Drawbacks of Financial Independence and the FIRE movement

That’s right, there are actually downsides to pursuing financial independence. While there are many huge benefits, I have described 10 disadvantages of the FIRE movement here..

Introduction

Who doesn’t want to make a lot of money, work towards FIRE, get some amazing investment returns and become financially independent? All of your money worries would disappear, right?

Well, it turns out that whilst I love the FIRE movement and enjoyed my journey to financial independence, it is not all smooth sailing and clear skies. Here are 10 disadvantages to pursuing FIRE.

CaptainFI is not a Financial Advisor and the information below is factual review information, not financial advice. This website is reader-supported, which means we may be paid by advertising on the site, or when you visit links to partner or featured sites. For more information please read my Privacy Policy, Terms of Use, and Financial Disclaimer.

10 Drawbacks of Financial Independence

1           The Catch 22 of money anxiety in the FIRE movement

Being poor is incredibly stressful, at the extreme if you don’t know where you are sleeping or where your next meal is coming from, but also consider the latent stress of a low income and or significant debt whilst providing for a family – and the fact that in capital cities like Melbourne and Sydney, suburban family houses now cost over a million dollars!

So it’s no wonder about the fervour amongst the FIRE cult for wanting to reach financial independence – who DOESN’T want to be rich and never have to worry about money ever again? Alas, for some people, it can result in the ‘mo money, mo problems’ situation if not managed appropriately.

For example, if your investments are not aligned to your personal circumstances and risk profile, they can be a huge source of money anxiety. If you YOLO’d your life savings into Cryptocurrency, you might be feeling pretty stressed out seeing the wild fluctuations – and even the complete collapse of some coins. The same can be said for buying individual stocks, investment properties in mining ‘boom and bust’ towns, or even the latest and most fashionable ETF.

Heck, even the most well-thought-out, diversified and balanced investment portfolio suited to your risk tolerance can cause stress if poor investor mindset, behaviour, habits and poor discipline creeps its way in (i.e. logging in to check investment balances daily, buying/selling shares frequently, listening to the media etc). 

There is the potential for worry about ‘losing it all’ – no investment is guaranteed, and all investments will underperform other types of investments from time to time. At worst, this could mean that you ‘out live’ your investments and run out of money – whether this ends up happening or not, worrying about it is a surefire way to make yourself feel anxious.

2           Over optimisation – Feeling like you need to optimise everything

As an Engineer, Pilot and FIRE enthusiast, optimising is something I enjoy doing. I like to make sure I set systems up for optimal performance, and this was even something I studied extensively in university, both at an undergrad and postgrad levels (systems engineering). This can be as simple as getting the best deal on groceries, a phone plan or insurance, or as complex as working on the design of property development, setting up a permaculture system or planning out career development and retirement.

However, sometimes choice makes us optimisation slaves. The luxury of choice has been scientifically proven to make people less happy when there are too many options to choose from. It all just gets too hard, and sometimes we even find ourselves overwhelmed and we fail to even make a decision at all! (I saw this frequently in my student pilots in new emergency training procedures, and I myself experienced this during a complex airborne emergency where I froze for a few moments before completing the required actions).

Another example of over optimisation, when I was hyperfixating (a common ADHD behaviour) on the gym, I had obsessively mapped out my macros (food breakdown) into 6 meals and snacks throughout the day, and I was weighing out all of my food which took ages. It took me a while to realise that this wasn’t a healthy food behaviour, and these days whilst I still enjoy the gym and keeping fit, I just eat until satiety (when I am full and satisfied) rather than cramming in that extra meal for calories.

Just like with the macros, I have found myself hyperfixating on optimisation to the point where it becomes not fun anymore, and I found myself experiencing decision fatigue which contributed to chronic stress and a feeling of anxiety over choices. The solution for me has been to try and keep it simple – and not overthink small choices.

After chatting with Vince Scully and him reiterating the Latte Fallacy, I am not sweating the small stuff like occasionally getting coffee, and instead focusing on the $50,000 decisions (such as the decision to get a 4WD for our lap of Australia, making sure I am properly insured, and that my investments are good quality, low fee and risk aligned).

