I have a motto on my bedroom wall: ‘Obstacles are what you see when you take your eye off the goal.’ Giving up is not my style. I just want to do something that’s worthwhile. ~ Chris Burke
Have you ever set goals like – Lose 20lbs in 12 weeks or Prepare for a half-marathon in 6 weeks, only to feel discouraged and drop off the whole plan? Have you wondered why despite having the “perfect plan” to achieve a goal, you still fell short of it? Is there more to this than what meets the eye? Are there any gotchas you ignored?
Like anything worthwhile in life, if you want to achieve Financial Independence, nothing comes to you for free. Everyone pays a price for it. This often comes in the form of time, energy, money, etc. But when you finally get there, the “view” is beautiful. You’d totally forget all the pain you endured to reach your goal.
Financial Independence is also one such pursuit. It looks so promising when you hear about it that you want to achieve it at all costs. But as you get over the honeymoon phase of “wanting to be FI” to actually “doing what it takes to reach FI”, there is a good chance, your plans could fail.When you live in a society where more than 90% of the people live in a way that is completely at odds with what it takes to reach FI, you are going to be the odd man out. Click To Tweet
Do you have what it takes to reach FI? Is your FI plan really foolproof?
5 Things That Can Ruin Your FI Plans
How do you then ensure your plan doesn’t just remain a daydream but actually materializes into reality. Today let’s talk about 5 things can ruin your chances to reach FI and what you can do to fix it.
1. Not Discovering Your Why Behind FI
Thinking is the hardest work there is, which is probably the reason why so few engage in it. ~ Henry Ford
Most people fall off the bandwagon of FI because they start off with great enthusiasm and feel committed to the process for a year or two but then the journey really gets to them. The constant battle between “save-now-so-you-can-enjoy-later” and “you-only-live-once-so-live-in-the-moment” starts to take a toll on your mind and body. This is when you’ll start to question everything you’ve read or heard about FI. You’ll start to question if this whole thing is even realistic. This might be the beginning of the end of your FI journey.
If you are in this phase or have had similar thoughts, I want you to pause for a moment. I want you to reflect on why you began this journey in the first place.What motivated you to pursue this arduous task? Are you trying to “run away” from something or “run towards” something? Are you really willing to do what it takes to reach FI? Click To Tweet
My recommendation is to discover why you want to achieve FI. If you can’t explain it in clear terms, you are shooting in the dark. Having a strong “why” behind your FI journey will help you see through the tough times and prevent your from running off track.
2. Having An Unhealthy Relationship With Money
What you fill your mind with is eventually translated into the words you speak, and then your words create action. ~ Paul J. Meyer
Even if you read every possible literature out there about Financial Independence but deep inside your relationship with money isn’t positive, you are gonna fail. Your thoughts cannot be at odds with your actions. If they do, you’ll soon find it harder and harder to keep pushing through this journey.You can never build wealth if you secretly hate being wealthy. It’s just not gonna happen. No matter how hard you try, your mind will talk you out of it. Click To Tweet
If you find that your relationship with money is strained, I want you to fix that first. It’s one of the foundational aspects of building wealth.
I highly encourage you to dig deeper and find out where you inherited these money beliefs. Having an unhealthy relationship with money can severely limit your chances of building wealth. It can ultimately work against you and prevent you from ever achieving financial independence.
3. Putting All Your Eggs In One Basket
The future is always coming up with surprises for us, and the best way to insulate yourself from these surprises is to diversify. ~ Robert J. Shiller
One of the definitions of Financial Independence we can all agree with is – If you have enough money generated from one or more source of income such that you can quit your main job, you can claim to have achieved FI.
You might still have to work (if you want to accumulate wealth) but you can now choose what you want to work on and how much. One of the way to do it is to diversify your income streams.
Most people go about diversifying their income in one of the following ways:
- Start with investing their money through a brokerage account
- Buy rental real estate to generate rental income
- Start a side hustle to generate additional income
- Pick up one or more side gigs to make some additional income
All of these ways have been time tested strategies to gradually replace your primary source of income and help you achieve FI.
Note: I want to acknowledge here that not everyone wants to diversify their income streams and some want to just focus on increasing their earning potential in their day job. I get this and personally am a big fan of this. If you work in a field like Tech (like mine), I would highly encourage you to pursue this route. Acquire a skill that has a huge demand in the market place and you can skyrocket your income and speed up your journey to reach FI. To that end, not diversifying your income streams (which could involve a lot of context switching or hustling) and focusing on one stream, makes a lot of sense. Focus on earning more and cut back on your spending. This is a killer combination and will accelerate your FI journey.
4. Not Working With Your Spouse As A Team
Chains do not hold a marriage together. It is threaded, hundreds of tiny threads, which sew people together through the years. ~ Simone Signoret
According to this article – 10 Most Common Reasons for Divorce, Money is listed as the #2 reason for divorce in America. It’s right next to infidelity. While it’s true that having money problems can cause a lot of marital distress, it is also interesting to note that pursuing FI can also cause stress on your marriage. However, this one is slightly different.
One of the common mistakes couples make when they decide to pursue FI is getting too excited and get ahead of themselves. They get enamored by the “freedom” FI promises to offer and they wanna get to it asap. I totally get that. If you are married and want to achieve FI without ending up in a divorce or severely straining your marriage, I recommend you to slow down. As tempting as it might seem to go all in solo and expect your partner to jump in from day one, don’t do it. You’ll save yourself countless hours of arguments and heated debates.
