Sun. Jul 14th, 2024

The Sacrifices We Make To Achieve Financial Independence

Mar 11, 2024


One of the most commonly asked questions I get is whether I had to make sacrifices in my pursuit of FIRE (financial independence and retire early). When they refer to sacrifices, what they really mean is whether I missed out on the typical fun experiences of a young adult.

My response is consistent – yes, I made some sacrifices. I worked an average of 60+ hours a week from age 22 until 34. This demanding schedule left me with limited time and energy for partying or extravagant spending. Instead, my focus was directed towards saving and investing as much as possible to break free from the corporate grind by age 40.

The Sacrifice Was Rational

Working long hours during my younger years was tolerable because I didn’t have any money. Every dollar saved and invested made a big difference to my net worth. Consequently, the joy and fulfillment derived from accumulating wealth outweighed the allure of spending money on bars, events, and trips. This mindset fueled my commitment to continue working hard.

Of course, I didn’t just only work for thirteen years after college until I negotiated a severance package. I also went out plenty enough with clients and colleagues, sometimes to the point of feeling overwhelmed. For example, I traveled to Asia for business twice a year. Each trip I was responsible for food and entertainment every night for my clients. I would loved to have stayed in many nights due to jet lag.

Saving 50% – 75% of my after-tax paycheck for 13 years may sound abnormal, however, it was worth it to me because I longed for freedom from a tiring career. And after experiencing sweet freedom from 2012-2024, I say the sacrifice was well worth it.

Sacrificing Again As A Middle-Aged Man Looking For Freedom Once More

Since slashing my passive income in October 2023 to purchase a forever home, my primary focus has shifted back to aggressive saving and investing. The overarching objective is to reattain financial independence by January 1, 2029. This phase of my financial journey mirrors the mindset I had in my 20s and early 30s.

I’ve adopted a lifestyle akin to living paycheck to paycheck, marked by stringent cost-cutting measures and a planned reentry into active income through consulting. Furthermore, I’ve curtailed my participation in social gatherings to bolster my savings.

Skipping Dad’s Night Out To Save

A recent example is a Dads’ Night out for dads in my son’s grade. While I attended every previous event, I opted out of the latest one. The gathering involved a steak dinner, followed by a Golden State Warriors game.

Although I appreciate a good steak and am a big fan of the Warriors, the estimated cost of around $150 for dinner (inclusive of tax, tip, and drinks) and $300 for a ticket felt excessive in my current frugal mode. Adding a $50 roundtrip Uber cost, the total expenditure would have been around $500.

Additionally, my responsibility for picking up my son from school around 5 pm would have left me insufficient time to arrive for the 5:30 pm dinner. The early dinner was planned to accommodate the 7 pm start of the game. Attending would also have required my wife to spend ~40 minutes to pick up our son, further influencing my decision to skip the event.

Celebrated In A Cheap Way Instead

Rather than splurging $150 on steak, I opted for an $18 Vietnamese pho delivery, enjoying dinner with my family. After kissing my son goodnight at 7:45 pm and my daughter goodnight at 8:30 pm, I settled in to watch the game on TV for free.

While I couldn’t physically join the guys, living vicariously through their pictures and text commentary provided some entertainment. The added bonus? I relished the satisfaction of saving $500!

I’ll have plenty of opportunities to reconnect with the dads at a future birthday party or a school function. Nevertheless, I must admit that skipping this particular event serves as additional motivation for me to further build passive income.

My aim is to reach a stage where spending $500 on a weeknight outing is no longer a cause for hesitation. But knowing my frugal ways, I’m not sure I’ll ever get there. At the moment, my limit is probably around $150 – $200.

Reinvested The Savings

In line with my financial independence mission by 2029, I decided to redirect the money I would have spent into purchasing two shares of Apple stock. Treating all my investments as carefully considered expenses, this allocation brought a sense of joy. I’ve been a shareholder since 2011.

Apple has underperformed in 2024 due to weak China demand for its iPhone and a pending anti-monopoly lawsuit against Google, which pays Apple billions to be its default browser. But I’m a fan of the Vision Pro and I expect some interesting things at its artificial intelligence launch this summer.

I then spent the remaining $260 out of $500 saved and invested in the Innovation Fund to gain more private company AI exposure. Being able to dollar-cost average in an open-ended venture capital fund when I have the liquidity is a nice feature.

