Financial Independence is a fantastic movement to get behind. Not only does it improve your financial situation, but it also improves other aspects of your life in ways you wouldn’t believe. Minimalism, mindfulness, hell I’ve even noticed a vast improvement in my mental health. Most people within the FI movement talk about getting to FI as quickly as possible. A 50% plus savings rate would get you there in roughly 16 years.
Whilst that would be a fantastic achievement and one I can completely get on board with. Is that really the best way for YOU.
I’m going to preface this article with the statement that what I am about to propose only really works if you have a slightly longer FI horizon. If you NEED to retire in the next 10 year this isn’t going to be for you.
The slow boat to Financial Independence
What I am talking about, is taking a longer but much more enjoyable route to FI. Let me explain:
Imagine you are sailing down a river in Borneo; the surrounding scenery is picturesque. There is wildlife in abundance and you have the chance to see wild Orangutans in the trees. At the end of the river, there is a luxury hotel that you will be staying in for the next 2 weeks with all the food, drink and service you could possibly want.
You have two choices for how to traverse the river:
- Jump on a speedboat and fly down the river at high speed, this gets you from A to be in 6 hours. That’s 6 hours of bone-crunching, scenery blurring speed.
- Take the slow boat that meanders down the river at a leisurely pace. It takes 2 days to get there but is a much more peaceful and scenic journey.
Which would you prefer? Because I know which one I would.
Yes, taking the speedboat will get you to your final destination much more quickly and if all you want to get out of your trip to Borneo is the luxury hotel then, by all means, go for it.
The slow boat, on the other hand, takes you a lot longer. But you have the chance to sunbathe, take in everything around you and hopefully spot some rare wild animals. You may end up with 2 days less in your final destination, but the journey itself has been so much more enjoyable.
What do Bornean orangutans have to do with FI?
Great question! Taking the above and stretching the time out over a 25 year period we have our approach to Financial Independence.
You can either jump straight in with a 50%+ savings rate and go into hardcode frugal mode to make the journey as fast as possible. Yes, you may miss out on some experiences but you will have time to make all of that up when you reach FI.
But what if you took the slow boat? What if you scaled your 50% savings rate back to a 30% savings rate? Using the same numbers as in the graph at the top of this post:
Let’s dive into the numbers in a little bit more detail
Time for some maths
So the two charts I have posted in this article are based on the same base set of assumptions. They are:
- A 30,0000 take-home salary
- A current portfolio value of zero
- An annualised 5% return on your investments
- A 4% safe withdrawal rate
Between the two charts then, all that changes is the percentage saved.
In the first chart, giving a 16.6-year timeline to financial independence, we saved 50% of our income. That equates to 15,000 invested and 15,000 spent. 15,000 per year is by no means a small amount to live on and a huge number of people would see that as A LOT of money.
But let’s run the numbers another way: What if we decrease that savings rate by 20%? As you can see in the graphs that will add an extra 12 years on to your ‘retirement’ plan, which is quite a long time. But, and the huge ginormous but is the change in disposable income.
Just dropping that 20% gives you an extra 9,000 per year to spend, taking your total spending to 21,0000. If 15,000 was a lot of money, 21,000 gives you a very comfortable way of life.
9k is a lot of money
I completely agree with that statement, an extra 9,000 per annum is probably more than a lot of people would need to dramatically increase their comfort levels. So let’s scale that back slightly, to a 3,000 increase.
Using the networthify calculator again, increasing your yearly expenses by 3,000 takes your retirement horizon to 21.6 years. That’s just 5 years longer than if you had a 50% savings rate.
What could you do with 3,000 per year? For me, that’s probably 3 or 4 holidays/trips. For you, that could be radically different. But giving yourself an extra 5 years
What’s the catch?
There are two big catches to taking the slow boat to financial independence.
Time is your friend
I’m 26 years old, so adding an extra 12 years to my journey still has me retiring at roughly 50 years old. A whole 15 years earlier than the current UK retirement age. Since I’ve started working I’ve always said I want to retire by 55 and I would achieve that goal following this path.
However, if you are coming to the FIRE party a little later than most then that may not physically be an option. If you are 50 years old right now, 28 years is a long time to still be earning. But a 16-year horizon is much more feasible.
The second catch … do you love your job? I know I do. At times yes, I have days where I don’t enjoy it as much as others. But on average, I get a lot of fulfilment from the work I do. The thought of still doing it in 20+ years doesn’t give me the shivers like it would some people.
If all you want to do is have the freedom to make work completely optional then you may start side hustling. Generating as much extra income as possible to get out of the rat race as fast as you can. The obvious downside to this is you end up with less free time.
Time is the ultimate non-renewable resource
The other side of the career coin is based around the type of work you do. I’m extremely lucky to work with computers, in a job I could do from anywhere in the world that has an internet connection. So whilst my journey to complete financial independence may take 28 years, I could spend 10 of that travelling whilst working.
I don’t mind taking the fast boat, I’ll catch up once I get there
This is a very valid point, and one I considered myself when first starting down the river. Rush to the end of the boat ride as quickly as possible, then wander back up the river to check out what you missed.
I’ll take that big trip once I’m retired! I’ll go on that skiing holiday I’ve always wanted to when I don’t have to work! I’ll write that book!
All valid things to do, but will you really do them? I believe if you are going to take the fast boat, you need to have a set of clearly defined goals for once you arrive. You need to have your ‘why’ in order before you clamber on board.
If you don’t? Well, you may end up simply never doing the things you wanted to do, and that my friends. Is a scary thought!
Actionable tip – Consider your plan for FI, does it give you a life RIGHT NOW that you enjoy or could you scale back the frugality and enjoy the journey a little more.