Financial independence is often thought of as a pathway where you get a good job with the usual methods, work and save diligently well beyond the median percentage, and have the ability to retire early and safely. Although still unknown in many quarters and somewhat countercultural, the countercultural possibilities of the movement’s principles have only barely been explored by the mainstream “financial independence/retire early” (“FIRE”) crowd.
Financial independence is a topic that I’ve delved into on this blog before, from “Leveraged Stocks for Long-Term Investing” to “The Surprising Path to a Happy Everyday Life”, and last but not least “Pensioners, Aristocrats, and Financial Independence”, which I suppose, at least for now, is my master post on the subject. Last I checked it was pretty much the most popular post I’ve made to date!
The focus in these, however, was, for the most part, what I might call the conventional path to financial freedom, working a more or less normal career until you have accumulated enough investment assets to achieve financial independence, the ability to live off your investments for the rest of your life. Rules of thumb for the “safe withdrawal rate” vary, but the most popular is the 4% rule. This means, for example, if you want to live off $40,000 per year you should have $1,000,000 in investments.
In these previous posts of mine I discussed the possibilities of more aggressive investing to minimize the necessary contributions (thus reducing the punishing savings rate necessary to achieve “FIRE”) or to augment your assets, thus unleashing a compounding process of “generational wealth” to free your descendants from the need to work or to have careers if they don’t want them.
Beyond the Middle Class’s Life Script
I am also a harsh critic of the “box” of work hard, go to school, go to college, get a good “real job”, retire in 40 years, and then wither and die that has characterized developed societies for perhaps a century. This has long been waning as a universal model but is still the default lens through which we view our paths in life. The “FIRE movement” has its own “box”, which is basically the same as the conventional box except you retire a few decades earlier.
Being able to pursue passions in retirement without needing to worry about money when you’re still young and can enjoy life is nothing to sneeze at, but nevertheless there are reasons to believe that simply accelerating retirement by a few decades, the “FIRE box”, won’t cut it for many, perhaps even most (!), people.
In previous posts I have suggested that investing more aggressively, such as increasing one’s stock allocation or (especially) using leverage prudently can unlock massive gains over conventional methods, augmenting your wealth in retirement or even making financial independence a feasible option at all for not-so-affluent people. Nevertheless this is more or less just an adjunct to the “FIRE box”.
Although the fundamentals of financial independence remain the same, its principles can be applied much more widely and counter-culturally than where the adherents of the movement are willing to go. Just to take perhaps the most important example, investing in the stock market has a higher return than college!
The Stock Market: a better Investment than College?
Yes, it’s actually true! We often hear that getting a college degree will enhance your earnings by $1 million over the course of your lifetime, but we don’t often hear about the cost of getting that degree. $10,000 invested in the stock market over a 35-year period (comparable to a career) that had relatively average returns and volatility (1985-2020) returned a comparable amount to the so-called “college wage premium”, as you can see in the chart below.
Image courtesy of Portfolio Visualizer.
And $10,000, coming out to $2,500 per year, is pretty cheap for a college degree! Obviously if you pay the $10,000 or even $100,000 and get a career out of the deal that pays well into the six figures going to college is far superior to investing in the stock market, but unless your career is very high-paying or your college is very cheap you’re financially better off investing the money and letting it compound for the next few decades.
Those exceptions cover more people than one might think; neither “full-ride scholarships” nor mid-six-figure jobs are all that rare, and there are people who stand excellent chances of getting them if they put in the effort. But that’s not even most highly intelligent college-goers, let alone most people in the general population.
“CoastFIRE” and Beyond
Assuming you have a low five-figure sum of tuition money to invest (i.e. it’s not all borrowed), letting it ride is the best way forward to financial freedom. In order to let it ride one needs another source of income to pay expenses; in this case a more part-time or basic job (i.e. one that doesn’t require a degree) will suffice. I believe this is what is meant by “CoastFI” or “CoastFIRE”, essentially a form of semi-retirement or deliberate underemployment until compounding has done its work enabling you to fully retire.
So why don’t more people do this instead of going to college? Well, some of us have passions that can only be realized by going to college and getting a degree (e.g. becoming a doctor), and they’d be willing to do it even if wasn’t financially optimal. The vast majority, however, go to college either because they’re still laboring under the delusion that it’s a very high-returning investment in themselves, or, even more depressingly, because they feel like there’s no other choice for them to earn a respectable station in life or achieve their financial dreams.
Even in the “fatFIRE” demographic, perhaps the most open to new ideas of any “FIRE” segment, the discourse tends to be dominated by those very people who got six-figure jobs the conventional way and are living within the “FIRE box”. Even something like homeschooling your children so you can save the enormous amounts of tuition money prestigious private schools charge and have more flexibility for e.g. traveling the world tends to get a hostile reception, at least in their subreddit.
FIRE Principles beyond Retirement
Which is a shame, because “FIRE” principles can be applied to not just retirement but a variety of goals. If you invest very aggressively, in a 300% stock portfolio, in the median case you’ll have $250,000 after 13 years if you invest $250 per month; even at a lean $83 per month you’ll have that much in 22 years. What can you do on $250,000?
Perhaps not “retire”, but you can withdraw 6% from it and still have a 50-50 chance of it holding its value after 20 years. My own playing around with Portfolio Visualizer suggests an optimally leveraged portfolio could support up to 13% withdrawals and have a 50-50 chance of holding value after 20 years, though I’d encourage caution with these numbers, and for you to do your own extensive research if the possibility intrigues you.
