As any parent knows, on a long drive the kids will eventually get bored and then start to
“ARE WE NEARLY THERE YET??”
The longer the drive, the louder the question gets asked (and repeated).
And, lets be honest, it’s a long road to go from nothing to financially independent. It takes about 18 years at a savings rate of 50%. Yes, there are some celebrated outliers who make it in their early 30s but for me it was a marathon not a sprint.
So its gonna take some time and that’s an issue because we are designed by evolution to live for today. To illustrate, go to any zoo and throw a bunch of bananas to the chimpanzees and suggest they save half the bananas….let me know how you get on with that.
Channel your most powerful motivation
No one said it was gonna be easy.
Motivation is everything…if you channel it. As someone smart once said: He who has a powerful enough “why” can bear any how.
It helps to have a burning desire. Maybe you fear poverty or hate your job? That’s “away from” motivation. Ideally you should also have a burning desire for something positive (e.g. freedom, security). That’s “towards” motivation.
I was lucky to have a money blueprint that encouraged saving. I came out of the factory fitted with a fear of poverty and homelessness. That helped me (financially). But there were some downsides to my money blueprint. I was materialistic and I liked stuff as much as the next
Do the work
But, over time, I changed my money blueprint.
Although naturally lazy, I learned to work hard. I got better at dealing with other people and became less
socially awkward introverted. I learnt how to invest and how to sell (unnatural though that felt). I realised that spending does not equal happiness and became a minimalist (even though I’d never heard of that term). I chose beliefs that were more helpful to me.
Anyone can change the way they see the world. You can change your thoughts, your emotions and your actions. You just have to do the work.
Have a vision
Begin with the end in mind.
What does success look like for you? For David Sawyer, it was blue sky, white villages and red wine in Spain. An image like this helps get you started: its a call to action.
You can fill in the numbers later on the journey. When I was in my first job in London as a trainee accountant, student life was fresh in my mind. As a student, I lived on £3,000 per year and that hadn’t felt like deprivation…I had always had money for beer, food and rent.
So I had this idea. If I could just scrape together a pot of £100,000, why couldn’t I live on £10,000 a year? (remember, this was back in the day). At first the numbers were very crude. In my 21 year old mind, a £100,000 pot @ 10% annual return = £10,000 per year to live off. Happy days! Not easy. But possible.
But I was surprised to find that my salary of £12,500 (a 4x increase on the £3,000 per year I’d previously lived on as a student) didn’t seem to go that far in London. As I discovered bars and restaurants, bought suits for work etc, I realised that £10,000 a year might not be enough. Lifestyle inflation meant that financial independence was moving further away.
FI is a moving target
This follows from some simple maths. You have enough when you have invested net worth of say 25x your annual spending. So if your spending increases with lifestyle inflation, the target of FI gets further away by a factor of 25x.
Here’s the good news. You can put lifestyle inflation into reverse. Every £1 you cut from your cost base brings the finish line £25 closer.
We are habit machines
We are habit machines. Habits are set by routine and repetition. Your habits sustain good money choices even when your conscious mind is tired or over-whelmed. Willpower runs out every day. But habits are for life.
Take exercise for example, if you wait until you get home from work to go to the gym you are asking your mind to overcome inertia. That’s a tough ask. Willpower is like batteries: its runs down between charges. But if you cycle home everyday, its habitual and a much more natural way to exercise with no conscious thought required.
Paying yourself first is the ultimate financial good habit. The salary comes in every month. The credit card and utility bills automatically gets paid. Your savings get automatically swept over to your compounding machine (out of the way of temptation) where they start to grow.
If that all feels a little boring, well then you’ve got it right. Money no longer becomes a source of drama. You can get your thrills elsewhere in life.
What to concentrate on?
There’s that old saying that a watched pot never boils.
The FI equivalent is checking on your portfolio frequently…as if somehow that will make it grow faster.
Pro-tip: this doesn’t work. If you check every day (as I used to) its basically a 50:50 coin toss whether it will have gone up or down. And the pain of seeing a loss is much greater than the pleasure from seeing it go up. So check less often. Over the long term, this game is rigged in your favour. The less you check your portfolio, the more likely it is to have gone up.
Channel your impatience into your career. If you have excess energy, your investing and your portfolio are the wrong outlets for this. The best thing you can do with your time and energy is to focus on earning more at work and tracking your spending.
Tools for staying the course
Different things work for different people. Here are some suggestions:
i) Carrots. Regular small treats (and occasional big treats) for outperformance at work.
ii) Spend your spare time producing rather than consuming. Passive entertainment (e.g. cinema, cable TV) is consumption and costs money. Good hobbies like bike repair or gardening or crafts can save or even make you money.
iii) Exercise. Did I mention that exercise is the ultimate meta skill for learning discipline and deferred gratification? Did I mention that it boosts your energy levels and prepares you to do battle everyday? Yes, I think I did.
iv) Journalling or blogging. Not for the money (good luck with THAT) but for the self-awareness and accountability. What gets measured, gets managed. For a good example (and some very pretty graphs) take a look at this Instagram account.
Control your environment
There’s an old saying that you are the average of the 5 people that you spend most time around.
You can control your own environment outside of work. That means who you spend time with. If you find people competing with you about their cars / children / stuff / holidays, you can distance yourself from them.
It also means controlling your information environment. If you watch The News, your view of the world will be polluted with pessimism, apathy and fear. If you ever suffer from any form of stress or anxiety (and who doesn’t?) The News is a disaster for your mental health.
And then we have adverts constantly bombarding us. If you can sit through an advert break without wanting to throw your TV out of the window, then you haven’t understood the power of ads yet. Remove advertising from your life as much as possible.
Focus on the process
So you build good habits and you focus on the process (not the outcome).
Imagine you’re competing in an archery competition. You want to win. But here’s the problem. Your eyes keep wandering over to the judges enclosure where the silver trophy is sat, tempting you.
If you are looking at the prize (the silver trophy) then you are not focusing on the target (the bullseye).
Set it and forget it
Once you have your process locked down, you can set it and forget it.
Find something positive to do with your time rather than focus on screen-watching or coupon-clipping.
A brief word on coupon-clipping. Avoid any website that gives you a 10% money off code at Taco TempleTM : that is advertising not saving. Don’t get me wrong, Moneysavingexpert can be a useful tool. But if you are scanning it every week for a voucher that gives you 10% off a meal at Carbs-R-UsTM, you are playing their game. That is consumerism and consumerism is for suckers.
Self-care is a thing
Here we need self-awareness (the ability to look at ourselves objectively) and calibration to see where we sit on a spectrum.
You need a mixture of Sergeant Major and Zen Master. Are you trying hard enough or are you cruising? Are you Playing with FIRE or are you really committing to it?
Are you working too hard, getting run down and in need of rest and recuperation? Martyrdom is for terrorists. You can only help those around you if you practice self-care. Apply own oxygen mask before helping others.
What if financial independence seems a million miles away?
That’s normal…at the start of your journey financial independence IS a long way off.
But here’s the thing. The time will definitely pass. The choice is whether you take action now (and get richer) or whether you procrastinate (and waste that time).
The good news is that it gets easier and easier as time goes by. Things start slowly then accelerate as you approach financial independence. The snowball of your portfolio will run big and fast down the slope of compound interest.
You are on your way!
This post was inspired by an interview that I did with Meaningful Money…check out the show here: