This is What Being Financially Free (or Flexible) Looks Like

It’s scary and anxiety-provoking as hell

You can be a conceptual thinker. But it’s worthless without practical illustrations.

You can master the basics. However it does little good if you don’t thoughtfully strategize how to execute them.

You can be obsessive about work-related (and other) routines. The routine means nothing, though, if you don’t focus on the minutia contained within.

It’s all about adopting a thoughtful mindset.

These ways of being can render you a freak. Embrace it.

It’s the freaks, geeks, misfits, and losers who lead the most interesting lives.

The best way to arrive at interesting is to eschew traditional conceptions of retirement or financial freedom. Place focus on financial flexibility.

What is Financial Flexibility?

The financial freedom crowd thinks your goal should be to make enough money so you can choose to not work anymore… You’re more likely to attain financial flexibility. The idea that you keep pots of money to pay expenses, cover periods of reduced income, and achieve your short- and long-term goals and desires.

You become financially flexible when you can tap the goals and desires money without digging into your living expense, emergency, or invested money.

To be flexible financially, you need a sound “income allocation strategy,” alongside as low a cost of living as possible:

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).

But what does this actually look like with hard numbers? On the ground, in the day-to-day of doing life. It can be intimidating to look at a real life example. It’s when you realize that, to be financially flexible, you gotta save a lot of cash. You gotta work hard. You gotta do the dance.

How a Financially Flexible Person’s Bank Accounts Might Look

Cost of living: $3,000 a month

Subsistence fund: Rolling between $3,000 and $6,000.

Emergency fund: $9,000 @ three months, $18,000 @ six month, or $36,000 @ Mark Cuban’s one year.

Transition (or temporary retirement) fund: $9,000

If you have no other funds, this means you have anywhere between $21,000 and $51,000 in cash on hand at any given time. I aim to be just to the left of the middle of that range.

From there, you’ll have your investment account, ideally growing with dividend-paying stocks. You invest from a position of practical and psychological strength when you fully stock the subsistence and emergency funds. The transition and any other pots of money can be works in progress.

This is a lot of cash. Some people freak out about inflation. I don’t. The investment mistakes I make when I’m not cash secure far outweigh the costs of inflation. When I’m cash secure, I’m a better investor and best situated on the road to financial flexibility.

Let’s say you’re there. You have all of your pots of money satisfied and your stock portfolio to a formidable level and growing. What’s an example of financial flexibility in action?

Living and Working in a Different City for Two Months

A scary thought for the frugal and, I presume, the newly financially flexible.

While it’s scary to think about having two costs of living, don’t let money crush your soul. You fought for financial flexibility. You earned the right to do something with it.

Cost of living in new city: $2,500 a month

Leftover cost of living at home base: $2,000 a month

This is a back of the envelope estimation. When you’re not living in your home base, your expenses there decrease. However, some, such as your rent or mortgage, do not disappear. Other expenses transfer to your new city, plus you’re on the hook for housing there. So I’m sort of arbitrarily tacking on an additional $1,500 a month to satisfy both costs of living. Everybody’s different so it’s impossible to pin down. (You might have somebody sublet your apartment, which can be wonderful).

Let’s say you earn $5,000 a month. You can keep this pace in your new city.

You’ll draw from the transition fund (or maybe you set up an entirely different fund for the temporary relocation) to pay the new city’s cost of living. You continue paying for your home base’s cost of living from your subsistence fund. You don’t touch your emergency fund. This luxury isn’t an emergency!

In the first month, it could look like this before you add in income.

Subsistence fund: Drops from $6,000 to $4,000.

Transition fund: Drops from $9,000 to $6,500.

So you have spent $4,500. You put the leftover $500 from your $5,000 income into your subsistence fund, bringing it to $4,500.

Now, month two:

Subsistence fund: Drops from $4,500 to $2,500.

Transition fund: Drops from $6,500 to $4,000.

Again, you have spent $4,500 with a $500 leftover. You use that $500 to bring your subsistence fund back up to $3,000 and you go home.

When you get home:

Goal number one: Beef up your subsistence fund.

In the first month back home, after collecting $5,000 in income and paying your $3,000 cost of living, you could end the month with your subsistence fund back up to $5,000 ($3,000 plus $5,000 minus $3,000 equals $5,000). You’re in good shape there now.

If you keep going with this exercise, you see where you can get in trouble (the subsistence fund is quite aggressive) and you neglected investing. Again, it’s all incredibly individual. You will structure this differently than I do and not the same way as the person standing six feet away from you.

That said, there’s one thing that’s universally objective and true: It’s a hell of a lot easier to execute this with an insanely low cost of living. This is why I strive for closer to, if not, $2,000 a month rather than $3,000. If you like to torture yourself with relatively basic math like I do, scroll back and run the numbers with an extra $1,000 to play with each month. It makes a world of difference.

I got somewhat deep in the weeds here. I left some open questions. I did this on purpose. Nothing’s absolute or one size fits all.

I admit it’s minutia. But minutia matters. All of the mottoes, catchphrases, and concepts in the world mean very little without an idea of how they look on the ground.

When you see a practical illustration, it can provoke anxiety.

It makes me anxious.

However, that’s exactly the reason why you do this. To remind yourself that it isn’t easy. That if you only think about endeavors like being financially flexible in idealistic and theoretical terms, you’re doomed to fail when you run into the reality of how it actually is.

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.