13% of $250,000 gives you $32,000 per year, which can give you a new car or a swanky vacation every single year, or a new pricey hobby like flying. At $100 per lesson you could take a lesson in something you loved 6 days per week, almost every single day, for at least several years and probably closer to 20 years. That opens up a lot of possibilities!
Building a Runway to finding your Passion
In particular, if it’s things you love, you might not be enough of an expert at it to make much money now, but after daily lessons for years on end you’ll almost certainly know enough about it to do something lucrative with it, at the very least make a few thousand per year at it.
Which brings to mind Greg Shahade’s fascinating blog post “I’m 38 Years Old and I’ve Never Had a Job”. Of course, he’s just never had what middle-class snobs sometimes call a “real job”; he’s worked smart and I presume hard (albeit without putting in “full-time” hours) at, in varying points in time, competing in chess tournaments, teaching chess, winning a chess fellowship, starting a chess league, a chess school, and a chess tournament, and playing online poker.
Shahade points out that if you’re young and vigorous as a retiree the presumption built into financial independence calculations that you’ll never make any more money as long as you live is ludicrous. I tend to agree. Finding something you love that pays a steady salary at even middle income is hard, but finding something you love that can bring in not so steady money averaging a few thousand per year is likely, I’d even go so far as to say almost certain, given enough time.
Even with a modest nest egg that will likely run out within 20 years, like $250,000 on a lean budget that nevertheless gobbles 6% or even 10% of your assets, it will take you a while to actually run out of money, and in the meantime you can try various low-startup-cost freelance and business ideas until one (or more likely a combination of them) sticks and provides enough money to, in combination with your investments, make your lifestyle sustainable.
If you start in your late teens and combined all the ideas in this post, to put tuition money aside and invest it instead of going to college, to draw down your portfolio at heavy but not short-term-unsustainable rate to pursue what you love, and to take on basic and/or part-time jobs to plug any deficits that might arise, by your early to mid twenties you would probably be much better off than the average college graduate: a budding freelancer or business owner doing something you really like and accumulating substantial wealth while many your age owe more than they own and are stuck doing things they hate.
The Specter of Deplatforming
You might also be better off in other ways. It’s increasingly common for powerful elements to use jobs, namely the threat of taking them away, as weapons to punish people merely for holding undesirable political views, one of the more sinister manifestations of the “deplatforming” movement, and I see no reason to expect this trend to reverse course. Recently there have even been cases of people being denied college admission for political reasons.
Although usually associated with “Wokeness”, who’s to say the trend won’t spread to the right wing as well? The attempts by conservatives to discipline athletes for daring to kneel in protest (instead of stand) for the Star-Spangled Banner bear a striking resemblance to the logic of “deplatforming”. Don’t assume that not being racist or even right-wing will protect you: for all we know the right-wing racists might be the ones doing the deplatforming in the decades ahead.
A man with a job can have his livelihood taken away at the stroke of a pen; a man with a business that has multiple, ideally many, clients will be damaged, but will likely live to fight another day, with complete destruction being very difficult. My intuition tells me that in the near future it will be best for one to be independent if at all possible, and not dependent on a single employer.
Being independent is also a way to bypass institutions that favor particular classes. The bottom half or third of college graduates tend to receive very poor returns on their investment into higher education, and these people are disproportionately not from upper or upper-middle-class backgrounds. Prestigious workplaces and the prestigious colleges that feed into them, even at relatively low levels of prestige, work against anyone who doesn’t have implicit cultural knowledge, which usually means people who don’t have middle-class parents.
If that describes you, you might have a better chance of earning lucrative amounts of money as a freelancer, business owner, or entrepreneur. There are legions of people in our society who seemingly dedicate their whole lives to ensuring that no one but the chosen few of the professional classes, i.e. them, can do anything or be anybody, putting as many barriers and humiliation rituals in our way as they can get away with, but it is nevertheless true that success without assimilating into the culture of professionalism or pleasing its members is much more likely as a freelancer or businessman than as an employee.
As for my ideas for thinking outside the “FIRE box”, admittedly some of these are just idle ideas I’ve had that I’m putting out there, but it honestly puzzles me why something like this path isn’t much more mainstream, rather than the conventional box or the “FIRE box”. There are certainly many people pursuing an independent or entrepreneurial path, but there doesn’t seem to be a cohesive movement connecting it to the principles of saving and investing for financial freedom, and it seems to me that such a movement could help a huge number of people improve their lifestyle.
I suppose what I really want is something like the existing “FIRE movement” but much more artsy and entrepreneurial. Having long found the culture of professionalism to range from dull at best to repulsive at worst, I rather consistently find that it pervades the “FIRE movement”, perhaps explaining why it’s one of those things I really want to like but just can’t. Fortunately for those of us like me this website stands as an outpost of “artistic entrepreneurialist FIRE”. If you know of any other sites or blogs like this one don’t hesitate to tell me in the comment section!
In any case it appears that achieving financial freedom, if only to some extent, is much easier than what popular culture or even the “FIRE movement” itself would have us believe. Thinking outside not just the mainstream’s box but the “FIRE” movement’s own box clears and refocuses our vision, enabling us to see pathways to fulfillment in life we otherwise could not, lighting the way to destinations and ways of being that would be unachievable by conventional means. Apply this kind of creative thinking across your life, escape the box, and be free!