Financial Independence is an incredibly powerful tool. It allows us to create the time and freedom needed to pursue the things that we want out of life.
However, there is a catch: If we don’t have a clear idea of what we really want, Financial Independence can take the place of our actual goals. It can turn from a tool into a welcome distraction from the lack of purpose in our lives.
If you want to design a life that is in line with your priorities and that allows you to pursue your life goals, you need more than a FIRE strategy: you need a life plan.
Why Having a Financial Plan is Not Enough
When asked why they want to achieve Financial Independence, most people in the FIRE community will give answers that boil down to one simple thing: they want to be happy.
I often say that becoming financially free is a worthwhile goal for pretty much everyone. One of my favourite concepts discussed in The Psychology of Money is the power of controlling your own time. Financial Independence gives you that power.
Up to a certain extent, more time is a good thing, regardless of what you do with it – simply because it allows you to live a more balanced, less stressful life.
However, past a certain point, money and freedom are worthless if we don’t use them to pursue the things that make us happy and create meaning in our lives.
We have to figure out what we actually want. That’s of course a lot harder than simply focusing all of our attention on saving, investing and budgeting our way to an arbitrary number of dollars in our retirement accounts.
A good financial plan will do one thing: help you achieve your financial goals (FIRE in this case). It will help you create wealth which in turn will free up your time. What it won’t do is tell you what to do with that time. It won’t tell you what dreams to pursue and what will make you happy. That’s what life planning is for.
My Failed FIRE Trial
In 2014 I was fortunate enough to try out the FIRE lifestyle. I had just quit a job that I hated. My plan was to start my own freelance business in the field I had studied at uni. I wasn’t passionate about it, but anything would be better than a soul-sucking job, right? I even got extremely lucky because the government ran a program at the time that would pay me 65% of my previous monthly income for a full year. So it really didn’t even matter if I worked or not, the money would keep coming in. I thought I had won the lottery.
But suddenly I had a lot of time on my hands. The novelty wore off really quickly. I started gambling and drank too much. I didn’t care about my freelance gigs and I felt frustrated. I had finally escaped from my job, so why wasn’t I happy? I had money, freedom and all the time in the world. But why did I feel so unhappy?
In retrospect the answer is obvious: Running away from something (like a bad job) is not enough. Time, money and freedom alone won’t make us happy. We have to actually figure out who we are, and what we truly want and then go for it.
The same applies to FIRE. Financial Independence is a tool. Happiness is the real goal. But Financial Independence itself won’t make you happy. Pursuing and achieving your true goals will.
Once I realised this everything changed for the better. Today, seven years later, I am the happiest I’ve ever been. My life is meaningful and fulfilling. We have created an amazing lifestyle for our family that allows us to focus on the things that we really value. I am also the healthiest and wealthiest I’ve ever been.
The secret is simple: I stopped making excuses, realised what is important to me and started working towards my life goals. I made a life plan. Our Financial Independence plan is of course part of that life plan, but it is not the entire plan.
Life planning is what got me to where I am today and it is a practice I have kept up and refined over the years. I have even used these concepts in my professional career for years (one of my roles is to support and advise people who are planning or making major life changes).
Don’t Confuse The Means with the End
Money is a means to an end, not the end itself. We all know this, of course. Yet, many of us in the personal finance community get so caught up in the process and the nitty-gritty details of our investment strategies that we lose sight of the bigger picture.
Without the bigger picture front of mind, you run the risk of blindly chasing a goal (FIRE in this case) that won’t bring the results and the happiness you expected. Pursuing FIRE without simultaneously working towards achieving your true goals is bound to lead to disappointment and regret.
This is the reason it’s so important to have a holistic plan for all major aspects of our lives.
Of course, it is essential to have the right financial strategies in place if you want to achieve FIRE. However, your financial plan really should just be a component of your overall life plan and a reflection of your goals and values.
Are you using FIRE as an excuse to delay living your best life and taking steps in the right direction now, regardless of your financial situation?
If you spend days researching and debating which ETF has the lowest expense ratio and which broker has slightly better fees than the others you are doing yourself a disservice.
To illustrate the importance of this concept we’ll explore two different FIRE timelines below.
Scenario A: Pursuing FIRE without a Life Plan
Most FIRE enthusiasts have a VERY detailed financial plan in place, but when asked what their life plan is their answers are usually not very specific. Here is what most people’s Financial Independence timeline looks like:
Let’s go through the chart step by step.
- You discover FIRE (and your mind is blown). We’ve all been there. Everyone has their own story about the moment they first came across this life-changing concept, but a common theme is that people discover FIRE when they try to get out of an unpleasant situation (dependence on a job they hate; having no time for their family; etc.).
- You read everything you possibly can on Financial Independence and Investing. You run your own numbers and make a FIRE plan.
- You start the long path to FIRE. For most people this looks something like this:
- You start investing.
