Should I listen to financial independence gurus?

A cottage industry has developed around spruiking how to achieve financial independence (sometimes called “early retirement”). Financial independence Gurus have websites offering blow-by-blow accounts of how they achieved their goals (including personal financial information), and the awesome life they live outside the rat race. They are written in an engaging often amusing way, covering topics such as: lifestyle design, personal finance, investing, loyalty schemes and travel. High profile websites include Mr Money Moustache, Go Curry Cracker, The Mad Fientist, J Money, Millennial Revolution, Root of Good and The Escape Artist.

Despite the apparent transparency of many of the Gurus, significant scepticism is evident every time an article like “How this couple saved enough to retire early” goes viral. The Business Insider or Forbes article usually links to a well designed website with affiliate links. The blogging “hobby” is (or may soon be), a business generating tens, if not hundreds of thousands of dollars of income a year. The comments section at the bottom of the article get abusive quickly.

I don’t pretend to know the true nature of the individual Gurus personal financial circumstances. This article covers their common traits, what you can learn from them, and if you should stop working when you achieve financial independence.

Who are the Gurus

The Gurus I have come across typically have five common traits.

Above average intelligence

The intelligence of the Gurus is above (if not far above) the average person. Why do I think this? Before embracing their new lifestyles, they typically worked in jobs such as engineering, investment banking or law. They also write well.

Commercially savvy

The Gurus are undoubtedly commercially savvy. This is evident both by their history of high incomes, and ability to design, execute and monetise their websites.

Time and willingness to proactively manage spending

The proactive management of spending has several elements: (1) tracking how money is spent; (2) identifying and pursuing opportunities to save money (e.g. product switching such as Apple to Huawei smartphones, home downsizing); and (3) taking full advantage of credit card and other loyalty schemes. Ultimately, they focus on decreasing spending and maximising benefits from spending decisions.

Willingness to break from social circles and norms

You cannot lead the lifestyle that the Gurus lead without a willingness to break from social circles and norms. For example, moving to a lower cost destination will affect your interactions with your existing social circles. Similarly, dramatically decreasing entertainment expenses will change the nature of your social life.

Benefitted from investing in the stock market

The gurus typically invest a high proportion of their savings in US index funds or ETFs. The massive post-GFC bull market has accelerated the time frame taken to achieve financial independence.

What can I learn from the Gurus?

Scepticism to the individual success stories you read on the internet is warranted, but ignoring everything is foolish. There is undoubtedly lessons to be learned from the experiences and writing of the Gurus. In my view there are three key lessons that apply to people of all income and wealth levels:

  1. Financial independence is liberating. I define financial independence as the freedom to decide what work you undertake and how often you do so. Achieving financial independence alone will not make you happy, it’s just a number. But it does provide the opportunity to live your life as you wish.
  2. Managing spending is far more important than smart investing. No matter how good you are at investing, if you earn $100k and spend $98k per annum, financial independence is absolutely unachievable.
  3. Invest sensibly. The Gurus usually spruik the benefits of investing money in low cost index funds or ETFs. Index funds and ETFs minimise concentration risk and wealth management costs. This is backed by academic, regulator reports and financial services industry research.

Should I stop working when I achieve financial independence?

In a word – No. I believe people should continue to work, even if they have achieved financial independence. Work can provide purpose, fulfilment and social connections. Financial independence enables you to pursue work which makes you happy. Continuing to generate income also reduces the risk of you losing your hard-won financial independence.

Let’s say you achieve financial independence and quit your job. You live off your investment income, occasionally drawing down your capital. You travel the world for 10 years, and pursue your non-income generating hobbies of landscape painting and amateur theatre. There is a savage financial crises in 2027, with a 70% fall in the stock market, which then remains flat until 2037?  If this was to occur, you would no longer be financially independent, and be searching for work in an era of high unemployment with no recent employment history. Hello poverty line. An extreme hypothetical maybe, but not outside the realm of possibility.

Finally, I’d note that this is consistent with many of the Gurus, who have continued to generate income post “retirement”, whether it be blogging, writing books, carpentry or letting rooms through Airbnb.

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