One of the important assumptions in the pursuit of FIRE is that when one has “enough” wealth, then that person would have attained financial independence. FIRE being such a popular topic in recent years ;), naturally there there is a lot already written on what is the correct amount to save in order to achieve FI. Popular wisdom says that the amount of wealth to be considered FI ranges between 25x-30x one’s annual expenses. (I’ve also seen 40x!)
See:
How much do I need for retirement – External link to Mr Money Moustache site
I’ve been thinking about it more conceptually while looking back at SippingCoconuts’ own journey so far. Because we, like most people who get interested in FIRE will usually start by estimating annual expenses, pull out calculators, multiply that by whatever is the multiple they’re comfortable with, whether it is 25x or more (or lower, let’s admit it haha because once you subscribe to the concept you just can’t wait to get there) and say “Aha! That’s my magic number!!!”.
Then as the journey progresses the thought goes “Hmmm, maybe 30x is better to be safe”. “Oh, my annual expense budget needs to increase to cover that”. 😀
Why do we go through that? Why does the magic number for FI seem like a moving target and many go through the OMY syndrome? Is it simply kiasu-ness or wanting of a higher margin of safety?
Some attribute it to a related topic called “lifestyle inflation”. It is one where a person’s expenditure goes up in tandem with a higher salary leading them to run endlessly on the treadmill without getting to FI. Many who read about it say to themselves “No, I’m different from the rest. I’ll be very disciplined and not allow my lifestyle to inflate in order to achieve my FIRE goal. I will be SATISFIED“.
Whether it is OMY (One More Year) syndrome or lifestyle inflation, my view is that these are actually the manifestation of us continuing to evolve as we progress towards FI.
Setting a FI magic number target at the start seems like a reasonable action when embarking on FIRE. By objectively setting out what the goal is, you have a clear milestone to measure your progress to the destination, and hopefully avoid moving the goalposts.
One issue with that is that it also assumes everything else in our lives stay the same. Same spending. Same needs. Same tastes. Ceteris paribus.
That however, is almost never true on the journey to FI.
You’ll likely have a promotion and get used to the increased salary.
You may have more dependants.
You may develop tastes for the finer things in life.
Your back might be having issues and you need that nice Simmons mattress (not sponsored, but would like to be…lol).
As the Greek philosopher Heraclitus said it elegantly:
“No man ever steps in the same river twice. For it is not the same river and he is not the same man”.
Heraclitus
There’s not one right answer in our view. You could choose to be disciplined and stick to the initial target without allowing any inflation. Or you could build this knowledge into your FI plan factoring in the fact that your future expenses in real terms is likely to be higher than what you’re spending today. Or you could choose to be at peace knowing that everything changes along with yourself and allow your target to change along with it. It is your choice.
In the end, if you’re satisfied with your answer then you’ll be satisfied with your target.
That, is what we think is the art of satisfaction.
Happy to hear any comments so feel free to drop them below! Thanks for reading!
I have the OMY issue. Sometimes, it is due to the portfolio. There’s a drawdown, then you will think ok maybe we should work for 2 more years. Then maybe you will say work 1 more year for the kids’ education fund. Then you may think we need 1 more year of work for the emergency cash fund just in case need to draw down from there. Maybe it is the kiasee issue with me being typical Singaporean.
Yes to everything – definitely crossed our minds and still does. These sneaky lil thoughts, wanting to be extra prudent. Casting doubt whether the financials will be sufficient.
We just had this conversation over the weekend (again) actually. Somehow, I don’t think it’s be the last time we have it! 🙂