonna get to my$3 million or$5 million, whatever it is that their number is. Then they move the goalpost. I just worked two more years, just worked two more years. Right? And it's just a number. or on the other side, they hit that number, but then they don't have a plan afterwards. And so the, the key to this is to have a vision in mind. So if you're not retired now, if you're not financially independent now, Start thinking about, what if I already had all the money that I ever needed? That doesn't mean you necessarily need Jeff Bezos money or Bill Gates money, um, but all the, just assume all the money that I ever needed to do the things that I want to do. Right. And so what would your life look like then? Once you kind of envision that, are you doing those things now? And what can you do, to take action toward that? So what do I actually want my retirement to look like? Where do I want to live? What do I want to spend my time doing? Who will I be spending it with? And that's the big one, at least for me. who are the people around me? Doing it. and so a lot of times with my friends that are not, obviously financial advisors or financial planners. I always tell them, Hey, you need to start saving. I don't wanna be the only one retired or, being able to do all of these fun things, I wanna be able to do it with them. Right? and so that is, my way of saying, Hey, get your button gear and make sure you're saving, so that we can do these certain things. So we want to start to think, okay, well if I envision my retirement, what are some things that I can start doing today to start kind of creating that retirement, right? Living? Life, like every day is Saturday and maybe it's not perfect right away. You still have a job. Maybe you have young kids, whatever that case is. But what can I do today to start living that retirement out? So for me, right? I like, I enjoy being outdoors in the woods, hunting, when it's hunting season, doing those types of things. my retirement goal is to be able to do more of that, right? And so one of the things I could do and I'm working toward is, well, maybe I can go out west and hunt a different species of animal, right? So the big one in hunting is elk. but you can do mule deer, you can do all things. And the hunting out west versus on the east coast where we are, uh, here in Florida, in Georgia, South Carolina area, um, is, is a bit different, right? So here we're still hunting, we're sitting in trees for, hours or, and things of that nature. hoping to cross paths with, whitetailed deer, right? Out west, you're stalking, you're, you're traversing mountains and things of that nature. So the hunting's very different. I would love to do something like that. It's just a different experience. Be a nice challenge. Right. And so one of the things that I could start implementing and one of the things I'm working on is instead of waiting until I'm retired 20, 30 years from now to go do that. Right. Especially being in my mid thirties, I'm. Most capable of doing that physically right now. maybe I can start working toward spending a month out there, in September, out in, Utah or Colorado or Arizona, wherever I can get that l tag and. Be able to go do that hunt. And that would be, something I would really enjoy. And that would, to me, I would be retired, right? at least for that month. And so I can start doing that and as I create more income and save more money and my investments become, to a point where they're, They're supporting my expenses, then I can do more and more of that each following year, right? And so what I'm not gonna do is I'm not gonna sacrifice these hunting opportunities this time with my family. enjoying time. coaching my son's t-ball league, things of that nature. in order to retire 3, 4, 5, maybe 10 years earlier, whatever that may be, and maybe not have, have a son that, that I have a good relationship with'cause I'm working all the time, or whatever that case may be. Right? And so if your ideal retirement includes travel, don't wait. Start trying to set your work schedule up to where you can. Travel for more extended periods of time versus just maybe a week at a time or things of that nature. Maybe you work from home. And you can create a setup to where you can travel for 2, 3, 4 weeks at a time and still be able to work while you're traveling. I used to work with a client at my previous firm, and that's exactly what he did. he worked, I think he was, some sort of it, and he was able to. Connect his camper to internet and things of that nature. And him and his wife would travel everywhere in this camper. and they enjoyed it. That's what they liked to do. And so in a way, he was still working. He enjoyed his career, but he was also still quote unquote retired because he was doing all the things that he enjoyed doing. Right? the real point here is what can you do today to start living out that envisionment of retirement? Right? Um, yes. I would love to retire early. I plan on retiring early. but also I don't wanna sacrifice certain things over that period of time of getting to my number. so that, to, to the point that, I've sacrificed. a marriage or, relationships with my kids or not hunting for an extended period of time, whatever that may be for you. and so again, this whole idea of financial freedom and retiring early is just when I read the article, by nick of dollars in data the, a couple weeks ago. just something I've been thinking about. And so I think it could be useful to food, food for thought for you guys. And so one of the other things that he talks about in this article is the case for Coast Fire. So what is Coast Fire? It is when you've saved enough, and invested enough that. Without adding another dollar, your investments will grow to fully fund a retirement. So maybe you can get to a point where you have enough in your 4 0 1 Ks IRAs, brokerage accounts that's invested, that you don't necessarily have to put another dime into these accounts. and you can continue to work just to cover enough for your expenses. So