Financial Independence is all about choice. The choice to direct your efforts and energy into the things you care about. The freedom to do this is liberating, and literally can give you unlimited options to pursue your life goals and dreams, and ultimately, to be happy. How can we practice these choices everyday? We need to be mindful, and think about the long term benefit or delayed gratification.
Finding out what makes you happy is an inherently troubling thing, and it turns out we are REALLY bad at predicting what will make us happy. I’m no exception – If I look back at myself 10 years ago, 5 years ago and heck even 1 year ago, what I thought would make me happy is vastly different to what I think now.
The priorities I had and some of my goals have slightly shifted, and achieving certain successes along the way just haven’t brought about the massive shift in my happiness level that I thought it would. But I still consider myself an incredibly happy person and am very thankful for the life I have.
Things like a payrise, promotion at work or a new car can all seem great at first, but it’s remarkable how quickly we adapt and ‘baseline’ our new found level of happiness. After even just a few short weeks or months, your new found success is normalised, and you’re back to feeling how you did before. Pete Adeney talks about this in an article about Hacking hedonestic adaptation.
This is normal human behaviour. Multiple university studies including ‘Happiness, income satiation and turning points around the world’ [Jebb, Tay, Diener, Oishi, 2018, Human Nature Behaviour] which you can read here have shown that once you’re earning above $60,000, statistically earning any more won’t make you happier. All of your basic needs and bills are met, with ample spending money for wants, in accordance with Maslow’s Hierarchy of needs.
That might be surprising as what we see on TV and what advertisers tell us we need indicate that there is no ceiling when it comes to how much money is needed for happiness, but we now see there are some thresholdsAndrew T. Jebb, Purdue University
Interestingly, using the 4% rule, this baseline income would be achievable as a dividend from investing $1.5M into a stock market portfolio of various types of stock (dividend yield stocks, growth stocks and value stocks). My stock portfolio is a combination of these types of stock, as I have chosen ETF index fund stock investing as the easiest and safest way to achieve FI (alongside property development and investment in rental real estate).
Higher income earners are statistically no more happier than lower income earners above this threshold, and actually tend to be more at risk of destructive factors like lifestyle inflation. Lifestyle inflation over time erodes real wealth and can make even extremely high income earners no more wealthier than their lower earning counterparts.
A better way of predicting your happiness can actually be to just try and understand what makes you unhappy, and just avoid that. Not everything uncomfortable should be avoided, and there is loads of stuff which seems difficult at the time or which makes you unhappy which is character building; rejection or failure being one of them. I wouldn’t let the fear of rejection stop me from asking a pretty girl out on a date, in the same way I don’t let the fear of failure stop me from starting a new business.
Whilst what makes you unhappy will vary from person to person, the kind of things I’m generally talking about avoiding are things like consumer debts, sickness and injuries, stress, toxic people (assholes!), a dead end job you hate. Being Financially Independent can give you the ability to change your life for the better, and position yourself to remove a lot of these negative things. Don’t like your job or your working conditions? You can quit. Having serious problems with your neighbours? Move somewhere else.
Personally, I think the key to real happiness lies with meaningful relationships and family, and not about a cool job, your bank balance or an awesome motorbike. Although those things are nice to have too.
To stay motivated, I think about a combination of reaching ‘positive’ happiness goals and also about avoiding ‘negative’ happiness detractors. A few of the things I focus on are wanting to;
- Start a family and being able to be a stay at home dad
- Not having to always be away or travelling for work
- Not having to work long days and on weekends
- Not having to sacrifice my health for work (know any pilots with good necks and backs?)
- Be able to live where I choose (close to family)
- Being able to travel whenever I want to explore
- Be able to visit family and friends whenever I want
- Have my home and all my bills paid for with passive income
- Be able to start a business without having to worry about earning an income
- Have a massive garden and orchard to grow my own organic produce
What’s holding you back
The shockingly simple way to get financial independence is to earn more, spend less and then invest the difference in a good quality, low cost stock market index fund ETF. But for the majority of people, somehow life gets in the way, and they are convinced to spend more on liabilities rather than assets.
It’s easy to make excuses, blame others and be envious of their success. We live in a society that loves instant gratification where you can charge that new flat-screen TV on credit, or buy that big, new (and unnecessary) four wheel drive on finance. We also live in a society plagued by tall poppy syndrome, who are all too ready to cut anyone ‘down to size’ and undermine their accomplishments. Unless you fundamentally change your mindset you will forever lock yourself into being poor, working class and jealous.
The great rejection
If you want to stop being poor, you need to stop doing things that undermine your wealth and make other people wealthy – like consumer debt. You need to reject commonly accepted personal finance malpractice, and make the commitment to yourself to work towards becoming a little wealthier each day. The great rejection means having the moral courage to reject the destroyers of our wealth and focus your efforts constructively on making a better future for you and your family.
Not only does unnecessary spending make you poorer, it also raises your cost of living. This means it hits you with a ‘double whammy’ of wealth destruction; you need even more investments to become financially independent. Regularly splurging for instant gratification reinforces the bad habit and fuels the poverty cycle, one of the biggest and most silent destroyers of wealth.
