When the Pursuit of Financial Independence Tips Out of Balance

The goal of financial independence (FI) is to support yourself through passive income streams instead of a job while living a frugal lifestyle, freeing you to spend your time as you wish.

The FI movement has become increasingly mainstream over the past decade, following decades of soaring national debt and economic uncertainty. 

Determining Your FI Number

Determining your FI savings number is simple. If you assume your post-FI lifestyle will remain the same as your current lifestyle, figure out your total yearly expenses including rent, utilities, insurance, cars, food, education, etc. Then, multiply this number by 25.

Why 25, you ask? It has to do with the 4% rule. An ingenious financial planner named William Bengen found that if you withdraw from your retirement at a rate of 4% per year, based on investment growth trends, your retirement is unlikely to ever be exhausted.

While the 4% rule isn't guaranteed, if history is any indication it should hold true.

The goal of financial independence is compelling, but is it practical?

The typical advice for achieving FI goes:

  • Cut expenses mercilessly.
  • Increase income as much as possible.
  • Save 50% of your income.
  • Repeat forever.

This advice tends to go to an extreme. Is it worthwhile to change homes and move to save $100 a month? Is it realistic to get rid of your car because gas prices are high?

The trouble is in the execution. This graph shows the median household income in each state (and D.C.) adjusted for the cost of living by state.

Given that the average median household income across the country is $57,568, the average family of three is living on $28,784, or about 138% of the federal poverty rate.

Essentially, saving 50% or more of their income is out of the question for the typical American family.

The numbers get even worse when you consider that the majority of Americans are in debt, further reducing their spending capacity.

This brings me to the second major recommendation: make more money.

But chasing bigger and bigger paychecks can quickly lead to burnout. When I graduated college, I became obsessed with achieving FI. Every time I pulled out my wallet, there was a nagging voice in the back of my head telling me I was sacrificing a piece of my future happiness for (insert item here).

I began working every minute I could; at one point, I was working 1 full-time job and 3 part-time jobs. I worked 15 or more hours every day and was lucky to get 5 hours of sleep a night.

As my body began to reject my new lifestyle, I began to consume all the caffeine and sugar I could stomach, putting on weight and further affecting my health. I missed out on valuable times with my husband and daughter, putting my mental and emotional health on the line as well.

I had the best of intentions, but I was more unhappy than I have ever.  Sadly, it took landing in the ER to kick me out of overdrive (setting back my FI savings by $3,000) and realigning my priorities.

I’ve since realized that sacrificing present happiness and treasured moments with loved ones isn’t worth retiring a few years early.

What have I gained if I retire at 40 with my health and personal life in pieces or, worse, don’t even make it to 40?

As with everything in life, working toward FI requires balance. Saving and investing are noble goals. Ultimately, they are the only ways to create your ideal future.  

However, now is the only now you’ll ever get. At some point happiness and fulfillment must take precedence over the balance of your investment accounts.