An incomplete overview of financial life plans
What’s a financial life plan? Glad you asked!
A financial life plan is simply a way to roughly assess how your financial situation will evolve as you go through different stages of your life. I wrote a longer article on the topic here. To give you an example, this how the standard financial life plan looks like:
- Get a decent job at 20 and buy a small apartment at 27 because your parents have told you that paying rent is just throwing money out of the window.
- Spend more or less everything you earn on fancy objects or experiences until you get a few kids by the time you’re 35.
- Then sell the apartment and buy a house.
- Get promoted (hopefully) to afford the bigger mortgage, the Playstations, and violin classes.
- After that, it’s just 25 years of cruising until retirement. Retirement that you will spend babysitting your grandkids and on cruises. And hopefully you’ll have managed to save enough money to afford a robot nurse to take care of you in your final years.
But that’s not the only financial life plan available. I’ve already talked about the FIRE life plan and its drawbacks but here is a summary, voluntarily exaggerated:
- Get the highest paying job you can find as soon as possible out of school and save everything you can by pinching every penny.
- Put everything you save in a low-cost diversified index fund
- Get together with a partner who shares your life plan and multiply your savings. Avoid having kids because they’re expensive.
- Keep churning and hopefully, by the time you turn 40, quit your job and enjoy life doing whatever you want by living of your capital.
There is also the typical millennial life plan (being a millennial myself, I’m allowed to make millennial jokes ;)):
- Do random jobs to find your passion while living at your parent’s place
- Invest all the money you don’t spend on avocado toasts in plane tickets to the other side of the world
- Spend the rest of the money on beers while working at a farm in New-Zealand in exchange for food and shelter
- Try to make it as an artist/writer/musician/life coach for 10 years
- Get kicked out of your parents place when you turn 30 and move in with your girlfriend who actually has a regular job.
- Find an employer that will have you and your baggage of experiences. Spoiler alert: he won’t pay you well
- Get scammed by some online FOREX trading course because you just realized you needed money for retirement.
- Spend the rest of your life worrying about having enough money to pay the bills and regret this great time of your youth when you could just do whatever, yet regretting that you wasted your potential.
I’m obviously being satirical here. All millennials don’t have this life plan and if some do, it’s probably not as careless.
Are those the only three options?
Of course not. You can play variations on the above. Or you can also decide to do something different. Here is my life plan (everything that happened wasn’t necessarily planed 10 years ago; we planned most of it along the way in two years increments):
- Get a high paying job I don’t hate and marry the woman I love
- While she studies and I work, keep the general spending low by focusing on the big-ticket expenses (rent, transportation, insurances, groceries) while being very flexible on the little things (restaurants, vacations, gifts). The idea is to have a spending level that doesn’t create frustrations. Saving is not a priority during that phase.
- When my wife starts working, maintain the same level of spending and save everything she earns (minus the extra taxes and donations). Invest that money in the stock market.
- Switch jobs to an employer that allows part-time and become indispensable there.
- Invest in education (in my case, my wife’s education) to maximize future earnings even at the cost of eliminating savings for a few years. Here is a little discussion on this huge opportunity cost.
- When the money invested in the stock market reaches the “enough” level (the money invested compounding at 7% between now and 65 is enough to finance retirement, more on that here), apply for part-time. At that point, further savings aren’t necessary. We only need to work enough to cover our expenses.
- Have a baby girl and take time off work to take care of her.
- Watch my wife get promoted thanks to her advanced degree.
- Keep working part-time, enjoy family life, and start new projects.
The main advantage of this plan is that I minimized the grinding. I’ve started working a few months before my 23rd birthday. And I started with part-time right before I turned 31. That’s 8 years of working “for the money”, much less than the 17 years usually necessary to FIRE with much less frustrations. I would have gone part-time a year earlier but my boss didn’t allow it. And I spent 9 months full-time at home to take care of my daughter. Now I work just three days a week. Granted, I still don’t absolutely love my job but that’s OK for now, because I have two days per week of free time. Time I choose to invest in this blog because it’s meaningful to me. Time I invest with my daughter to build a strong relationship.
The beauty is that I wouldn’t absolutely need to work three days a week. I could quit and we would be fine financially speaking as long as we stopped externalising childcare. But I want to do something that brings an income because that’s indicative of the value of what I do. I wouldn’t feel good playing video games all day long. Maybe if this website gets some traction and people like what I do, I could quit my job AND bring an income at the same time. It would be great if it happened but it’s OK if it doesn’t.
Maybe you feel like I’m bragging, and you’re probably right: maybe I am a little. But my aim to show you that to have a different life plan is possible.
It doesn’t matter which plan you follow as long as you choose one.
Whether you follow the one or the other life plan doesn’t really matter. What matters is that you consciously choose which life plan you want to follow. What do you want for your life? It’s OK to not know precisely. Did I know at 22 that I would start a personal finance blog at 32? Of course not. But I knew I had interests outside of work and I wanted to set myself up so that I could have (eventually) time for those.
Following a life plan doesn’t mean being a prisoner of a plan. The plan is there to serve you, not the other way around. And the plan will get updated as you go. But it’s useful to think in advance about what you might want to do in the future and how you are going to finance that.
Stacy, the wanna-be comedian
For example, let’s say that Stacy wants to make it as a comedian. She’s willing to give it two years full-time. If it works, great! If it doesn’t, it just means that she’s not talented enough and she would go back to her regular job without having regrets later in life. That’s two years of expenses she needs to have saved. That’s four years of saving 50% of her income. Or ten years of saving 20% of her income. Or anything in between. Her plan starts to take shape:
- Save X% for Y years. Practice being a comedian on the side. Write skits, try them at weddings or with friends.
- Go to Paris/NYC/New-Delhi and try to get gigs at comedy clubs for two years.
- If after two years she manages to derive sufficient income, hurray! She’s a professional comedian now. Time for another round of planning. If on the other hand, she got some income but it’s not sufficient, she makes a new plan: maybe work part-time to make up for the difference and give it another two years before deciding for good.
Does that mean that she has to go through with the two years if she realizes that she hates it after six months? Of course not. She can ditch the plan as soon as it’s not a good plan anymore.
It’s useful to plan because it gives you a chance to reach you goals instead of wishing that they would magically happen. Start today. Write it down. Read this for more insights. And tell me the results.