- You make a budget and reduce your expenses.
- You optimise all areas that have might help you get to FIRE quicker: your investments, your spending and your income.
- You track your net worth and investment returns religiously. Your tracking spreadsheet is always open, you check your brokerage account several times a week (or day in some cases).
- You obsess over every little detail of your financial plan. You worry about the tiny differences between two ETFs, you know the MERs of your favourite index funds by heart.
- FIRE has become more than your ultimate goal. You are so focused on achieving it that you neglect some other areas of your life. But that’s ok, because once you are finally free you’ll have all the time and energy in the world to look after your health and relationships.
- When you are at work (or anywhere else actually) you daydream about how awesome your life will be an all the cool things you’ll do once you are finally finanially independent.
- Rinse and repeat for at least a decade…
- Finally! The day you have been dreaming about for years and years has come. You are free. You are FIRE’d. At this point you may or may not quit your job. You might go on a big around-the-world trip. Life is awesome. Now, you say to yourself, you will figure out what you want your future to look like.
- To your surprise, the novelty wears off quite quickly. Sure, you have a lot of money in the bank, but it turns out that things in your life didn’t really change much when you hit your magic number. You have a lot more time now too, but figuring out how to spend it seems harder than you expected. You realise that money alone won’t make you happy.
- You do some soul searching and finally figure out what you really want out of life. Once you know what your actual goals are, you go ahead and pursue them. You soon realise you could have done this from the start and that you really didn’t need to spend over a decade saving millions of dollars to find your purpose and passion.
- You start working towards your actual goals and create a happy, fulfilling life for yourself.
Scenario B: Pursuing FIRE with a Life Plan
What if, instead, you could tweak your FIRE timeline to look something like this:
- You discover FIRE (see number 1 in Scenario A).
- Before making a financial plan to get to FIRE asap you spend some time figuring out your actual life goals and purpose. You make a life plan.
- In the process you realise that most of your goals have little to do with money (although money and the freedom it buys is of course very helpful when pursuing goals). You understand that money alone won’t make you happy.
- Because you now know exactly what you want your future to look like, you create a life and financial plan based on your goals and priorities.
- You spend some time exploring and selecting the right type of and path to Financial Independence for your desired lifestyle and consider options like semi-retirement.
- You create an investing strategy that is in line with your goals.
- You start working towards your ideal lifestyle and pursue your goals and passions.
- You regularly re-evaluate if your financial plan is still in line with your life plan (which is bound to change over time) and make adjustments to both as needed.
- Eventually you reach FIRE. Because you have already worked towards your ideal life for many years, your life doesn’t actually change much at all once you hit your FIRE number. However, the extra time and the freedom that FIRE offers allows you to focus on your priorities in life even more.
So, which scenario sounds more appealing to you?
The Risk of Delaying Happiness
People in the FIRE community often say things like “Once I hit FI I will finally be able to focus on my goals and figure out what I want my future to look like”. Here is the thing: This approach is comforting, but it doesn’t work. If you wait until you hit your magic number for your life to start you are doing it wrong. There are countless examples of people who followed the timeline from scenario 1 above and regret it.
My all-time favourite FIRE blogger, Mr Money Mustache, makes a good point by saying that often, confidence is the real issue, not a lack of money. Are you using FIRE as a distraction from the fact that you lack the confidence to go after your dreams?
While financial security does of course have a positive impact on most other areas of your life, it won’t fix all of your problems. It’s not a magic wand. It can’t do the hard work of figuring out your goals and then going after them for you.
Don’t use FIRE as an excuse to delay living your best life. Set up a financial system that works for you and then move on and spend some time thinking about your life and make a plan that will get you to where you want to be. Then start following your plan.
When you eventually hit FIRE, it will be a nice bonus that will make things easier for you, but it won’t make a massive difference because you have already created the life you want along the way.
I’d love to hear your thoughts on this article in the comments below.
23 thoughts on “Financial Independence And Life Planning: The Ultimate Recipe For Happiness”
Couldnt agree more, I had a plan but along the way realised I was thinking too big and forgot what was making me happy, once I realised that I didn’t need full FIRE.
Now I’m more happy than I’ve ever been , working when I choose, enjoying the things that I want to with who, I want to be with…. Life couldn’t get any better
I think what you said summarises it really well – when you ralise what makes you happy, you don’t need full FIRE! I like that.
Another fantastic post, Mrs. F.!
I’d love to read more about your planning process. It is definitely something I have been thinking about. Can you recommend any particular books or resources?
Thank you for putting so much effort into writing your articles, your passion and expertise shines through. Love your work!
Thanks Jess! I really appreciate the kind words.
There isn’t a particular book that helped me, I’ve probably read a few dozen and a few ideas have just stuck. I really liked The Magic of Thinking Big. Early Retirement Extreme is also surprisingly philosophical. I think it really helps to read widely and just questions things in general. I will share some of the resources I like in a future post, I’ll also make sure to include some book recommendations.
