Financial Independence (FI)
What is FI, and why do I talk about it so much? FI, or Financial Independence, means accumulating enough wealth so that you technically do not have to work anymore. Some call it FIRE (Financial Independence Retire Early), but I prefer to focus on the FI. My goal is not necessarily to retire early but to give myself options and to work on my own terms. To do this, I need to avoid wealth killers.
The only way to achieve FI is to accumulate enough wealth to cover the cost of your life forever. In prior blog posts, I have spoken about building wealth, saving money, building a gap, investing, and more. What I have note done is focus on what can kill wealth if left unchecked. In this post, I will explore what I believe to be the 4 biggest wealth killers for most people. If you want to build wealth and achieve FI, avoid these at all costs!
What Are Wealth Killers?
The wealth killers I am going to mention here are not what you think they would be. The big obvious killers that most people would think about would be low income, bad investments, and other big money mistakes. They would be right. Those are wealth killers for sure. But what I want to talk about here are those little day-to-day mistakes that people make and think, “It’s no big deal. It’s just a few bucks.” Those little, “no big deals” add up to a huge deal if they go unnoticed and uncorrected for a long period of time. But when corrected, they can turn from killers to builders, and that is our goal here!
Not knowing where your money goes is a great way to kill your wealth. Money has a way of disappearing when you don’t watch it closely. It is kind of like bringing your toddler to the playground. Everything is going great. You turn your head for one second, you look back, and your toddler has disappeared into the playground chaos. Poof! Money is a toddler, and you need to treat it like that.
I have mentioned it before in a few posts and then again on our podcast. Tracking is a crucial piece to financial success. You can track on paper, with apps, or in any way that works for you. No matter how you do it, tracking will shine a light on where your toddler money has disappeared to. Without it, your toddler might as well be lost in Fenway Park!
When you track, you will be amazed to see what you actually spend on food, housing, transportation, subscriptions, entertainments, snacks, Amazon, and more. All of these little purchases that feel like nothing at the time add up and helps your money disappear right under your nose. It’s really an amazing trick. But when you can SEE it by tracking, the money can’t sneak away.
Step #1 To Stop Killing Your Wealth: Track Everything & Find Your LOST Money
Drip, Drip, Drip
A few drips from a leaky faucet don’t seem like much when you first notice it. But did you know that a leaky faucet that drips at a rate of 1 drip per second will waste 3000 gallons of water every year? That little drip you noticed this morning in your bathroom faucet doesn’t seem so little now.
Our money habits can be very much like a leaky faucet. A few subscriptions here and there, an occasional bank or ATM fee, or paying interest on debt doesn’t seem like a lot drip by drip, but it will add up to thousands of dollars or more every year if not sealed up.
The marketing world has figured out that if they make the cost small enough and turn it into manageable installments, we will be more likely to buy it than if we had to spend a lump sum upfront. This is true for cars, homes, credit card debt, subscriptions, bank fees, and more. We lose track of all the little drips because each one feels insignificant.
Step #2 To Stop Killing Your Wealth: Find Your Leaky Money Faucet and Seal it Up!
Having No GPS
You would not leave your house to take a trip a few hundred miles away without a plan and using your GPS, so why would we not do the same with our money? It would be awful to make it halfway across the country only to find out that you were supposed to go North instead of South a few hundred miles ago. The same is true for our money, especially when it comes to investing.
Everyone needs to have a money GPS to periodically check in with that soothing navigation voice to make sure they are still on track. This does not need to be complicated at all. In the most basic terms, you need to have an idea of what and where you will invest your money, understand your own personal risk tolerance, and have a plan for what you will do when the market fluctuates.
Those who do not have this type of plan are the people most likely to panic and sell when there is a big market dip and wait to get back in until after the market rebounds. In other words, they sell low and buy high…which is exactly the opposite of what you want to do. You wouldn’t walk into Target, see something on sale for 30% off, and say, “no, I will wait until it’s back to full price.” So why would you do that with your investments? If you have a plan and a GPS, you can follow the guidance when good and bad things happen to avoid killing your wealth with emotional decision-making.
Step #3 To Stop Killing Your Wealth: Have a Money GPS to Guide Your Investing Journey
I Want That!
Have you ever been to an American Girl doll store? Well, I have, and it was awful. As I waited in line, a little girl in front of me was told that they did not have the doll she wanted in stock. The lovely little angel proceeded to say to her mother, “but mommy, I WANT THAT doll now. Tell the woman to go get me that doll now!”. After 10 minutes of berating the store clerk, they both left in a huff.
Thinking about that encounter has allowed me to realize that we have all been that little girl, even as adults. We often WANT THAT thing right now! New cars, big homes, vacation homes, expensive clothing/shoes, electronics, and much more. We want it even more when someone else has it! And as we get older and make more money, those things that we want grow in cost right along with our income.
Lifestyle inflation is the term most people use to talk about this. As we make more, we spend more. If the people we surround ourselves with spend a lot, so do we. It’s a cycle that keeps us from building a gap, saving more, and reaching financial independence. Inflating your life will kill your wealth quicker than any of the others I have mentioned here.
To combat this, be mindful of your spending. Decide what you value and spend on those things. It is OK to spend money, but making spending intentional helps avoid the “I Want That” moments that always pop up. Design your own life, and don’t worry about what anyone else is doing. My wife and I use a tray table as a bedside table in our master bedroom of a 2700 square foot beautiful home. And I could care less what anyone thinks about that. We place no value in the mahogany bedroom set that we use only when sleeping. Everyone will and should value different things, but you can not have everything and still achieve FI.
Step #4 To Stop Killing Your Wealth: Spend on What You VALUE, and Not on All of the Things You WANT
Live Wealthy, Not Rich
There is a big difference between living wealthy vs. rich. It has nothing to do with how much money you make, but rather what you choose to do with that money. Wealthy people watch it closely, avoid the leaks, follow a map, and spend intentionally. Rich people may make a lot of money, but they do the opposite and in the end they have no wealth accumulation to show for it. Living a rich life looks great from the outside, but feels horrible on the inside. Living wealthy may look boring and unassuming to everyone around you, but it gives you peace and freedom that comes from FI.
I choose a wealthy life, and I hope you do the same. If you do, avoid the 4 Wealth Killers that I included here to get you started on your path to FI.
If you have any other wealth killers you think we should all avoid, please include them in the comments below.