Personal finance and investing towards financial independence is a wonderful thing but let’s be clear, it is not the goal of life.
The ultimate goal of life is how you and I can live more, grow more and contribute more. It just happens that money is a central part of the life connection.
Whereas money is not the most important thing in life, Zig Ziglar points out that it is reasonably close to oxygen in the “Gotta Have It” scale in today’s economic-centered world.
We certainly need money for needs but we also need it for our wants and desires – be they for personal fulfillment, helping others or taking advantage of opportunities. We need money to do good to the world – be it in philanthropy or spreading a message.
Those who know me know that I don’t have much need or regard for money to spend on myself – I work hard to make money but I give it all to causes I believe in. Unlike the great philanthropists who spend a lifetime amassing it then start giving away in later years or after they die, I much prefer the philosophy of the great Brazilian philanthropist Ricardo Semler – “Give it away as you make it.”
Even when you have altruistic intentions with money, you must consider this question:
What is your Financial Independence Number?
In other words, how much money must you receive from your investments (e.g. rental income) so that you no longer have to trade your hours for shillings in order to survive financially?
Answering this question is the first step on the path to possibilities.
Working a job or running a business is not a bad thing. Serving others with your time, energy and skills can be incredibly fulfilling. What I spend my life fighting against, getting stuck at a less than ideal job as this will quickly erase any idealistic notions you may have. Even a great job can become a pain in the neck when you know you must do it for the money.
Instead of happiness and growth, a less than ideal job traps you in the rat race. You may call it making a living but in reality, you are “making a dying” because you lose a bit of yourself every day.
When you determine your Financial Independence Number, you break that cycle. You draw a line in the sand beyond which you will no longer financially need a job. Even before you get there, the destination gives you hope and encouragement and the journey gives your life meaning.
Written as a formula, your Financial Independence Number looks like this:
Investment Income ≥ Needs, Wants and Desires
This is the specific amount of income you need to meet your needs, wants and desires. In the great personal finance book, ‘Your Money or Your Life’, this is called “the cross over point”. In Robert Kiyosaki’s ‘Rich Dad, Poor Dad’, it’s called escaping the rat race.
We started our journey when I was 29 and my wife, 24 (I was earning 15K per month then) and this was our formula for our Financial Independence Number:
Financial Independence ≥ Rental Income to meet our everyday needs and take our two sons to Harvard
It was absurd, it was unreasonable. We didn’t know how to do it, but we knew a few things:
- We were determined to both work hard to increase our employment income.
- We would only use real estate to generate rent as our third income.
- Even with 3 incomes, we purposed to only live on one income- my wife’s ( we have faithfully kept this promise for 14 years).
- We had 15 years between that time and when our firstborn was to join college.
- After the boys are done with college, we were to transform the income into our retirement income.
That was to us a Big Hairy Audacious Goal! And it immediately became the central guiding principle that guided pretty much all aspects of our lives.
The first 5 years were very hard (Oh, but the first year was by far the hardest – it seemed like there was no movement at all) but we began seeing positive changes as time went by. It became exciting as our rental income became as much as our individual incomes (remember we only lived on one income). The greatest moment was when we finally paid off all our loans! We were, to quote Martin Luther King Jr, “Free at last! Free at last! Thank God almighty (we are) Free at last!” Difficult as it seemed at the onset, impossible as it seemed the first year or two, we finally made it with two years to spare
Reaching your Financial Independence Number does not mean that you can’t still work and make more money. It does not mean that you will stop growing financially for the rest of your life. It does not mean that you are perfectly safe forever.
Achieving this goal only means that the pressure is off. Your investments could support you instead of your job.
This is an incredible place to be. As you get closer to this goal, an entire universe of possibilities opens up.
The same job you hated could be transformed when you know you are there by choice. The business idea you feared starting now could be a feasible idea. Creativity and energy that had been dormant for years will suddenly re-emerge.
New opportunities, new businesses, new questions, and new exciting paths will open themselves to you.
So, whatever a better life means to you, however you define ‘Needs, Wants and Desires’, I recommend you figure out your own Financial Independence Number. It will provide a clear, focussed and compelling vision to work towards.
- Do you know your Financial Independence Number?
- How did you arrive at that figure?
- How do you plan to get there?
- How long have you given yourself?
I wish you well on this journey, but start!