“Cut out your morning Latte and you can be rich!’ It’s a popular view that many of us have heard in some form or other. Unfortunately its also inaccurate and can be dangerous.”

Vince scully – lifesherpa (in the latte fallacy)¹

3           Feeling ‘lost’ in your career

It’s not uncommon to feel a bit lost or demotivated in your career once you have reached Financial independence, especially if you have been in the FIRE community for a while.

Whilst it is certainly healthy to understand your value and the value of your time, not everyone works purely for money and also have other motivations – such as professional interest, enjoyment, status and power. I absolutely love flying and it was the absolute highlight of my day to take to the skies (and don’t repeat this, but I probably would have done that job for free!)

Being financially independent does remove the need to work for money, so if you don’t have any of these other forms of motivation for your career, or you don’t enjoy working, its pretty common to feel lost or lose motivation – which is why so many people choose to retire or change roles after reaching financial independence.

4           Equating everything into money

Similar to feeling the need to over optimise everything, being obsessed with financial independence can lead to a desire to need to equate everything into a monetary value, or to assign a monetary value to everything. 

This can become a bit tedious at best, or insanely annoying to your friends, family and partner at worst. I will not lie, I have been guilty of this in the past and rather than fully enjoying the experience of an expensive meal at a Michelin starred restaurant, in the back of my mind I have been pissed off that it was costing me $500 which kind of ruined the whole experience for me.

Another aspect that feeds into this is that you tend to overvalue your possessions – something behavioural scientists call ‘the endowment effect²’ – which is the tendency to overvalue things we own, thus making us more unwilling to give those things up and making decluttering harder!

5           Sacrificing too much of the ‘now’ for the ‘future’

This one is more relevant to the FIRE journey rather than being financially independent per se, although reaching FI on a ‘lean FIRE’ income may be cutting your lifestyle short for some people. Sacrificing too much of your current lifestyle for the future in the pursuit of higher savings rates and reaching FI quicker can become an obsession and lead you to miss out on some things that you may regret down the track – such as not travelling in your 20s.

At my peak of earning and frugality, some months I was reaching over a 90% savings rate. Over my FIRE journey, I was able to average an 80% savings rate. Whilst I was able to achieve a 75% savings rate almost effortlessly due to my high income and low expenses, seeking out those extra percentages did mean sacrificing a few luxuries and comforts at the time.

Personally, I wasn’t too bothered about not taking business class flights, eating out or taking fancy holidays – although my company paid me to stay in hotels and eat at restaurants whilst I was flying away from home and I got to visit a lot of exotic locations so this may have scratched that itch for me.

In stark contrast to national saving rates around 5%, and in comparison to conventional financial planning which suggests saving 10 to 15% of your income, generally speaking, a 50% savings rate results in reaching financial Independence in 17 years and is quite achievable for most professionals on a very decent quality of life. This is somewhat of a benchmark in the FIRE community (saving and investing half your income), with an upper benchmark of 75%, above which it starts to be considered unsustainable or *too* much of a sacrifice. However, the higher your income, the easier it becomes to sustain higher savings rates – so we should acknowledge the inherent privilege embedded in the FIRE movement.  

6           Costs can go up

Whilst being financially independent is wonderful, ultimately this is a calculation between income vs expenses. Retirement expenses can go up, sometimes exponentially with age as healthcare costs become higher (highlighting the need for appropriate healthcare planning including considering insurance).

If your living expenses go up and this exceeds your passive income, you may have to start drawing down on your capital, leading you to ‘out-live’ your portfolio and resort to going back to work, or having to rely on welfare to fund your retirement.

7            Loss of professional skills and currency

As a pilot, currency (how recently you have performed a skill) is crucial to flight safety. Being financially independent and cutting back your work hours, or ‘FIREing’ all together can lead to a degradation of your professional career skills and lead to those dreaded ‘resume gaps’ that recruiters seem to dislike so much.

Whilst going back to work if needed is always touted as a benefit of the FIRE movement, you may get a rude shock when you can’t go back to your ‘pre-FIRE’ career, seniority position or income earning capacity due to a lack of skills or ‘resume gap’.

