#58: The ABC of money, part 14: the secret shackles of financial freedom
25th October, 2021
Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding that financial freedom is not what you think it is, including:
- the myth of financial freedom;
- misunderstanding financial worries; and
- an introduction to the two fundamental flaws in how we talk about ‘freedom’ in a financial sense.
The most common financial goal is also the most commonly misunderstood.
When anyone talks about financial planning, talk of ‘goals’ isn’t far away. And when anyone talks of financial goals, talk of ‘financial freedom’ isn’t far behind that.
It’s everyone’s big goal. The goal whose achievement would make everything else possible. The goal that allows you to not have to worry too much about what that everything else is, because it’s so damn obvious what you need to be focusing on first.
It’s so unquestionably worthy of focus that countless millions of people will – happily, apparently – sell their best time and energy in service to it.
But what does financial freedom even mean?
Have you ever met a financially free person?
Maybe someone who’s retired?
(Ignore, too, the fact that ‘retirement’ in any form is such a new idea that it was only an average lifetime ago that the average lifetime didn’t give the average person any time to retire. You can think about the implications of that on your own time.)
I’ve met plenty of retired folk that are still trapped by money somehow. The awareness that you’re not going to earn anything more (because despite it being worse in every single way, the world still sees retirement as a one-time, irreversible, decision) can be awfully uncomfortable… especially since we scrapped the ‘traditional’ promise-of-an-income pension without replacing it with any remotely universal understanding of basic stuff like how inflation, compounding, and time work.
Retirement for a lot of people means having no idea what to do, and no long-term idea how to fund doing it.
But maybe retirement isn’t the point anyway. Maybe it’s being capable of retiring. There must be a reason every financial planner’s website advertises ‘making working optional’.
This sounds sane enough, though when you consider how both not-working and choices of current work to maybe one day not work screw most people up, it’s got slightly unfortunate overtones of those paranoid preppers hiding out in the mountains with assault rifles and tins of Spam, seemingly praying for the apocalypse to come along and justify their life choices.
(It also ignores the fact that for anyone with a chunk of savings in the UK or the US, say, working is already optional. If they were willing to live elsewhere. Which highlights again how ‘retirement’ isn’t a meaningful goal, because it distracts people from their only actual goal: looking at what ‘living well’ really means to them.)
Does time have to come into our thinking? Are we talking free right now? Until age 100? Until your children are 100? Indefinitely?
Perhaps all that material stuff is irrelevant. Maybe we become free because we don’t think about money, or worry about money?
If you think financial worries are about money, you understand neither finances nor worry.
Besides, I’ve met travelling bums that are perfectly capable of neither thinking nor worrying about money.
‘But they’re blind fools!’ you cry. ‘You want to be free from worry, and have objective proof to justify that freedom! There’s a big difference between a supremely fit person not worrying about future health problems and a fatty in denial doing so. Real freedom requires awareness! They should cut their hair and become accountants!’
Okay. So what would objective proof look like?
There’s a quaint corner of the internet filled with intense graph-heavy debates on what constitutes a ‘safe withdrawal rate’ where people will argue over this question for days.
‘You’re free when your expenses are 4% of your investment pot!’
‘No! It’s 3.6%!’
‘No! That’s too simple! Here’s a clever formula to optimally flex your freedom (assuming you don’t change as a person except when the formula tells you to, of course).’
These debates are extremely important for that proportion of the population who have delegated not only the management of their lives but also the measurement of them to a spreadsheet.
For the rest, they’re a little…. lifeless.
(FWIW, a lot of the underlying principles of the FIRE movement are really wonderful, and I’ll write in praise of them another day, but the safe withdrawal rate debates rest on assumptions that render them bonkers.)
Whatever criteria you choose, what if you’re financially free and don’t know it? Are you still free?
Maybe you need to feel free and have objective proof and be aware of it.
Let’s assume you are. You are ‘financially free’. You’re confident that your investments will fund your lifestyle for as long as you’ve got a life to style. What now?
I’ve known people declare their financial independence at any age you can think of. If you’ll allow parents to do it on behalf of their children, this includes newborns.
For a decade, my job was to be inside the heads of those that by any objective measure had arrived where everyone else wants to get to. It turns out, however, that objective measures do not make for subjective reality. The no-more-problems-happy-ever-after world is a myth. It’s not even a helpful myth, where the journey to get there and the friends we made along the way were the real prize. Because the major lesson anyone who ‘gets there’ learns (if indeed they ever do) was that a fixation on the certainty of the destination was a damn-fool thing to dedicate one’s life to.
Whatever criteria that are commonly chucked about, I’ve met loads that meet them all. And they’re still in chains.
I’ve met others that meet none of these criteria but are unchained, whose ability to use money to make their life reliably better is brilliant. That feels like a far wiser thing to aim at than an investment pot that’s 27.7777777777 times bigger than your expenditure.
A life measured by a number gets lived in service of that number. Which is really stretching the definition of ‘lived’.
Working in financial planning highlights, in a fairly harrowing way, how many life years are sacrificed to chasing a fake freedom, and ending up in chains because of it.
I want to stop this happening so damn often.
This starts with dropping the fixation with financial ‘freedom’ in the first place.
Never underestimate the importance of language in shaping our worlds.
The word ‘freedom’ suffers from two major problems in the context of a driving force for your life decisions.
Firstly, ‘freedom’ is too damn emotionally resonant. In some contexts this could be useful (how different would the Brexit vote have been if it had turned into a fight between ‘take back control’ and ‘defend your freedoms’?). But in the context of shaping your life, the traditional notion of financial freedom isn’t a focus, it’s a powerfully distracting lack of it.
Secondly, ‘freedom’ is unhelpfully ambiguous. We’ll look at the problems of this next week, in the context of the difference between ‘freedom to’, ‘freedom from’, and ‘freedom for’.