Financial Strategy
Introduction
I've been thinking about my financial strategy for life recently. Mostly what my goals are and what I want to get out of my life, but more specifically as it relates to leveraging finances.
I had watched a few videos([1] [2] [3] [4]) that challenged some financial advice that I had considered to be quite interesting. I found myself questioning the very
Strategies
The different approaches to life financial planning that I have found or am aware of.
Note: Being aware of a strategy and being able to apply a strategy are two different things. We may be aware that it's good to save for retirement or build an emergency fund but not able to do so currently.
No Thought Approach
Characterized by a lack of financial planning or foresight. The slogans like "Need to go to college? Take on loans." and "Credit cards = free money." indicate a mindset of immediate gratification without considering long-term consequences. This strategy may lead to significant financial burdens due to accumulating debts and poor financial decisions. The advice of following billboards and media blindly suggests a consumerist attitude without critical thinking. This approach is cautioned against as it can lead to financial instability.
Strategy Slogans:
- Need to go to college? Take on loans.
- Lease the newest car always.
- Credit cards = free money.
- Follow all billboards, commercials and media outlets for the holy truth of capitalism.
- Question nothing.
- Consume.
Not recommended.
Above Average Approach
Focuses on responsible financial habits and long-term planning. Slogans like "Save for retirement" and "Invest in diversified index funds at a young age" emphasize the importance of early and wise investment for future security. The principle of living within your means highlights the need for budgeting and avoiding excessive debt. This approach is balanced and aims at achieving financial stability and growth over time.
Strategy Slogans:
- Save for retirement.
- Invest in diversified index funds at a young age.
- Emergency Fund.
- Live within your means.
FIRE (Financial Independence Retire Early)
An aggressive approach to financial planning with the goal of achieving early retirement. It involves extreme saving and investing, as indicated by slogans like "Lower your expenses to the absolute minimum" and "Invest/Save 50% of your income." This strategy demands high discipline and significant lifestyle changes to reduce expenses and maximize savings. While it offers the potential for early retirement, it also comes with challenges such as the need for a large nest egg and potential market risks.
Strategy Slogans:
- Lower your expenses to the absolute minimum.
- Frugal living, Lavish savings.
- Invest/Save 50% of your income.
- Retire in your 30s-40s.
- Increase your income.
- Work harder, and smarter.
- Work/live for tomorrow.
- For every $1 you need to live, you need $25 in your nest egg.
Downsides:
- Requires extreme frugality[2]
- Large nest egg needed[2]
- Market and inflation risks[2]
- Potential need to return to work[2]
- Not accessible to everyone[2]
- Misrepresentations of retirement lifestyle[2]
- Reliance on investment income[2]
- No guaranteed success method[2]
- May involve trade-offs in lifestyle and discretionary income[2]
- Regular reassessment needed[2]
Work-Life Balance
Prioritizes a balanced lifestyle over aggressive financial growth. Slogans like "Lower your hours" and "Find meaning, purpose, and enjoyment outside of your career" suggest a focus on personal well-being and fulfillment rather than just financial gain. This strategy encourages finding a healthy balance between work and personal life, ensuring that one’s job does not overshadow other important aspects of life.
Strategy Slogans:
- Lower your hours.
- Work is an obstacle to life.
- Find meaning, purpose, and enjoyment outside of your career.
Persistent Advice
The advice that I believes stays throughout any of the given strategies or approaches I list here. The things that have shown time and time again to be great personal finance principles. The list is, as follows:
- Emergency Fund
- Live Within/Below Your Means
- Budget
Thoughts
From a high level I'm balancing some different pieces of advice, and considerations that I've picked up from a few different sources. For example:
- Pick a job you love (because lifes to short to waste it in a bad one) | 30 Lessons For Living
- Retirement is a relatively new concept. Some people find themselves needing something to do, or needing to provide some value in retirement. | ??? (Book on happiness?)
But really what am I wanting out of life here is the bigger and more improtant question. I started going down this road as an alternate to retirement, and trying to fit that time and space for leisure into my life via a system life FIRE or a reduction in hours.