8            Entitlement to your wealth, knowledge, experience or time

I found it a bit difficult to put this one into words, but one thing I have experienced, is some people feeling entitled to your wealth, knowledge, experience or time. At its most brazen, it is people directly asking for money (which I have had family members do), but more commonly, it is along the lines of “Since you don’t have a job, can you do ‘X’ for me today”. This is a big reason why I am a fan of the ‘Stealth Wealth’ notion and keeping your business and financials to yourself.

“Stealth wealth is the act of being wealthy without having to show it off. Let’s be clear, this is not about hiding money away from authorities but about being conscious of other people’s potential reactions to money. True wealth is not about bling and loud logos, luxury cars and big houses. In order to achieve stealth wealth, you need to focus on your finances and live a more middle class lifestyle. This doesn’t mean you can’t enjoy the things you love, it just means that you need to be smart about how you spend your money.”

luxurycolumnist.com/what-is-stealth-wealth³

9           Relationship financial inequality dynamic

When you have reached financial independence, but your partner hasn’t, it can lead to financial inequality dynamics, which at worst can lead to resentment and relationship breakdown. One of the most important things for your financial health is choosing the right partner⁴ (ideally with a similar level of wealth, and similar money mindset). A divorce is one of the quickest ways to destroy wealth and may even take away your financial independence.

I am fortunate in that my partner is also sensible with money, but as a medical health professional, she has spent her entire twenties in university and training, meaning whilst she has a high income earning capacity, she has a low net wealth (and thankfully not negative as she was able to pay off her HECS).

10         Feeling a lack of purpose

You always want to retire ‘To’ something rather than retiring ‘From’ Something. This is why I’m such a fan of actually using all of your work leave entitlements, and trialling ‘mini retirements’ or sabbaticals for work life balance⁵.

If you do choose to retire after reaching financial independence, you are at risk of losing the structure and purpose your work may have provided. I enjoyed bumming around for a few months not doing much, but then as my regular readers will know, I became a full-time carer for my late mother. After my mum passed, and I was not doing much, I found a similar feeling of lack of purpose bubbling to the surface again.

As long as you have thought about your retirement and what you would like to do (for example travelling, starting a family, favourite hobbies, volunteering, study or starting a project), as well as tested this out during periods of leave or a ‘mini retirement’, you should be able to keep this one in check.

Summary

Achieving financial independence and early retirement is not necessarily for everyone. While I worked really hard towards my financial goals and have loved learning more about personal finance along the way, I was able to observe and note these drawbacks which I believe are important to recognise and communicate to others who may be pushing themselves hard to achieve financial independence.

Financial freedom is amazing but it can come at a cost. What are your thoughts on this?

CaptainFI is not a Financial Advisor and the information below is factual review information, not financial advice. This website is reader-supported, which means we may be paid by advertising on the site, or when you visit links to partner or featured sites. For more information please read my Privacy Policy, Terms of Use, and Financial Disclaimer.

Reference List:

1. https://lifesherpa.com.au/about
2. ‘Endowment Effect: Definition, What Causes It, and Example’, Akhilesh Ganti, Investopedia. Published (updated): Jan 21, 2016. Accessed online at https://www.investopedia.com/terms/e/endowment-effect.asp on Jan 3, 2023.
3. ‘WHAT IS STEALTH WEALTH? 9 EASY WAYS TO LIVE UNDER THE RADAR’, Luxury Columnist. Accessed online at https://luxurycolumnist.com/what-is-stealth-wealth/ on Jan 3, 2023.
4. ‘What’s healthy?’, YouMeMoney.org.au. Accessed online at https://www.youmemoney.org.au/whats-healthy on Jan 3, 2023.
5. ‘Creating More Life, Work Balance: The Sabbatical Is Back’, Chris Holter, LinkedIn. Published: Oct 2, 2022. Accessed online at https://www.linkedin.com/pulse/creating-more-life-work-balance-sabbatical-back-chris-holter?trk=public_post on Jan 3, 2023.