Soon To Be Free

One of the most important aspects of achieving financial independence is maximising your savings through minimising your expenses and where possible, maximising your income. The saving rate is the percentage of income saved after expenses have been accounted for. Many financial independence calculators rather simplistically use the savings rate as a key metric to identify how many years it takes to be able to retire. Providing the savings rate are invested into productive assets, usually using the S&P 500 as a benchmark for the returns, a person can expect to retire in x number of years as long as they maintain that saving rate throughout. While this is useful to get an indication of what a person needs to do to achieve retirement, there are a myriad of assumptions baked in and countless complications that come with life that make it just that, a rough indication. With that said, it is still useful as a tool to see how well you are managing your income for the future.

I have taken a view of my savings rate as a portion of my net income since I began tracking and managing my finances in June 2020. I use net income as the metric as my tax free pensions savings as a PAYE worker, aren’t accessible until my mid sixties. Overall, I have managed an average savings rate of 43% in that time with the month by month breakdown shown below.

An average savings rate of 43% is not to be scoffed at, but still falls short of the 50% target I have set myself. Naturally at the start, with enthusiasm high, I made a more intentional effort with my savings, being more frugal with expenditure and conscious of what I spent money on. The first year of tracking I maintained an average savings rate of 54% but this has fallen off a cliff in the last 6 months averaging only 25%. This has been driven by the lockdowns being lifted, allowing myself to spend more on eating out, takeaways, drinking in pubs and holidays. Gifting and dental expenses were also a key driver in increased expenses.

Key Action Going Forward

Savings need to be allocated first every month. This is done for the house savings portion, but I need to be more disciplined with my own personal savings. Investigate secure low risk investments to portion off income out of reach until the house is bought. I’m holding off on investing in more ETFs until the house is bought, which is hopefully within the next six months.

Overall, I’m happy with 43% for the time period but conscious that more concerted effort needs to be applied this year to maintain my ongoing target of 50%.

Financial Independence is a type of freedom from money worry that can relieve a great deal of stress and hassle from your life. A simple explanation is that you are not dependent on your salary to cover your expenses but rather this is covered by passive income streams that you have developed over time. Sounds great but becoming financial independent is not an easy task and requires some hard decisions to be made. It likely requires a great deal of change to your current lifestyle that some may find unpalatable and unpleasant…

During secondary school in the leaving cert curriculum, (the final school exams that Irish students sit before leaving school), we had the great pleasure of reading some of Robert Frost’s poetry full of it’s beautiful, vivid imagery of nature contrasting with an overarching sense of grief and loss that highlighted a duality in viewing the world. In his most famous poem, The Road Not Taken, Frost considers a choice in his life that will take him down one path or another. He notes that both roads have perhaps equal merit depending on your perspective and knowing life he likely won’t ever get a chance to go back to the one he doesn’t choose. He predicts that he will contemplate on the choice in years to come with the last verse:

I shall be telling this with a sigh 
 Somewhere ages and ages hence: 
 Two roads diverged in a wood, and I— 
 I took the one less traveled by, 
 And that has made all the difference.

When  I was reading this for the first time at the age of 16, I distinctly remember commenting in the class. ‘It is abundantly unclear from the poem whether the author was speaking of a sigh of relief or a sigh of regret.’ I remember being so proud at spotting such an obvious conclusion thinking that most people would assume that the author was speaking of a sigh of regret. However, as I realised in the years since, the line is so clearly designed to allow the reader to look at the decision from both the positive and negative perspectives. The author does not yet know how he will feel about his decision and ultimately we can’t know how we will feel when looking back on the decisions we make at the time we make them. How we will feel about the opportunity cost and whether we will be truly satisfied won’t be known until we have gone so far down the path that we can’t turn back. The passing of time will bear to us the full consequences of the decisions we make, whether we make them consciously or unconsciously.

