Early Retirement is a mindset!
Yep! That’s correct. And it is not an over statement. Planning for Early Retirement requires a change in the mindset. In-fact one needs to live this mindset right from the moment when one decides to think about early retirement.
However when people think about lifestyle changes that will bring them closer to financial independence and early retirement, they usually come up with the S-Word. Though it has positive connotation in other walks of life but carries super negativity when it comes to lifestyle.
And the word is Sacrifice.
Our mind and ego (through feedback loop from society) trick us into thinking that whatever changes we are doing in our lifestyle are actually the sacrifices. And since it is a sacrifice, we tend to feel deprived and hence become sad. We feel burdened and therefore our motivation drops. We ask ourselves – “what’s the point of Sacrificing Today for Having Something Tomorrow“?
All these emotions come into play because We think We are Sacrificing!
So how do you tackle this situation? How do you tell your mind that is is really not a sacrifice but path to freedom. I am following these basic and practical pointers which are serving me well till now.
Clear Communication with the Partner
If you are married (or living with a partner), then it is impossible to make changes in your lifestyle until and unless your partner is totally in sync with you. Early Retirement is not your individual goal but the family goal. Therefore it becomes super crucial to explain these changes to your partner and get his/her nod on each one of them.
If there comes a situation where you and your partner have a disagreement on any of the lifestyle change then try to reason out objectively. But if the disagreement still exists then it would be wiser to not incorporate that change. Road to Financial Independence and Early Retirement is a long one and you don’t want any kind of friction along the way.
It would also help to go over your FIRE progress metrics together. This will keep both of you truly involved in the entire journey so that if one of you feels low at any point in time then the other person can lift him/her up.
I am lucky that my conversation with my wife (on this) went smooth like butter. Both of us were in sync since the time I floated the idea of early retirement. In-fact she was more enthusiastic about it than me which gave me the confidence to embark on this journey. Since then we as a family have taken many decisions which we wouldn’t and couldn’t have taken if both of us were not in sync like selling of our second car.
What Happiness Means to you and your family
So I could have included this point above but it is so important that it needed a separate section in itself. I believe there would be no second thoughts about the fact that ultimate goal in life is happiness. You are planning to retire early because you feel you would be able to do stuff which makes you happy. Therefore it is very very important to lay down the definition of true happiness when you are thinking about lifestyle changes.
Hence you need to think whether going to an expensive bar makes you happy or drinking at friend’s place brings joy. You need to think whether gifting an expensive luxury watch to your wife (on your wedding anniversary) makes both of you happy or going out on a road trip?
The answer to the question – “Where lies in my true happiness?” is damn difficult and it is ok to hip-hop from one answer to another. Don’t pressurise yourself to come up with the perfect answer in one go. I would rather suggest you to do the activity which you believe would bring in happiness; and then see the result yourself. Don’t hesitate to do A/B testing in life. It would be fun and you would be able to accept or reject happiness hypothesis yourself.
For me (and my family), this is what happiness means –
We have come to this definition of happiness after doing a lot of A/B testing in our life. Having said this still might change as we still have lot of experiments to be done in life.
So the moot point is that whatever changes you plan to do in your lifestyle for early retirement, it should not decrease your happiness quotient. If it does, then it will start to feel like a sacrifice.
Being Objective about Financial Decisions
Though it shouldn’t be said that one needs to be objective about financial decisions but more often than not, man behaves like a dumb person when it comes to money matters. We lose our objectivity and often do decisions based on our prejudices and personal experiences.
It is important that every financial decision is laid out in mathematical terms for people to take objective decisions. Trust should be placed only in numbers and they should be your guiding light. Therefore if you are planning to buy a car vis-a-vis an old one, create a mathematical model. Let the numbers guide you on the decision to be made and not the society.
Are you planning to buy a house or rent? Again build a mathematical model for the same and let the numbers do the talking. I know what you are thinking here. What would Sharmaji (or Kapoor Sahab) think if I buy the old car instead of a new one? Will I still rent when my peers are on house buying spree? Answer is – let the numbers decide objectively.
For me the hardest financial decision in this journey of FIRE has been selling of my second car. I had bought it as a birthday gift for myself and hence was more than just a car to me. But when I laid out the mathematical model to decide whether I should keep the car or sell it off, numbers told me to sell. And Hence I did. Read about Why did I decide to sell my new car? – Case Study in Personal Finance
Think Long Term
Generally we have a habit of looking at everything in short term. Though it might be helpful in some cases but when it comes to money, long term thinking almost always prevails over short term. Analysing everything (related with money) from long term perspective has helped me at 2 different levels –
First: I have become much more mindful of saving small expenses now than I was earlier. This change has come after I started taking a long term view on those savings. For example Rs. 5000 saved (from various small measures) in the entire year will grow to Rs. 20,000 by the time I plan to retire (next 12 years). This has caused a great shift in my spending and saving pattern. Earlier I didn’t use to plug these small leakages in spending thinking of them to be too small to warrant my time. But now I always think of long term and see how much of today’s savings will grow into next 12 years.
Second: I also look at my investments from long term perspectives hence I don’t lose my sleep when stock market tanks by a percent or two. Similarly financial planning has become easier since long term perspective smoothen out lot of wrinkles which appear in short term.
I am living this mindset for last 6 months (2-3 months after I decided to embark on this path) and it has served me well so far. I am saving, investing enough to reach to my goal of retirement by 45. And above all I didn’t feel (for a moment) that I am sacrificing something today to achieve something else tomorrow.