Financial Flexibility, Not Freedom

If you’re under 40, you’re not going to “retire”

I’m removing two personal finance buzzwords from my vocabulary — retirement and financial freedom. They’re no longer relevant, particularly if you’re relatively young, doing white collar work, quite possibly in a freelance capacity. But even if you job hop or work blue collar for an organization you’ll be with for many years, the goal remains the same — financial flexibility.

We’re at a crossroads. An increasing number of people have a choice to make:

Continue obsessing over “retirement”

OR

Devise a more relevant strategy to satisfy your financial needs, and then some, at all stages of life

Which one will you choose? In this article, I try to help you decide.

Retirement and Financial Freedom are Unrealistic

Merriam-Webster actually defines retirement as “withdrawal from one’s position or occupation or from active working life.” The neat and tidy work, marry, buy a house, have a family, work some more, retire, die trajectory. That’s not only out of touch, it’s depressing.

We tend to use financial freedom and financial independence interchangeably. We can’t quite settle on a precise definition for either. But, generally speaking, the FIRE (financial independence, retire early) movement articulates it most clearly. Here’s a quick synopsis via DaveRamsey.com:

…“financial independence” doesn’t just mean sitting on some tropical beach or playing golf all the time. It means reaching the point where you don’t have to work a full-time job if you don’t want to. You can scale back to a part-time job or simply stop working altogether. The choice is yours.

Most of us will be unable to achieve either. And that’s okay.

We’re in a retirement crisis. It applies to millennials, Gen X, and baby boomers. Even though the failure to save for traditional retirement spans generations, we keep pushing the same concepts and suggesting the same tactics.

Pay yourself first. Don’t buy your morning coffee. Save $500 a month for 40 years .One expert even advises millennials to save 40% of their paycheck if they expect to traditionally retire on half their present salary by age 65.

If the advice you’re giving not only fails to work, but effectively leads to a crisis, maybe it’s not only time to change the advice, but re-frame the discussion.

And if we can’t get people to save enough money over four or five decades to retire comfortably in their mid-to-late sixties, isn’t it absurd to expect them to make FIRE happen within 10 or 20 years? A select few of the most rabid among us can actually see a strategy such as FIRE through.

We’re made to feel like we’re failing if we can’t live up to the retirement industry’s advice or FIRE’s extreme methods. The media chides us, yet keeps telling us to do the same things. Twenty-five year old couples who save 100% of one partner’s income look down on us. They’re often quite smug about it.

Ignore them all. Don’t feel bad. Do life differently. It’s time.

Consider the following a starter kit on how to structure your budgeting, saving, and investing for a post-pandemic, 21st Century lifestyle.

How is Financial Flexibility Different?

Financial flexibility doesn’t follow the traditional path to retirement. It doesn’t aim for having enough money to quit work and never work again. Instead, financial flexibility uses doable means to justify not an end, but a more realistic series of starts, stops, and restarts. It considers the lives most of us lead, if we’re relatively young, look nothing like the lives our parents led.

Most of all, it’s within reach. It’s achievable. To reach and maintain financial flexibility, you’ll have to take your personal finance to the extreme, relative to most of your peers who rarely think about it, let alone follow a thoughtful plan. But you will not be tied to the 40-year plan of traditional retirement or the absolute lack of a life FIRE requires. Because they’re no longer relevant.

Keep Pots Of Money

To be financially flexible, you need pots of money.

One pot of money to consistently satisfy your monthly living expenses for 1.5 to 2 months (subsistence fund). One pot of money to cover reduced or a total loss of income for 3 to 6 months (emergency fund). Other pots of money to pay for discretionary needs and wants (a new apartment or continuing education fund). And another pot of money to fund the aforementioned starts, stops, and restarts (transition fund).

Ideally, you have as low a cost of living as possible, ample cash flow, and the discipline and desire to focus on your finances and eschew expensive habits (e.g., eating out at restaurants) in favor of frugality (e.g., park hangs and excessively long walks). You find satisfaction in mastering income allocation — that is ensuring you’re on the path to keeping all of your funds fully stocked. And, once they are, maintaining them at the necessary level and taking the next step.

That next step being — diverting all of the money you have left over at the end of the month to a portfolio of dividend-paying stocks (investment fund). The goal isn’t to traditionally retire on the back of this fund, but generate enough dividend income to live off of, in part or whole, at some point further on up the road.

You likely won’t have all of these funds created and filled overnight. It takes work to establish the key elements of financial flexibility. But you will have a comprehensive plan that aligns more closely with your lifestyle than the schemes that came before it. You pay your bills, prepare for the unexpected, save to improve your situation or yourself, keep money at the ready for transitions, and use the rest to build wealth via dividend growth stocks.

Make Frequent Transitions

Financial flexibility meshes well with the lives many of us lead. We’re not married to a company, location, or lifestyle. Our needs and desires ebb and flow. We don’t subscribe to a grind, be it the 9-to-5 or simply the jagged notion that work sucks and we can’t wait to stop doing it so we can live.

Rather, we find work we love and happily immerse ourselves in it. We write. We create. We innovate. We do what we’re good at. We seek things we can get better at it. We do things we get something out of that pay well. When we feel restless, we take a break, shift, or make wholesale change. Thus transitions.

The beauty of frequent transitions lies in the fact that they’re part of a life isn’t static or predictable — unlike the linear path to traditional retirement or an obsessive quest to get there frighteningly fast. We embrace change because we know it’s going to happen. We even invite it, as challenge, not encumbrance.

Some people fly by the seat of their pants and have a life without boundaries or strict timelines. This would be too stressful for me. So I’m adopting a system of organizing my money so it services the lifestyle I not only want, but am best situated to lead, practically and theoretically.

I’m not going to be able to retire the way my dad did. And I’m sure as heck not going to cease to require ongoing cash flow like the FIRE crowd. So I adhere to a more realistic way of organizing my personal finance. As more of us live a life that falls somewhere happily between wage slave and digital nomad, refining our goals and framing them under the umbrella of financial flexibility will provide our best chance at reducing stress and enjoying life.

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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.