The Key to Pursuing Happiness
by Kate Holmes
Financial independence means freedom. And freedom means you can pursue the life you really want.
As we head in to tax time, it’s a great opportunity to review your finances and goals. Jon Stein, CEO of Betterment, advises that you “save 30 to 40 percent of your income if you can. Live efficiently so you can put a lot of money away; that can provide multiples of happiness in the future.”
In the future?!? I’ve seen the Declaration of Independence first-hand and — faded as it is — I’m certain it didn’t state it was protecting “life, liberty, and the pursuit of future happiness.”
There’s no shortage of similar advice surrounding working hard and saving all you can, the reward being future decades of leisure and travel. That reads more like a recipe, though. A pre-determined path. It lacks the free flow that freedom provides, the exploration and expression of one’s independence, and the passion that comes with pursuing happiness. All things we are fortunate to have.
Freedom
It’s been said that if you love what you do you’ll never work a day in your life. The 93-year-old spitfire that is Betty White is a great example of this. As was 81-year-old Joan Rivers. Hard workers? Absolutely. Having a blast? You bet.
Finding work you love may take time. Julia Child was almost 40 before she learned to cook. Harlan Sanders (aka Colonel Sanders) didn’t begin building his KFC empire until he was 66. Vera Wang was 40 when she entered the fashion industry.
I remember feeling pressure in high school to know what I wanted to major in during college. Then in college, I thought I had to have my career and future all figured out. When I began my first job post-college I assumed I would be there for decades. This phantom pressure of thinking that being an adult means having a clear path tends to latch on. Resistance to change sets in, and I’m reminded of a great quote by the late Steve Jobs:
“Everything around you that you call life was made up by people that were no smarter than you.”
Thankfully, we’ve got freedom to create our own life. We can make another decision. Try something new. Then perhaps, try something else. Create a career that doesn’t yet exist. Keep running towards your happiest.
Financial Independence
Conventional wisdom suggests we save as much as possible until we reach a magic number and then stop working. Then we can enjoy our “multiples of happiness.” This usually relates to retirement, which is one form of financial independence. Until then, we’re dependent on the income we receive from our job.
The other method to financial independence is creating income streams that cover your ongoing expenses. Having rental properties that are cash flow positive (meaning the rental income exceeds any expenses related to the property, such as mortgage, insurance, and maintenance) is a common example of this. Let’s say you purchase a rental property in your 20s for a $20,000 down payment that’s cash flow positive (meaning: the rental income covers the mortgage and related expenses) from the beginning. While your mortgage (presumably) remains flat, you can gradually increase the rent to more than keep up with inflation. This passive income will offset some of your expenses, and when you’re ready to sell you’ll (hopefully) receive far more than your $20,000 initial investment. Imagine if you did this with a few properties. After 20 to 30 years, all rents become profit (because the mortgages are paid off). This income then funds your ongoing expenses and can replace the need to work for a steady paycheck. You also still have the underlying assets (the homes) that you can sell if need be.
Other sources of passive income include:
- Business ownership (where others run the business)
- Stock dividends
- Royalties from books, patents, oil, etc.
- Affiliate marketing on a blog or website
Since financial independence is having sufficient income to cover expenses, it’s equally important to pay close attention to your expenses and reduce where possible.
I met a woman who moved to Spain with her husband and two daughters after selling the retail store they owned for 13 years. This was a big, bold move that was possible for four reasons:
- They didn’t have any debt. (This is huge.)
- They have a house and a commercial property that are both cash flow positive.
- Their store was an asset they were able to sell and they’re partially living off the proceeds.
- They sold all their belongings (each only took a suitcase), which drastically reduced their expenses.
In other words, they achieved financial independence. They don’t have to work. They’ve found that there is more to life than working long hours to pay for all their stuff, and now they’re able to spend more time with their kids.
The idea to move to Spain developed over a year. They wanted more time to create memories, experiences, and adventures with their family, but they were working seven days a week. They began to ask themselves what they were working so hard for, then decided it was time for a change. I asked her what she was thinking about most during this time and she said, “I don’t believe you’re going to get rich working your whole life.”
For some, financial independence may be short-term — saving enough money to start a business, go back to school, or find a new job. Then again, it may be a recurring goal, allowing you to take months (or a year) off at a time between jobs or projects.
Financial independence can be as creative and unique as you make it.
The Pursuit of Happiness
The first question I ask new clients is “When are you happiest?” It’s always doing something meaningful. A hobby, time with loved ones, making an impact on others and the world.
When you focus first on happiness, you may realize you don’t need as much money. What are you working so hard to save for? What are you looking forward to in the future? Any reason you can’t have that today or work towards it sooner?
The true goal is rarely to make or have more. If you make $25k/month and your expenses are $30k/month, you’re not reaching financial independence. But if you’re making $3k/month and your expenses are $2k/month, you’re there. You have flexibility to make changes, take risks, and invest in income-producing assets.
When you’re working towards financial independence, the goal is to create a life you love now and income streams to support that life. It may not initially feel possible or practical, but there are fascinating success stories. Take Lain Ehmann, who turned scrapbooking into a six-figure online business five years ago. (Yes, I said scrapbooking.) There’s Chris Gillebeau, who built a small empire from the initial success of his blog, which chronicled his journey to visit every country in the world. There’s Scott Harrison, the 39-year-old founder of charity: water, who turned his desire to serve into one of the most respected charities, and earned $191k in 2012 to boot.
Each of these people went after something they are passionate about; they started something that hadn’t been done before and became wildly successful. And now they’re not just financially successful; they’re doing what they love and deriving a great income from it.
Which passion will lead you to financial independence?
Kate Holmes, CERTIFIED FINANCIAL PLANNER™ professional, is the founder of Belmore Financial, LLC, a location-independent financial planning practice she started on her quest towards living her happiest life. Kate works with professionals in their 20s to 40s who are ready to challenge the status quo and go after their happiest life.
This story first appeared on the Society of Grownups blog.
