Why is Financial Independence Such an Uphill Battle?

Why is Financial Independence Such an Uphill Battle?I spend a lot of my time every day focusing on my path to financial independence.  I have a game plan that I feel even more confident about now that I got a second opinion.  But that doesn’t stop me from looking for ways to expedite the process.

I’m constantly educating myself by listening to podcasts relating to personal finance and real estate.  And I’m reading every book I can get my hands on related to those topics as well as closely following a lot of blogs in the FI/RE community.

But most importantly, I’m acting on the things I learn that I feel will help in my situation.

In a nutshell though, I’ve learned that the path to reaching financial freedom is actually much easier than many people think.  Yes you can get there with complicated investments or get lucky with a nice windfall from someone in the family, but really it’s not a complex formula to follow and you don’t need to rely on luck to make it happen.

The path to wealth is actually simple:

  • Get a high-paying job if possible
  • Get out of debt
  • Live below your means
  • Save… a lot
  • Make your savings work for you
  • Continue learning

Read more about the steps to wealth here.

So why is it that financial independence is such an uphill battle for a lot of people?

I mean if the path to get there is simple and anyone can do it, why don’t we?

I’m sure we could speculate that the problem is that we’re not getting paid enough at work or that the stock market is too risky or our kids are sucking up all our money.  We could… but I don’t think that the case.

In my opinion, the battle to reach financial independence really comes to down to one thing:

Delayed Gratification

What the heck are you talking about Jim?!!  What’s delayed gratification anyway?!!

Glad you asked, self!  In short, delayed gratification means that you don’t get what you want right now in exchange for a bigger reward later.  In this case, that bigger reward is financial independence.

Maybe you’re out and about and decide to buy new clothes.  Sure, why not??  You have the money and can afford them.  So you come home with a new wardrobe, you look great in everything, and you certainly didn’t break the bank doing it.

Or maybe you’re tired of your car – I mean it’s already five years old.  Time for something more modern.  Besides, you’ve already paid off your current one.  So you go out that weekend and get yourself a nice sedan or SUV that’ll be paid for in just a few years’ time, right?  All good!

Well, it’s not really all good.

phoneOne of the problems we have as a society is that, in general, we feel like when we want something, we should be able to have it right now.  Smartphones are a great example.  Most of us have been swayed by the telecommunications companies and phone manufacturers to think that we need a phone every two years… or in some cases much sooner than that!

Why?  Because the new phone is better?  It probably is, but if the old phone works, why do we feel we need to get a new one?

We see something we want and just go out and get it.  It doesn’t matter if it’s not a necessity – we feel we work hard and damn well deserve to enjoy a little luxury now and again.

Unfortunately, that sense of entitlement is what keeps many of us from ever reaching financial independence.  We want to take care of that feeling of want right now and not wait any longer than we need to.

There are a lot of people who feel that there’s no way they can ever reach financial independence.  But if you would ever call them out on all the crap they feel they need, you would probably be getting an earful from them as they would likely get very defensive about it.

Delayed gratification can be a great way to keep yourself from buying crap you don’t really need, but the more important bonus is that it can put you on the road to financial independence as well.

CarLet’s go back to that car we were talking about.  Sure, most of us love that new car smell and having the warranty ready to go for any problems that creep up is pretty sweet.  But is the cost really worth it?

According to AAA and NerdWallet, the real cost of ownership for an average new car that’s driven 15,000 miles a year comes out to $8,698 a year.  Granted, there are some assumptions on the kind of car you get and any financing that you do and you’d still have some small costs with your current vehicle, but regardless, that still a pretty big number to see.

If you skipped that new car and instead took that money and invested that amount ($724.83/month) elsewhere with a 7% rate of return (high or low depending on what you’re looking at), you’d have $53,521.07 at the end of that 5 years.  Leave it alone without adding any more to it for another 15 years at that same rate and it would be worth $147,666.29!!

And that’s just for one car… think of the money you’d have if you did that a few times over your whole lifetime!  And that’s just for an occasional new car.

The moral of the story is that there are a lot of people out there who choose to have their wants now and push off financial independence until later.  Bad idea.  The magic of compounding needs time to work.  The sooner you can put aside money instead of throwing it at your wants, the quicker you can achieve financial independence.

It is extremely possible to get there and those who have done it will tell you that it’s not some magic secret or that they got lucky.

Delayed gratification can be the magic bullet that helps you to get to the point where you can quit your job and chase your passions earlier in life rather than later.  The next time you think about buying something just because you want it, take a little time to decide if you really need it or if the payoff later on would be more worthwhile.

Do you think delayed gratification could lead more people to financial freedom or do you think there’s something else that’s more important?

Thanks for reading!!

— Jim

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10 thoughts on “Why is Financial Independence Such an Uphill Battle?”

  1. I don’t know when I learned it exactly, but delayed gratification must have been a backdrop to life growing up because I have never had a problem embracing it. With the power of compounding interest, what you delay spending today can buy MORE tomorrow…never a difficult concept for me to fall in love with it. And you are right, it has made a big difference for me in ramping up my investments and speeding me along the path to FIRE!

  2. Some solid truths here Jim. Great post!

    I also think one of the reasons why Financial independence is so rare is because savings is often treated as mere *delayed spending*. You know what I mean — saving up to buy that big boat, new house, car, etc. That’s not savings like you or I might call it.

  3. I think delayed gratification is definitely important, but ultimately, the most important factor to financial independence is probably decent income. The road to financial independence is just much easier when you can take care of all your needs and wants, and still save the amount you need to save. The key is not letting that lifestyle inflation get you!

    I definitely agree that you need to decide whether certain things are worthwhile to you. Spend your money on things you care about. Don’t spend it on things you don’t care about.

    And you can definitely cut back on that car, for example, but you could also make an argument that you could find a way to make an extra $700 plus per month and invest it all. Then you end up with the same amount of money in the end, but without having to cut back at all.

    1. Welcome, FP! You bring up some good points. Your point on not letting lifestyle inflation get you is definitely the key to success with a good income.

      And although I agree that having a good income makes the path to FI potentially easier, I side a lot with the camp that your savings rate can possibly be even more important. There are a lot of people who don’t make 6 figures, but are able to live a very modest but happy lifestyle and are able to pull off FI just by not over-spending.

      Of course, the ideal mix though is to have both of these ideals in your court! 🙂

      — Jim

  4. I think part of the problem is people don’t set financial goals for themselves so they don’t know what they are truly working towards. If you knew how much money you would need to actually retire and said by saving X amount each year you would reach your desired outcome. People would completely rethink the purchases that they made and personally wouldn’t worry about keeping up with the Joneses.

  5. Another reason why financial independence is an uphill battle is that humans are dramatically bad at understanding compound interest. I think this is true even of people that read (and write) personal finance blogs. Sure, we all get it, but when you’re in the middle accumulating cash at first you don’t feel rich or poor. It just feels like, “Oh, okay, I have some money – not enough to retire on.”

    I was glad to see this echoed on the recent MadFientist podcast when he interviewed the panel at FinCon. I believe it was Pete from MMM that made the point about how it’s easy to feel like you haven’t made a lot of progress during the early accumulating years.

    I try to remind myself that in order to reach my financial number, I have to cross every other number on the way there.

    1. That’s the truth, Biglaw! A lot of us seem to forget how important compound interest will come into play as you’re building. I know I’ve done the simple math more than once just thinking, “Ok, I can add this much into my accounts until FI.” It’s not that impressive until you remember that the compounding interest will really help that number out tremendously.

      Btw, I really enjoyed that podcast as well!

      — Jim

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