Ep # 28: What Does Financial Independence Mean To You?
Watch the full episode on YouTube:
Full Transcript:
Benjamin Haas 00:02
Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! Hey everybody, welcome to A/B Conversations, starring my favorite co-host.
Adam Werner 00:32
I was looking around and said, hey everybody, I thought there was other people on this Zoom with us.
Benjamin Haas 00:37
I don't know I was trying something different. Hey everybody listening, let me introduce you to my favorite co-host, Adam P Werner.
Adam Werner 00:44
You know what's funny, I completely forgot that people listen to these. I thought this was just for us. I didn't make that connection when you said everybody like, oh, there's other people that listen to these things?
Benjamin Haas 00:55
I think so. Devon tells us the numbers are up.
Adam Werner 01:00
Good point. Good point. So without further ado, let's jump right in. Today we're going to talk about, as much as I love bantering, Ben. People aren't here for that. The topic today is financial independence. It's a topic that's come up a fair amount recently with some clients of ours and we'll just set the table with what that actually means. I guess we’ll give some context as to what role we can kind of play in helping figure that out for people but let's just start there. Financial independence.
Benjamin Haas 01:35
Right. So this is one of my favorite ones because I think, again, when we are defining the work that we do, the easy way to describe it, if you're in the profession is we help people reach their goals. And then you talk to people about like, well, I don't necessarily have goals because when somebody starts asking you, what does that goal mean? When do you want to retire? How much money do you need? People maybe don't think of it that way so when we say or hear people talk about financial independence, I think it's been best described by one of our favorite leaders in the industry, Carl Richards, as you're trying to get to some sort of desired end state. And it's the final having the financial means to then do what that desired end state really means to you and I'll just pause there, I think it can be that simple.
Adam Werner 02:27
Yeah, I think like, the simplest part in my head is if you didn't need to go earn any money, like financially, you didn't have to worry about things. What would you be doing with your time and your life?
Benjamin Haas 02:41
Right.
Adam Werner 02:42
Let's figure out what is it going to take to get you to that point financially then.
Benjamin Haas 02:45
So really, the goal isn't I want to retire by 65. The goal is, I want to have the freedom of time to chase around my grandkids. I want to be in good health so that I can do this sort of traveling with my spouse, or with my sister, we want to go see these things, whatever that is. It's the purpose behind the financial plan. That is what we really need to understand and talk about so that way you can align things to it. So yeah, I like the way that you put it. It should be defined as I don't really have to do anything more to fill my day with the things I want to fill it with and for some people, that's an age. Some people it's not. I'll turn it to you. We've heard it a little bit more frequently and like the FIRE movement.
Adam Werner 03:29
FIRE is financial independence, retire early. F I R E. The idea there being it's for that younger generation who wants to not feel like they have to work until 62 or 65, or whatever full retirement age 67, to be able to feel like they have all of what they need financially able to just stop working at some point sooner than later.
Benjamin Haas 03:58
Yeah and let's not just put it all on the camp of like the math of what's the lump sum, you need to like have all this income coming to you financial independence, maybe for some people is they're still earning some amount of income, but maybe, right, it's kind of understanding that they either don't have to be doing a certain job, don't need to be doing certain activities to earn that. Maybe it's passive income. I think maybe we can get into the different ways that financial independence happens but I think first and foremost, it's to recognize that it is some sort of definition of what is the purpose behind that money so that getting to that point is really the focus and not necessarily all the financials leading up to it.
Adam Werner 04:38
Right. That's fair.
Benjamin Haas 04:39
So I don't know, let’s pivot to maybe the second part of this conversation is financially independent would mean different things to different people.
Adam Werner 04:51
So the most recent example we are meeting with somebody new and to him it was a lump sum dollar amount. If I had X amount of dollars, that would give me the freedom to not have to worry about having to go to work to continue to earn what I'm earning now or if I have this lump sum that will produce some sort of income, that will kick off some dividends. Or maybe I just, I use it as I need it but it's the freedom for him was to feel like he could do what he wanted with his time. Whether that was continuing to work if that was something he wanted to do. Start new businesses, start new endeavors, and feel like failure wasn't - I was going to say failure wasn't an option, but failure wouldn't have negatively impacted the family finances and his well-being.
Benjamin Haas 05:47
Yeah, it's the freedom of thought at that point. It's the freedom I would hope from some sort of misplaced stress and as you're saying that I'm kind of remembering. And I don't know if you would remember this, but it was VOYA's predecessor that had that commercial to be like, I don't know, early 2000s. Where their commercial really was kind of around this financial independence thought where you had different people walking down the street, and they all have a different number floating around their head and that's kind of the idea, depending on what the desired end state was for each of those different people, they certainly have a different number that's going to be associated to the income that needs to be produced to do what I want to do. That's a great example of how like an asset level was going to define that or should define that for certain people.
Adam Werner 06:35
And for others, I think we certainly have clients that have rental properties or investment properties or something along those lines and then ultimately, it's how many of these do I need to have to get to the level of income where I don't have to go work. These properties that now I own are paying me to meet my expenses and so ultimately, I guess in my head, that's part of what it comes back to is your own individual situation. What do you need to meet your basic living expenses? And then the way to go about that. It's all preference and situational based off of that particular person's, what do they want to see in their life?
