I follow a lot of the FIRE (Financial Independence Retire Early) crowd both on their blogs and on social media. I find a lot of good advice there and many of the things I have read have positively shaped my personal finances today.
For those motivated to do so, I take no issue with physicians working hard to achieve early retirement. In my view, you put up the money to pay for your schooling so it is your life to manage as you wish. If that means retiring at thirty-five and living in Tahiti, then God bless you and post pictures when you’re on the beach.
I suspect, however, that there are many folks like me that have a really hard time with the idea of working hard for some specified amount of time and then walking away forever. I’m willing to bet that many physicians, in general, share my uneasiness with this idea.
I will readily admit that I have a borderline pathological obsession with being active. I like to have my hand in several different pies at once and wasted time is truly my enemy. This even spills over into my vacation time. I will never be the guy that is able to sit on a beach for five straight days and watch the tide go in and out. Trust me, I would drive my wife crazy.
I am also blessed to say that I enjoy what I do on a daily basis, and despite the satisfaction I get when I stick that wedge within 3 feet, I would truly have less fun in my life if I just played golf every day.
So with that in my mind, I would like to officially dub my version of financial independence as FIRN or Financial Independence Retire Never. I have no intention of accumulating wealth for the purpose of not working. I have every intention to attain financial independence to attain maximal flexibility to do the work I want to do.
The Four Principles of FIRN
Practically, many of the principles employed by the FIRE crowd are the exact same ones I employ, mostly because the basic principles of FIRE or FIRN are time honored tenets of wealth creation. Here are my four basic principles:
Minimize expenses-I am not part of the extreme frugality crowd, but if you can do this then more power to you. The basic math dictates that the less you spend, the more you keep. This is especially important for physicians that find themselves in the upper tax brackets. Working to earn more money at a 35% federal tax rate can be downright demoralizing at times. Cutting out your $1000/month shopping budget is a tax free way to give yourself a big raise without having to pony up to Uncle Sam.
Eliminate Debt-I shouldn’t have to tell any physicians about the weight of student loan debt. Carrying six figure student loan debt definitely decreases your financial and professional flexibility and locks you in to having to pursue jobs that pay large salaries, regardless of whether you enjoy it or not. Unloading that burden can really improve your FIRN opportunities.
Use Compound Interest-There is no greater magic than watching money compound year over year. If you are earning an average physician wage, then your retirement accounts should be maxed out (401k, 403b, IRA, whatever it is). You should also take advantage of any other compound interest opportunities you may have. I will discuss more of these opportunities in future posts and link you to some great resources for getting the compound interest ball rolling.
Diversify Your Income-You might earn a fantastic wage as a physician, but your nest egg is at risk if that is your only source of income. Hospitals and physician practices are not immune to closure. You should work to diversify your income streams so that losing one will never be the end of you. Some do this by additional medical work on the side like expert witness work, chart reviews, locus work, or telemedicine. Others do things totally outside of medicine that they are passionate about. Take stock of whatever skills you have and see if you can apply them to set up an additional income stream.
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The Freedom of FIRN
In my mind, a key principle of physician FIRN is that you always intend to do something, not necessarily medicine. Personally, I very well may decide to move on from clinical medicine one day. I have no idea what my professional future holds in this regard. I might even decide to cut back my work schedule one day. However, I can fairly confidently say that I will always be doing something that likely brings in a paycheck of some kind as long as I am physically and mentally able.
What this really comes down to at the end of the day is what you enjoy. To some people, work of any kind is simply a means to an end. For others, work is part of what makes life enjoyable. It’s all about what makes you tick and what your passion is. For me, a life solely based in leisure would be unfulfilling. As my About Me page says, I am the guy that would probably train to join the Senior PGA tour if I ever devoted my life solely to my hobbies.
Ironically, I think a lot of the FIRE crowd actually falls into FIRN if we are being strict about the definition. Most of the blogs I read and people I come across are still very much working and bringing in paychecks (sometimes really big ones), even though that have “retired” from their day job. Maybe they will prove me wrong one day and totally pull the plug on working, but many of them look like they have the same itch to keep moving that I do.
The choice of FIRN vs FIRE has real implications when it comes to applying the art of compound interest. For investors of all stripes, there is often distinction made between returns that come in the form of value you receive now versus value you receive later. For real estate, this is cash flow versus appreciation. For stocks, this is dividends versus equity.
For the individual pursuing true FIRE status, investment activities would most logically be geared towards the immediate income side of the equation. The FIRN investor, on the other hand, can gear activities more towards total return. Assuming that a FIRN investor has already undergone some basic income diversification, then he can afford to engage in activities that may pay out nothing now but will be the most profitable in the long run.
A practical example would be Berkshire Hathaway stock. Berkshire Hathaway has paid out a dividend exactly one time in its entire history. This stock is much less valuable to an individual pursuing FIRE, but could be much more attractive to an individual pursuing FIRN. No dividends are no problem for the FIRN person. They can afford to play the long game and just watch the equity grow as the company’s value goes up. In reality, most physicians probably should have their money in index funds and not be buying individual stocks, but we’ll leave that for another day
At the end of the day, I’m not making value judgements about either philosophy. Everyone needs to decide what their goals are and then act accordingly. If you really do want to live life from your beach hut, then I wish no tropical storms on your paradise.
Both philosophies will eventually lead to financial independence, which is really the core goal you should be striving for. If a person that has achieved FIRE sits down to dinner with a person that has achieved FIRN, then I’m pretty sure they’ll both be happy with their lot in life and have a lot more in common than different. The FIRE person may have to wait for the FIRN person to get off work, but hey, retirement is just a big waiting game for life’s last big event anyway, right?