While you are busy pursuing FI as a couple, here are few things you need to watch out for. They can not just ruin your FI plans but your marriage too.
- Not putting enough effort to get a spousal buy-in
- Jumping to the “what” part of the FI before “why”
- Assuming your partner also wants to pursue FI
- Not discussing with your spouse about what next after FI
- Being very inflexible with your FI plan
- Not making transparent financial decisions
- Setting unrealistic deadlines to reach FI
- Not celebrating milestones in your journey to FI
- Not factoring any surprises or “gotchas” in to your FI plan
- Being obsessed with the end result and not enjoying the journey
I personally believe that once you are married, there is no “I” in the marriage, it’s all “we”. I personally believe that the key to success in a marriage involves being on the same page with your spouse on all matters related to money.
We have personally combined our finances, and we both have equal rights on the money we earn. We make all decisions after discussing with each other and our goals are aligned to where we want to be in the future as a family. So this helps us avoid any friction that may arise out of how we choose to spend our money. There are occasional debates on whether something is worthy, but it rarely grows in to a bigger fight.
As important as it is to achieve FI, I want to remind all married couples that having a strong marriage is something you should always prioritize over any other goal in your life. After all what fun is it to reach FI and file for a divorce at the same time. I would personally never jeopardize my marriage for anything let alone FI.
5. Undermining The Risks Involved With Carrying Debt
Debt is a trap, especially a student debt, which is enormous, far larger than credit card debt. It’s a trap for the rest of your life because the laws are designed so that you can’t get out of it. If a business, say, gets in too much debt, it can declare bankruptcy, but individuals can almost never be relieved of student debt through bankruptcy. ~ Noam Chomsky
While most people who pursue FI are already savvy about money, the means they adopt to reach it, is still diverse. E.g. If you happen to listen to someone like Dave Ramsey, you’d probably believe that all debt is bad and you’ve got to stay away from it all costs. However, not everyone in the FI community is a huge fan of Dave Ramsey.
Most people who are pursuing FI are sophisticated and want to challenge the conventional wisdom about money. So when a financial guru takes an extreme stance on debt, it’s met with a lot of resistance. People who disagree with Dave Ramsey often question his advice on the following things.
However, I wanna throw a word of caution when you challenge those views. There is some substance to the advice you often get to hear. So pay close attention to it before dismissing it completely.
- Student Loans
If you are someone who believes that student loans are worth it, you better do your math and factor in the worst case scenario. Make sure your college degree is worth the money you invest to earn it and will help you recoup the money at the earliest. You can look at borrowing 1.5x – 2x the annual salary offered to fresh grads with that degree as a guideline to borrow the money.
A lot of high paying jobs in the field of medicine, engineering, and law often result in a considerable amount of student loan debt to be able to acquire those degrees. However, once you get them the rewards that await you in terms of earning potential are totally worth it. So while it’s totally tempting to rack up the debt and borrow till your eyeballs in the hopes that you will repay the student loans in a few years, be mindful of all the things that can go wrong, including the possibility that you might not even complete college. It’s a huge commitment and makes sure you think through it. Tread with caution.
- Auto Loans
While I have my doubts if anyone who is on the path to FI actually bothers to borrow money to buy an expensive car, I don’t want to rule this one out. As much as I want to believe that people who want to FI, are frugal at heart, anyone can get tempted to buy a new car and go back into debt to own one.
People can justify their decision to buy a new one with all sorts of reasons. Some of the most common reasons include:
- Need a “safe” vehicle to drive. I can’t trust my old car anymore.
- An exciting offer – 0% finance with very little down
- It’s a good investment since I plan to own this long term
I don’t have a problem with you owning a new car if that’s not financed. If you are on the path to FI, the last thing I want you to spend your money on is payments! No matter how good a deal you got from the car dealership, if you didn’t pay cash for it, you bought something that’s going down in value. I would really encourage you to shop around for a nice used car until you hit FI and build a net worth so high that owning a new car doesn’t impact your net worth. Until then, don’t fall for these reasons and buy a new car.
- Buying Too Much House
Most money gurus and financial experts recommend keeping your housing costs less than 25-30% of your monthly income. While pursuing FI, it’s very important to watch out for this mistake because this is probably one of the costliest things you’ll ever own. So if you make a mistake, it will have an amplifying effect on your FI plans.
When shopping around for houses, always make sure you calculate the total cost of ownership of home doesn’t just include PITI, is the sum of monthly principal, interest, taxes, and insurance. It also includes any maintenance costs, home improvements, heating, and electricity, etc. The bigger the house, the higher the costs involved in owning it.
Always run your numbers and question hard before embarking on the journey of home ownership. While owning a home with a white picketed fence was once an integral part of the American Dream, it doesn’t seem to be the case anymore. People have slowly started to question the need to own a home and contemplated renting instead. If you live in one of those HCOL areas, I would highly recommend you to run your numbers using this – Rent Vs Buy calculator.
All of this to say, don’t ignore the risk you are assuming by taking on debt in your journey to FI. While you may have reasons to justify borrowing money for the above, please bear in mind that each one of them is adding an element of risk to your FI plan that could potentially ruin it. Make sure you factor the risk involved before taking on the debt.
Did you experience anything in your FI journey that caught you by surprise? Was it big enough that it could have ruined your plans? Share your thoughts in the comments below.