maybe it can give you freedom to where you're stuck in a office nine to five, five days a week with maybe only two to three weeks of vacation. Where now if I have enough in these other accounts where I don't need to save 10, 15, 20, 20 5% to retire at a certain age, of whatever age you decide. Then now I can go get another job. That gives me more flexibility, just enough to cover my living expenses, maybe a mortgage or whatever the case may be, and be able to do something that is a little bit more fulfilling. So this means you can step back from a high stress career. Maybe you don't have to make 2, 3, 4,$500,000 a year. You can make. A hundred or$150,000 a year. So maybe you're attending physician and you can go to PRN or maybe you own a practice and you can see patients, less than, you are currently right or hire on, a physician. And so now, now you're working, only a few days a week versus. five days a week or four days a week, right. take a lower paying job or maybe even start a business, right? a lot of, friends of mine, clients of mine have done just this. They've gotten to the point where they were financially stable enough to where they have left their jobs, and have started, woodwork or remodeling businesses, and things of that nature, where they're a little bit more fulfilled than. their corporate job that they were working previously. it's financial freedom without burning yourself out is really what Coast Fire is. It's getting to a number where you are secure enough. That, Hey, I know that these investments, as long as they make this return, that's reasonable, over the next 10, 15, 20 years, I don't necessarily have to add to those, over that time period, and I can still retire at 55, 60, 65. And I can take a less stressful job, that allows me to travel or, volunteer more or do just something that's more, fulfilling. so how do you actually make Coast Fire a part of your plan? It's about knowing your number, right? So we all need to know that number, designing your work life around it, and then slowly blending retirement living into your current life. Let's put this into practice. I'm all about action. I want you guys to be able to, listen to these podcasts, get good food for thought, but also start putting some of this into action. And so the first thing you'll want to do is obviously. Calculate your coast fire number, your financial freedom number, if you're still on the fire, train your fire number. And this is where a good financial planner can come into play. that's what I do here at Palm Valley Wealth Management is I help people figure out what they need to save, so that they can get, to from point A to point B. going from working to financial free, maybe coast fire, whatever that may be for you. Um, so I can help project that growth of your current investments to see where you can safely scale back. And so the next thing you'll want to do is start testing the elements of your dream retirement now. Right? again, for me. in a few years I'm gonna want to go out to, out west and hunt a different species of deer, and I may be there for 2, 3, 4 weeks at a time. Right? For me that is retirement. And so what is that for you? Is it taking extended golf trips? Right. And so again, I have a really good buddy that, uh, loves playing golf as a lot of people do. Right? And so for him, maybe, a similar trip for him would be going on a, golf trip in. And hitting a certain state that he's never played golf in and hitting four or five golf courses over a course of a few weeks and enjoying that with his buddies that play golf, right? And so whatever that lifestyle is, start taking action toward, Hey, how do I get there now? And then, And after that, balance saving and investing with creating a fulfilling present, right? obviously once you create that number, that you know you need to get to your financial freedom, get to your coast fire, you need to create a plan to save for that, right? So what am I making now? am I saving enough of my income to meet those needs in the time, that I want to meet them? and again, how do I invest, how do I, plan for taxes and things of that nature, right? just remember that again, you can create a plan, but you gotta put that into action. And so money is a tool to design your life. It is not a finish line. Okay, so that's why you see these very wealthy people all, not always, but it's not uncommon for them to, be depressed or, not happy with their life. Things of that nature is because if they're, if they're just chasing money, It's, it's kind of cliche if they're just chasing money, they're probably not happy, right? There's, there's more to life than just building a bank account. it's building, a life with people that you enjoy doing the things that you enjoy, right? So if there's one takeaway from today, it is do not sacrifice decades of your life chasing a number. That means absolutely nothing. If there's one takeaway from today, it is, don't sacrifice decades of your life chasing a number if it means missing out on the people and experiences that make life rich. So financial freedom and especially coast fire can give you. The security and flexibility you want while still letting you live a full life. Now, if you're curious about what Coast Fire num, your coast fire number looks like, or your financial freedom number looks like, or how to design a financial plan around that. let's talk, go to my website, look at how I work with clients. you can go to my process. It's the Palm Valley Pathway, my website, palm Valley wm.com. you can schedule a free call. We can have a conversation on what. Your plan would look like, and if we would be a good fit for each other. But, uh, again, I thank you guys for listening to The Retire Early Retire Now podcast. Until next time, live well today. Plan wisely for tomorrow. This podcast is for educational purposes only. It is not meant to be financial advice or investment advice. Do not make decisions solely based on this podcast alone. Please seek professional help when considering your own situation.