Simplify Financial Independence for Average Joes — Letter to My Friends
We make things unnecessarily complicated. And one of them is money.
In the age of the Internet, we hear the overnight success stories from Silicon Valley entrepreneurs to a 29-year old YouTuber making $1.6 million/year.
As the Average Jo, however, that sounds like out of my league.
I need something more realistic so I can act. I’m a chill person so I don’t need to (and want to) be Grant Cardone of real estate or Naval Ravikant level of genius. I want to hear from average Joes.
And I’ve finally found a community of average Joes who’re on the path to financial independence. The FI Community. It turns out that being an average Joe in finance isn’t bad but actually it’s good. In America, we look up extreme examples of the “successful.”
But success is how you define it.
To me, (financial) success is to see my family in Korea once a year and take my girlfriend to a jazz bar every weekend. I don’t want to own a big apartment that I need to fill up with financed IKEA furniture.
What we own, in the end, owns us.
So the best way to avoid this is by not getting into lifestyle inflation early-on. Almost everything in life has the essence of compound interests. For example, if you have a credit card debt in your 20s, it’s harder and harder to get out of the debt. On the other hand, you start investing in your 20s, you’re pretty much set for life. It’s not only about money either. Our relationship also has compound interests. You date someone longer and you get to know that person a little better. Then you trust that person to marry and have kids, etc.
With that, the principal of FI is this:
Spend Less, Earn More, Invest Wisely
I. Spend Less
If your expense is as low as $25,000/year, you only need $625,000 ($25K times 25) to retire forever. This is possible as long as you don’t have any debt and mortgage to pay. At first, $25K/year in San Francisco sounds impossible. But I soon realized the only money I’m spending is housing these days. Since my company provides lunches, I don’t spend money on the grocery. I live close to work so I don’t drive.
Spending less doesn’t mean depriving your current lifestyle. I value practicing jiu-jitsu so I spend $200/month. For me, jiu-jitsu is a combination of entertainment, community, and work-out so it’s a good deal.
The point is: You should spend lavishly on the things you love.
Although my phone brings some usefulness in my life, I don’t get much joy out of having a phone. So I don’t buy a new iPhone every year. But I value experiences. So I spend hundreds of dollars to go visit my family in Korea and go to Hozier’s concert with my girlfriend.
II. Earn More
This is something I’m struggling with. As a recent graduate, I’m still in the phase of my career where I’m exploring my strengths and weaknesses. But the principle is to increase your income potential by investing in yourself. Scott Adams has a great article on this. By having more skills, you’re increasing your values.
Learn skills that excite you and the people are willing to pay you.
III. Invest Wisely
This is where I’ve delved into a lot. And this is the part where the “experts in empty suit” make things complicated so you don’t understand anything and those “experts” sell stuff you don’t need.
Then what do you need to invest? Index funds!
The best investor in the world, Warren Buffett, once told that most people will be better off by investing in index funds. That’s from the best in the world. The probability of your financial advisor making more money than Mr.Buffett is close to zero.
Simply, don’t hire financial advisors.
Instead, become a DIY financial advisor by reading JL Collins’ The Simple Path to Wealth, anything from Jack Bogle, the founder of Vanguard Group, and Charlie Munger & Warren Buffett.
These four men are the wise uncles you see once every year for Thanksgiving. Listen to them. (And don’t listen to your brain.)
Otherwise, future-you would pay the high-price on financial mistakes. It’s often hard to come back from a financial mistake. When something goes wrong once, it’s hard to make things good again. If you don’t want to listen to those uncles, then listen to me, not your brain. Open up an IRA account through any bank (Vanguard preferably), then contribute to it. It doesn’t matter whether you contribute $5/month. Open it and let it automatically go to your IRA.
In the end, FI isn’t about achieving a goal, but simply it’s something good to aim for. Wouldn’t it be nice if you can choose to work or do something else?
That power of choice is my true FI. Hopefully, this inspires you to find your true FI, too.