Financial Education 401: Work Toward Financial Independence

You could get laid off. You could get fired. Your company could go out of business. Or maybe you want to take a year and sail around the world. Maybe you want to take a year off to write a book. The Great Recession could be remembered as a blip compared to the 2020s Greatest Depression. Depending totally on your employer is risky business. Oh I’m sure you have a great employer, and a great relationship with that employer, but things change.

You can quit working, at any age, for life, basically as soon as you have 25 times your annual expenses saved in stocks and bonds. Now, that comes with roughly an 95% chance of success over 30 years, however at 30 times your annual spending saved, your chance of not running out of money decreases to hardly anything. Even at a 5% withdraw rate (20 times spending) you have an 82% chance of not running out of money over 30 years. (However, in early 2018 CAPE ratios are over 30, meaning stocks are over priced, so don’t expect 17% annual gains over the next decade like the last nine years.)

In the last post I mentioned saving money outside of retirement tax advantaged accounts, and this is a large part of the reason. As a person in your 20s or 30s, you have an awfully long time until you are in your 60s and can access those funds. So saving money in a brokerage account, or even a savings account allows you to access that money when you end up with a horrible boss and want to quit your job or you want to go climb Mt. Everest more than you want to spend two months at the office. 

Money is a tool, and it buys time. When you are Bill Gates, your plane takes off whenever it is convenient for you. You can talk to whomever you want to. You can sleep whenever you want to. When you want to talk to a CEO, he definitely calls you back. I’m not at all saying that people need to aspire to that kind of wealth. I'm saying, if you have $500,000 in the bank in the USA, or $1 million, you don’t have to put up with other people dictating how you spend your time. It’s a spectrum of course. The more confidence you have the less money you need to exit negative situations.

I’m writing this series also in part because due to paying off my student loans, getting my Kansas Rural Opportunity Zone Tax Refund, and my pension vesting in the last several months has put me at 5X or five times my reasonable annual spending. Maybe more like 4X, but defining how much X is, what I can live on can be nebulous because every year has one time expenses, like a new bicycle. Point being, I could walk away, and be fine, for months! It was kind of surprising when I realized that. I had a bad day at work and I thought, ‘what if I just quit, right here and now?’ It was a perspective change and that’s what I referred to in the introduction. Wealth creates opportunities. It’s not fair. I don’t deserve the wealth that I have. Yet I have been exploring opportunities recently that I had never considered before, and that's fun.