We have to be conscious in our decision making if we ever hope to have any satisfaction. Frost had the good fortune or rather the consciousness in his life, to see that there was an alternative path to take (though this may be the wonders of hindsight in the poem!). For far too many of us, including myself up until the last year or so, the choice of alternative lifestyles never even presented itself. There is no divergence in the road, just the path ahead, which starts from school to college to career to retirement to death. A slowly increasing salary that only slightly outpaces a lifestyle to match. All laid out on a well-kept road that may have its bumps and bends but ultimately would be “safe” and “secure” though uneventful and submissive.

When you are on this path, one foot following after the other without purpose, it is not possible to see the diverging roads because they are blocked from view by fear and insecurity. The decision to continue down this path, to work the 9-5 without intention and live a life without meaning, whilst it hasn’t been made deliberately, will still have to be reckoned with in years to come.  I have no doubt that most people will have a sigh of regret if they don’t ever see the other road until it is far too late. ( Don’t get me wrong, this is a better life than most of humanity has experienced to date and is currently experiencing but is it wrong to want or even need more from life? )

The concept of Financial Independence is one such divergence in the road that I have had the good fortune to come across.  The onset of COVID -19 with all its devastating effects has led me like so many others to re-evaluate my life. Through blogs and podcasts, I have spent a great deal of time absorbing content about what it means to be financially independent over the last 9 months. I stumbled across the Irish FIRE Podcast when looking for new material to consume which led me onto blogs such as Mr. Money Mustache, JL Collins’ Simple Path to Wealth, Mrs. Money Hacker, { in·deed·a·bly } along with books like Rich Dad Poor Dad, The Millionaire Next Door, Think and Grow Rich, Atomic Habits and so on. For the first time since leaving school outside of meeting my girlfriend, I had optimism and a sense of passion about the potential for my future that didn’t have a sense of pessimism hanging over it. There’s potential here in this idea, there is something of merit worth looking at. I could see a divergence in the path for the very first time ‘and be one traveler long I stood’

Unfortunately, I have a tendency to be overly critical of ideas and of myself, finding 100s of reasons why something won’t work or why something is a bad idea. When this is used to isolate problems and identify optimal solutions, then it is an excellent skill to have in the toolkit but when it pervades the thought process so effectively that it eradicates creative thought and vision, then it becomes a problem. A mindset like this is why it took me so long to see the FI path in the first place and why it stopped me from diving straight in (though I might say that is a good thing!).  Instead, it is so easy to look at the path ahead and the world we live in as it stands, and see it as if it is coming apart at the seams according to what you see on social media and the news channels.

For so many people the voice in the head goes: ‘Don’t get above your station, be afraid of the world and all the troubles we face and wallow in it all. Don’t improve yourself or your own personal circumstances, stay the path where comfort can be found from food, alcohol, smoking, tv, or the latest vice that you can come across. Find the comfort in the next quick fix or unnecessary purchase, keep the head down, nothing more to see here. Lead an unexamined life and you’ll be alright, sure that’s what we are all doing here. Your capital is at risk, you could lose all your money, don’t you know the stock market is as good as gambling. What makes you think you’re better than anyone else, you, pfft no chance!” We can all be very good at coming up with reasons not to do things, our minds have become quite adept at avoiding hard decisions. I have seen the path and I’m not going to let this opportunity slip me by.

So I have decided to take the path towards FI. As I look at this decision now, it makes complete sense. I’m not motivated by my current job at present due to too much administration and menial work. Pursuing FI will give me more options down the line or at least that is what I believe anyway. It will give me the freedom to pursue alternatives that are more interesting and hopefully something I can get passionate about. By stepping on this path and making the necessary sacrifices now, I am taking the calculated risk that there is freedom just past where I can’t see, where it bends in the undergrowth. Or it could lead me to ruin… Knowing my slightly obsessive nature, I could start to count every cent as if they were diamonds or get lost in the spreadsheets. I could just use FI to legislate staying the course in an unenjoyable job that provides little fulfillment and provides a valid new reason to stay on the safe and narrow path already set out. I hope that this is not the case. I hope that as I start down the path towards Financial Independence that it leads to all the possibilities that I have read about without destroying the present. All I can do is hope and try this new course of action. All I know, right now, is that I feel like I’m the road that shouldn’t be taken so I’m just grateful to have seen another path regardless of what happens. Maybe years from now I will look back with a sigh.