Andrew Hallam
02.05.22
When FIRE (Financial Independence Retire Early) Devotees Really Miss The Point
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Almost 100,000 Americans share investment, frugality and lifestyle tips at the Facebook group, Choose FI: Join the Financial Independence Movement. On April 12th, a San Diego-based member named Jamie asked, ”How do you stay motivated to live frugally? I cut my expenses down to $3,500 a month in January, but now I’m really struggling. It doesn’t seem worth it to be miserable.”
A woman named Amy responded: “What areas of (not) spending have you feeling miserable?”
Jamie replied, “Mainly my hair and food. If I grow out my hair, I’ll save $600 a year. But I love short hair. I spent $200 on food last month…”
Natalie added, “Have you considered cutting your own hair?”
Natalie learned how to do it herself on YouTube.
Many of the questions and suggestions on this Facebook group are sensible. But several others are bat-poop crazy. I’m not judging someone who spends $200 a month on food or decides to cut her own hair…if that’s what they enjoy. But voluntary, extreme frugality has to be somewhat fun. If it isn’t, such FIRE devotees play tennis with toothpicks.
If we’re fortunate enough to earn more money than we need, we should allocate our income to maximize our lives. That doesn’t mean prioritizing some distant future date. Life can be short. We should live for today with an eye on tomorrow. Living in a miserable state to stockpile money makes little sense.
If we asked Jamie why she wants to live like a pauper, she would likely say, “I want early financial independence.” If we dig further to ask, “Why do you want early financial independence?” she would likely say, “I believe it will make me happy.” It might sound like I’m putting words in her mouth. But as a curious guy, I’m always asking people, “Why?”
Whether someone is raising their children a certain way, giving to charity, running a marathon or running to the bathroom, when we ask someone why they are making such decisions, and we continue to dig with, “Why?” the answers begin to sound the same. People want to feel safe, secure, comfortable, purposeful or helpful. These are components of life satisfaction.
Life satisfaction. That’s what Jamie wants.
While doing research for my book, Balance, I identified four quadrants for a happy life:
1. Strong relationships with other people
2. Physical and mental health
3. A sense of purpose
4. Enough money
To my knowledge, no research suggests that early retirees are happier people. We only think they must be. But what we think will make us happy, and what actually makes us happy, are often two different things. Daniel Kahneman, a Nobel Prize winner in Behavioral Economics, says we don’t really know what will make us happy. We might believe a new car, a fancy pursue or a ten million dollar investment portfolio will do the trick. That’s why we often buy stuff we don’t need. But based on hedonic adaptability (the fact that we quickly get used to what we own) such things almost never boost our life satisfaction. We only think they will.
Early retirement could be much the same. Of course, plenty of people who retire early are happier than they were when they were working. But on aggregate, that might not be true. Early retirement can deny us a sense of daily purpose. It can limit our physical activity and our social interactions. And because these elements are linked to longevity, research suggests early retirement could shorten our lives.
To be fair, plenty of people who become financially independent at a young age do continue to work. I am among them. We seek projects that fulfill our passions. We often try to help others. But because life can be short, people shouldn’t suffer to stretch a buck for the promise at the end of a rainbow.
That’s why, people like Jamie should embrace life satisfaction research. Sure, they should save for retirement. But they should also enjoy their money now. That doesn’t mean splashing out on a new car every five years. Behavioral science says that won’t make their lives any better. Instead, we should spend money on experiences, especially if we can share them with people we love.
Also, give to charities.
Happiness researcher Elizabeth Dunn says this works best when it’s pro-social giving. In other words, you’ll get more happiness for your buck if you connect with the people you are helping (see professor Dunn’s TED Talk here). As I referenced in Balance, generosity can also boost your strength, your health and your longevity.
It’s fine for people to cut their own hair, or let their hair grow long, or spend just $200 a month on food (as long as that food is healthy). But if frugality isn’t fun, don’t waste your time. After all, time is the only non-renewable resource we have.
Why waste it?
Andrew Hallam is a Digital Nomad. He’s the bestselling author Balance: How to Invest and Spend for Happiness, Health and Wealth. He also wrote Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas
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