Maybe The Desire To FIRE Is A State Of Mind

The next time a journalist inquires about the sacrifices I made for financial freedom, I’ll cite the example of forgoing Dad’s Night Out to save $500. While socializing with fellow dads would have been enjoyable, my current priority is achieving financial freedom as soon as possible.

I recognize that some might view my decision as overly frugal, especially considering I have the means to spend the money. However, my mindset is firmly rooted in the FIRE philosophy of saving and investing as much as possible. Few things can now persuade me to spend money on experiences or things that I don’t truly love.

For me, it’s not sufficient to merely like something; I must genuinely love it to justify spending money. If my parents were visiting and expressed a desire to have a steak dinner and attend a Warriors game, I would spend the money in a heartbeat. Every moment I spend with them is priceless since I don’t see them often.

Resisting the temptation to spend money on non-essential activities is akin to window shopping without making a purchase or enduring a 10-minute ice bath – satisfying. I’m not too proud to do whatever it takes to take care of my family I actually find it weird when people make fun of others for trying to save.

How Much Do You Want To Be Free?

Unless your yearning for freedom surpasses your impulse for immediate gratification, achieving financial independence where your passive income covers your basic living expenses may prove challenging. The silver lining, however, is that every decision becomes rational in the end.

Our current expenditures are a result of deeming them worthwhile. If we didn’t believe an expense justified the sacrifice of future wealth, we wouldn’t incur it.

It’s perfectly acceptable if your desire for financial independence isn’t as fervent as others. You might have a great job with great pay that provides a lot of purpose. If so, hold onto that job for as long as possible while spending your money responsibly.

My Why Of FI Today

In my case, the urgency to attain financial independence stems from the fact that by 2029, my son will be 12, and my daughter will be 10. Even if their focus shifts to friends over spending time with me, I aim to be fully available during their remaining 6-8 years at home before they embark on college. I know I will miss them dearly when they are gone.

Always remain cognizant of your reasons for working, saving, and investing. Clarifying your “why” or your ikigai will facilitate the journey toward your financial goals. Best of luck!

Ikigai - your reason for being and the sacrifices you're willing to make to achieve financial independence and be able to retire early

Other Sacrifices We Make For Financial Independence

In addition to foregoing social functions, here are some other sacrifices we might make on the path to achieving financial independence earlier:

  1. Neglecting the Pursuit of a Life Partner: Due to an overwhelming focus on work, some individuals might neglect actively seeking love.
  2. Opting Out of Parenthood: The high cost associated with raising children may lead to the decision to forego having kids altogether.
  3. Delaying Parenthood: Some individuals may choose to have children later in life when they believe they can better afford the associated expenses.
  4. Choosing Substandard Living Conditions: To cut costs, individuals might opt to live in run-down apartments or in areas with safety concerns.
  5. Driving Unreliable Vehicles: In an effort to save money, some may choose to drive cars with poor safety ratings or those known for their unreliability.
  6. Compromising Nutritional Choices: Opting for highly processed, cheaper foods can be detrimental to long-term health but is sometimes chosen to cut immediate expenses.
  7. Foregoing Travel Opportunities: Due to both the financial cost and time away from work, some may miss out on the experience of exploring different parts of the world.
  8. Prolonged Co-residence with Parents: To save money, adults might choose to live with their parents at the expense of their social lives.
  9. Extending Spouse’s Work Duration: Some may require their spouse to continue working longer than desired for the sake of additional financial security.
  10. Putting Up With Chronic Physical Pain: To be a top performer, some workers might be willing to endure chronic physical and mental pain, which may cut your lifespan short. To me, the health benefits of early retirement and greater happiness from retirement are priceless.

The pursuit of financial independence often involves trade-offs, and individuals must carefully consider these decisions in the context of their overall goals and well-being. But I promise you, if you get to financial independence, all the sacrifice will have been worth it!

Reader Questions And Suggestions

What type of sacrifices are you making to achieve FIRE? Are they really considered sacrifices if the reward is complete freedom? Is there a monetary limit to how much you’d be willing to spend on a regular weeknight out?

When it’s time to retire early thanks to all your hard work and sacrifice, you should try and negotiate a severance package. There is no downside if you planned on quitting anyway. Check out my bestselling book, How To Engineer Your Layoff, to learn how to negotiate your own severance package. A severance was my #1 catalyst to retire early and live life on my terms. Use the code “saveten” to save $10 at checkout.

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 



Source link

Related Post