Benjamin Haas 07:19
So I'd give the third example then. I know assets, income, those kind of can come together. What comes first, chicken or the egg but it also could be the activities. I know we've brought it up in different podcasts too. Maybe the retire early, again, is to get to some sort of financial independence. It doesn't mean I can never work again. It just means that I can now do different activities. Maybe now I can flip from my full-time job to consulting. Maybe I can go from teaching in the classroom under these conditions to, I'll be an adjunct professor. I'm adjusting, I'm financially independent enough that I can adjust the way that I earn income to better fit this next phase of my life.
Adam Werner 08:02
Yeah, it's the freedom of choice, right? To be able to choose to do the things that you want to do on your terms, whether that's earning income in a less stressful job than maybe the one that we've had is your kind of, quote, unquote, career. Just being able to and we certainly see it with clients as they are getting much closer to retirement, not necessarily, super early. We're not talking like 40s and early 50s, which is that kind of that FIRE movement of being able to retire way earlier than I think most people kind of wrap their minds around. That's certainly a goal to shoot for but as people get closer to retirement, just feeling like the freedom to move from what may feel a lot more demanding, a lot more stressful, and just choosing to do something that gives them maybe more satisfaction, and just more happiness in their day-to-day lives.
Benjamin Haas 08:53
Yeah and I think that would maybe be a good way to kind of focus on the third part of this conversation. Not just what it is and how it's different for different people but why does it matter? And I think stress is a really big important one so it's not misplaced with, I got to be at work, or I have to do this, these activities for financial reasons but I would also hope financial independence can be defined for some people as you don't really have to worry about what's going on in the market. How we've structured that income or that asset level to go, hey, alright, it's our job to pay attention to that long term but anything that's happening in the next three to six months, the next 12 to 18 months, the next four years, however people frame it in their mind, you are financially independent. This money is now aligned to your desired end state enough that you don't have to stress these headlines in the way that other people might.
Adam Werner 09:50
So what just popped into my head we've been around enough people where the conversation when we feel or at least we can prove based off of their situation that they do have that freedom. The conversation or the decision is often, you have enough money to meet your needs that you don't have to take additional investment risk but by the way, you have everything you need so you can take additional investment risk and it's still not going to affect you. So again, it's six to one, half a dozen or the other. Which would you prefer? Would you rather just not have any risk knowing that what you have is enough? Or because you can't outspend what you have, there's no reason not to take more risk and leverage that in some other way depending on what their values are.
Benjamin Haas 10:39
Yeah, and that's where I like that, like the definition as I can't (I don't want to say can't fail), but the likelihood of something bad happening that negatively impacts your financial independence has gone dramatically down. And we know that it's our experience, I know there's a lot of studies around this behavioral finance that people are two times more adverse to losses than they are to focusing on some sort of growth. We've been in situations to where you need somebody that is already financially independent, and maybe they don't know it or they're financially independent and they're focused down here on the weeds on decisions and it's okay to do that. But we're maybe not focused on the really big picture, things that now are afforded you the doors that are open to your next level of purpose in life because you are financially independent. I think it's really important for people to define it. Let's quantify it through a planning process but reducing the stress is a big one and then having the context for what the next conversation is equally important to me, too.
Adam Werner 11:44
Yeah and one of the things that just popped into my head, too, and thinking back to one of our previous podcasts of the "What will I do all day" the book about retirement and maybe for the example you used of not knowing that you're financially independent at a certain point.Tthere could be a potential scenario where going through that process of like, what will I do if I'm financially independent? I don't have to go to work. Well, then what am I going to do? What will I do to fill my time, what gives me satisfaction, and that itself could be a maybe not stressful, but like, a void of really not knowing? That could be its own reason while you're still continuing just work, do the things that are just part of your regular habits and schedule because that is comfortable.
Benjamin Haas 12:36
I think if I could kind of button this all up into one conversation. I know - and it's rightly so that when people would look at Adam and Ben Certified Financial Planners - podcast on financial planning, there's going to be a lot of math involved. I think this concept of financial independence, certainly, there's modeling that's going to help us determine that. This topic is so much more to me about desired end state. It's answering questions that maybe people haven't thought about. Again, what am I going to do all day? Why does money matter to me? If I had only one year, three years to live like, well, how am I spending my time that I think frames so much more the purpose behind money and what you're trying to get to. Then some sort of model that I can show you that here's what you got to save to get to this number and we don't know why.
Adam Werner 13:26
Yeah, ultimately money is the means to the end and part of what we need to know is what is that end? What's the purpose? And let's align these things together.
Benjamin Haas 13:38
Well put. So hopefully this resonated with people. Certainly the concept of financial independence, I think is something that everybody should try to think about what it means for them and if you need help with that, that's why we're here.
Adam Werner 13:52
Absolutely.
Benjamin Haas 13:54
All right, good, sir. Have a wonderful day.
Adam Werner 13:58
You too and everybody out there listening, you too. Way to get my bald spot on that one.
Benjamin Haas 14:07
You and I both. Alright. Take care.
Adam Werner 14:10
See ya.
Tracking # 1-05127452