This is what I needed! I took a big dive into the FIRE community and have been reading a lot about it. UntilI I started to questioning myself why I wanted it anyway. The job I have is my dreamjob so why would I want to retire early? After some soulsearching I discovered that financial security is what I need.
So I don’t need millions in the bank. Just have to figure out what is needed if things go wrong and most important: what makes me happy now and what is worth living for now
Thank you for the wellcrafted article!
Thanks for the comment, Anne! Glad to hear you figured out that it is financial security you are after. Imagine you had quit your job only to discover this afterwards. Happiness definitely is a good guide. All the best!
Thanks for the post Flamingo FI, I really enjoyed your podcast on AFB this morning during my morning run. Very real and I felt a lot of similarities so thank you, very interested in your content.
Thanks Scott! 🙂 Comments like yours always motivate me to continue writing articles! Good to hear you enjoyed the podcast too.
Great article Mrs F,
I think like most, growing up with not having much makes you idolise having money so you can ‘have it all’ and in turn, you think it will make you happy. It truly is a myth, once you have purchased all the ‘things’ that is all it is, empty things. I really like the visual timelines and where you inject the life plan very early into the financial plan, it has prompted me to have another look at my life plan and place that front and centre and build out my financial goals around this again. Thank you.
Glad you liked the article, Jins! I find that life planning is a continuous process, I review mine whenever I review my financial goals and investments. I agree with you – we tend to idealise having it all because we learn from people (like our parents) who truly believe getting more stuff will make them happy. And once they realise that’s not true we are usually all grown up and on the treadmill ourselves.
This is an amazing post. FIRE can easily become an excuse to living in misery.
Could it be possible most people don’t have really have any dreams? Particularly dreams that aren’t related to money.
Thank you! 🙂 I think it’s definitely possible that some people don’t really have (big) dreams. Or they do and think they won’t achieve them, so it’s easier to focus on something easily trackable and achievable like FI.
Dam, this hit me right in the feels!
I’ve never worried about MER’s etc but almost every other point was spot on as to how I’ve been goin about things until recently.
Nowadays I’ve dropped our Monthly DCA amount slightly and after this Semester I am decreasing my Uni workload (mean I will finish a year later than originally planned). Freeing just a little bit of time and money means I can spend more time with my kids while they are young. Yes this will push back a few milestones but when they are achieved is arbitrary, there is only a finite time periods your kids are….kids (and think their parents are god-like).
As others have stated it was awesome hearing you on AFB podcast. The majority of Australian FIRE Bloggers have no kids, so its always refreshing to hear from someone who has done it with kids in tow.
I am sure you won’t regret the decision to focus on your kids now! No point being FI but having missed this special time with them. And yes, it’s awesome how they think we as parents are the greatest, wisest people who ever lived. 😉 Glad you enjoyed the podcast!
I think it’s also important (maybe more important) to think about values in life rather than goals / dreams / outcomes. We can live a life according to our values every step of the way, helping us to create a life of meaning along the journey.
Goals / dreams, we either achieve them or we don’t. When we achieve them, they often don’t feel as good as we thought, or at least not for as long as we thought they would. When we don’t achieve them we then have feelings of guilt, shame, punish ourselves, judge ourselves…
Values on the other-hand can be our compass point, guiding our goals giving direction, but more importantly guiding our behaviour while we’re trying to achieve those goals.
I agree values are super important. Defining (and reconfirming) my values is actually one of the first things I do when I go over my life plan. I don’t think it is possible to create longer-term goals and establish priorities without knowing one’s values. So for me they are just part of the goal-setting / prioritisation process. I also don’t set goals like “climb Mt Everest” for myself, it’s more things like “be the best mum I can be”, so they are very value-based anyway.
Wow. Thank you so much for this post. I found FIRE just a couple of months ago and when I find something I like, I become OBSESSED. Which is great for learning things fast, but I’ve been really sad recently without knowing why. This article hit home – “Are you using FIRE as an excuse to delay living your best life?” That’s exactly what I was doing. I was focusing too much on the future. I’m still planning on keeping my financial FIRE plan about the same, but I’m fixing my mindset to focus on having fun now while I’m working too.
Thanks so much 🙂
Thanks for the nice comment, Kelsey! So glad to hear the article helped you. I see so many people obsessed with FIRE. I love this concept (obviously) and could talk about it all day, but balance is so important. That’s why I think making FIRE part of the overall plan works really well, it does for us anyway. All the best! 🙂
Ahh yes, the why. It always comes back to the why? I love your visual representation of the timeline. I realised with shock I was close to the end off timeline one without solidifying what financial independence would help me to achieve. Unfortunately my lovely Mr. although well intentioned does not obsess about FIRE like I do so I am finding hard to map our together dream.