Abu Dhabi, UAEFriday 18 September 2020

How to achieve daily joy now without sacrificing financial independence later

Nima Abu Wardeh says it is important to plan for the future, but don’t forget to live your life in the moment

Illustration by Gary Clement
Illustration by Gary Clement

I peered into the window of an office and saw people staring intently at their screens — I was stuck in traffic, and they were stuck inside.

I wondered, how many of them achieve their daily joy? And whether they know this: every $100 (Dh367) a month you spend less, means $30,000 less to achieve Financial Independence ($1,200 yearly expense x 25 = $30,000). More on this later.

But first: ‘daily joy’ is what I aim to weave into my days — it’s different to seeking happiness. It’s things like being outside and physical for part of the day — it could be as simple as taking a walk, singing (much to my son’s distress) and, very importantly, getting to decide what to do when, while fitting it around solid non-negotiables like school start and finish times in this phase of life.

Does it always happen? No. But I am conscious of the need for it, and make it happen when possible.

Imagine being able to control what to do when. Go ahead, think how you’d engineer your day, your week, your life, and how that would feel.

Now let’s take a step back and look at the big picture. The reason most people work is to generate income — because most of us can’t afford to pay for life without earning. Most people will retire, or be retired — from their corporate job at least — at some point. Which is why it’s important to save for a time when there is no income other than what’s being generated from investments accrued or cash reserves.

If you’re able to do this before the traditional age people retire, or are retired, it’s called achieving FI — or Financial Independence, the point where outgoings can be paid for using passively generated income or savings. And this is where choice kicks in — you can choose to change how you work, if you decide to continue working.

Achieving FI early in life often goes hand in hand with being frugal. Being frugal is associated with deferring gratification, especially when it is linked with the aim of retiring early. But how about enjoying your journey to FI?

Here’s what I mean: ask yourself, what would financial independence give you? Or to phrase it another way, why do you want to be financially independent? What are the top 10 things you’d gain? Be really specific and drill down to detail.

It could be control over your day, less stress, being able to travel. Your ‘why’ is unique to you.

Now focus on your top three to five reasons and pull in the Pareto Principle. This rule suggests that 20 per cent of your activities will account for 80 per cent of your results. I put to you that 20 per cent of your reasons for wanting to achieve FI will bring you 80 per cent of your joy. Now think about which 20 per cent on your list will bring you 80 per cent of the benefit of being ‘retired’ and how can you make them your daily reality.

Here's the thing: while you strive to build your investment nest and hit your financial independence pot, life happens every day. So what can you do, right now, to make each day score high on your joy-o-metre? Eliminate things that don’t align. This is not only about reducing cost and expenses, but about considering freedom rather than total financial independence.

Here are a few actions that will help you reconfigure your life:

• Spend less than you earn.

• Figure out how you can live on less, while leaning in to your daily joy.

• Use the 4 per cent rule to guide your route to financial independence. The rule states you have achieved FI when you can safely withdraw 4 per cent from your nest egg each year to cover your expenses.

Will it always be 4 per cent? No. But we need some sort of framework and this is a good one to defer to. And here’s where the statement I made at the start of the article kicks in: how do you work out how much money you need to achieve the 4 per cent rule?

You need to add up all your expenses: either current expenses if you want to know what you’d need to have in reserve in order to stop working right now, or projected expenses of your future life where certain bills have been paid off.

You then multiply your total spend by 25. Yes the number will be huge. Breathe. Instead of thinking ‘I can’t do this!’, think ‘how can I do this?’ You can start by spending $100 less each month. That's $30,000 more in your pot to achieve FI.

Get unstuck. Live with daily joy.

Nima Abu Wardeh is a broadcast journalist, columnist, blogger and founder of S.H.E. Strategy. Share her journey on finding-nima.com

Updated: December 19, 2019 09:16 AM

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