Life, Liberty, and the Pursuit of Happiness

Life, Liberty, and the Pursuit of Happiness

These iconic words are some of the most well-known in America. And as we approach Independence Day, I’ve been thinking about how well this memorable phrase also applies to financial independence.

When the Second Continental Congress adopted the Declaration of Independence, one of their chief concerns was avoiding future governmental tyranny. Today, financial independence is more about avoiding employer “tyranny.”

What is financial independence?

First, let’s define “financial independence” (FI). Most of the financial independence community defines FI as when a household’s annual passive income exceeds their annual expenses. The passive income can come from a variety of sources- such as investment income (selling shares, receiving dividends/interest, etc), rental property income, military pension, VA compensation, Social Security, royalties, etc. Some families might have one or two passive income streams while others might have several.

Once a family’s passive income exceeds their needs (expenses), there is no longer a financial need for employment and the family is financially independent (independent of employment). At this point, the adults can choose whether to work or not, so financial independence is sometimes called “work optional.” And if the adults choose to no longer work, they can use their freedom from working to spend more time more time pursuing such things as happiness and fulfillment.

What does the pursuit of happiness look like?

This looks different to different families and even different individuals within those families. One person’s happiness might be a quiet afternoon of fishing while another’s might be attending a live concert with friends. What activities inspire happiness is less important than the idea of having the time to spend doing those activities. In fact, some people feel fulfilled enough in their jobs that they want to continue working because their career gives them happiness. And some people who are striving towards financial independence find that once they achieve a “work optional” state, just the knowledge that they could leave their job permanently makes the job itself more tolerable, or even enjoyable.

However, just as the Declaration of Independence doesn’t guarantee happiness, neither does financial independence. FI blogs and social media are rife with anecdotes of people reaching their “FI number” (the amount of invested assets to provide the annual income they’ll need throughout retirement) who feel “lost,” unfulfilled, less excited than they expected, or something other than happiness. I say this not to discourage anyone from seeking financial independence, but rather to highlight the importance of retiring to something, rather than retiring from something. Meaning, having enough wealth to avoid negativity (such as a job you hate) isn’t sufficient; instead, focus on the positive aspects of what you want life to look like after you retire. Just as the Founding Fathers focused on what they wanted the next government to look like, so too should aspiring FIers focus on what they want the next phase of their lives to look like.

I hope everyone has a happy and safe Fourth of July weekend!