Encouraging unnecessary and impulse spending is a clever tactic used by advertisers to boost sales, for example the placement of candy at shopping centre check outs, or ‘limited time only sales’ campaigns. The instant gratification usually provides a level of short term level happiness and feeling of control over your life – you are getting something you ‘want’ (at that moment). But this feeling usually fades, and the spending can easily add up into the tens of thousands of dollars and leave you with an empty bank balance (or even worse credit card debt) and a house full of junk and clutter, which can seriously erode your happiness.
Avoiding unnecessary and wasteful spending is going to be one of your greatest allies in creating and keeping wealth. This means being sensible, living below your means and safeguarding your wealth from things that want to take it from you. The ability to live below your means is crucial for generating wealth. The simple reality is that the further below your means you’re able to live, the more aggressively you are able to invest and the quicker you will reach Financial Independence.
Check out my list of the Top 10 things I never waste my money on
Example – Buying a coffee a day versus owning the Cafe
Some people love grabbing that takeaway coffee and muffin on their way to work every day, and don’t mind the regular $7 price tag. Over the average 40 year career that an employee spends in the work force, a 62 year old retiree could have spent over $70,000 on coffee and muffins, but the opportunity cost is over $700,000 had they invested that little bit each day.
If they really loved their coffee, maybe they should have used some of that $700,000 to invest in a quality espresso machine at home or to take to work. A top of the range $2,000 home espresso machine, serviced properly and replaced every 10 years, supplied with gourmet coffee beans and milk to make a daily coffee would have come in much cheaper at under $15,000 total, and about a $200,000 total opportunity cost. Think of how good you’d be at coffee art after making nearly 10,000 coffees at home, and with the half a million you’d saved you could probably even buy a couple of cafes!
…Ah but what about the muffin you say? Forget about the bloody muffin! I’m trying to badly explain something here so don’t try and pick holes in it.
Frugal is not a dirty word
Frugal: ‘Characterised by or reflecting economy in the use of resources’
Synonyms: Economical, Provident, Thrifty, Wise, Precise
Antonyms: Squander, Wasteful, Spendthrift, Extravagant
Frugal is not a dirty word. To me, someone who is frugal is someone who is efficient with their finances, and usually working towards a higher goal as opposed to just instant gratification. This is someone to be respected and learned from. The dirty word here is the opposite; extravagance and squander.
Everyone has a different personal idea about value, efficiency and extravagance, but the key is striking a compromise that fulfils your needs without being wasteful.
Perhaps it’s the inner engineer in me coming out, but I love efficiency and optimisation. Nothing quite satisfies me like servicing my car and then calculating its fuel efficiency based off its fuel use over the past year. Yes I keep records. In case you’re wondering, the easiest and simplest ways to improve fuel efficiency is not to drive like an idiot, remove unnecessary weight from the car, and pump up the tyres real good. So in this respect, being frugal with my car actually brings me a lot of satisfaction and happiness.
So whilst I don’t think frugal is a dirty word, it does sometimes get lumped in with ‘cheapskate’ and ‘tight arse’. Let us instead use the word ‘Mindful.’
If there is one happiness detractor that I like to avoid, it’s advertising. I generally think that if I need (or want) a product or service, I will seek it out myself. I prefer to read user reviews over advertising, as they come from a more wholesome place and a standpoint of experience rather than just trying to get you to buy their crap. Two of my favourite websites I use for reviews are Canstar and Choice, which provide fairly unbiased and decent information.
Choice I will use before making any physical purchase such as a computer, fridge or insurance, wheras Canstar tends to focus more on finance products such as bank accounts, insurance, investments and business products.
At any rate, generally I hate being told what to do. So a television advertisement screaming at me to buy a brand new pickup truck on finance, with all of its associated toxic masculinity (aka if you don’t buy this truck you are a failure of a man) is a surefire way to get me to reach for the remote. Which is why I generally stream online if I want to unwind with a movie (Hellllllllo Netflix and Chill!).
In addition to trying to avoid advertising, I try to avoid the media like it’s the plague. Just like I hated being bombarded by ‘BUY NOW’ advertisements, I also hate being bombarded with the doom and gloom and fear-mongering headlines that are pushed over our media. If I listened to them, I would be constantly stressed and paranoid about the next major recession and market crash caused by bankers stealing my retirement funds – which is forecast to come almost weekly if you watch the news.
It’s tricky to avoid, because the media is so pervasive in our society. It is a big industry and is worth billions of dollars (through primarily, yep you guessed it, advertising!).
It’s in our homes, on our television, on our radio, in our smart phones through social media and plastered all over the internet. It’s hard to get away from, but taking a few simple steps to disconnect has really improved my overall level of happiness;
- I rarely watch television (public access network / free to air)
- I never buy magazines or newspapers
- I try to minimise my time using social media (no phones in the bedroom or after 10pm)
- I don’t subscribe to any news or media outlets (either through social media or email)
- I don’t open clickbait articles
In summary, money can’t buy happiness – but it can let you avoid things that make you unhappy. By making a few simple changes to your mindset you can avoid many happiness detractors and happily build wealth towards your financial independence.