The path to financial freedom can take many turns. Today I’ll define two different approaches. One represents a more traditional journey to early retirement. The other a more transitional tour to financial freedom. I’m using these two models to help answer the question:
Is it better to push for financial perfection before we quit the rat race, or should we settle for good enough and quit sooner?
A Traditional Approach
To date, our path to financial freedom has centered saving and investing enough money (achieving our perfect target number) so that we never have to earn another cent. In this sense, we’ve been focused on the Traditional 2-Stage Financial Plan of “work” and “retire” – with an emphasis on retire early. It looks like something like this:
- Work – while in the “work” stage, our emphasis is obviously on maximizing income to achieve our target number. But this also means we’re time constrained and lack freedom to spend the majority of our time the way we want.
- Retire – once we reach our perfect target number we will quit “work” stage and leap into the “retire” stage, where our work income nose dives to zero and we live off of our investments. In this stage we (suddenly) gain complete freedom to make our time our own.
The Traditional Plan is the path my grandparents took. They both worked until traditional retirement age and then retired to the golf course. It’s also the path my parents took, except they retired early – mom in her early 50s, dad in his late 50s.
And with an ambition that each generation gets better and better, our plan has been to follow in their footsteps. Except we would retire even sooner by our early 50s.
But there’s another option… we could settle for good enough.
A Transitional Approach
Rather than wait several more years to achieve our perfect target number, another path to financial freedom is to settle for good enough. This means embracing a Transitional 3-Stage Financial Plan of “work”, “work less” and “work optional”. This approach would allow us to gain greater levels of freedom sooner rather than later. It looks something like this…
- Work – similar to the traditional 2-stage plan, the emphasis in “work” stage is to maximize our income (in turn, constraining our freedom to make our time our own). But the goal here is to save just enough. Just enough money that even if we didn’t contribute another dollar, the amount would grow over time to fully support us in the future when we transition into our “work optional” stage. Because we don’t need to save as much money as in the traditional model, our time spent in “work” stage is shortened, thereby increasing the amount of freedom we have to design our own time.
- Work Less – in “work less” stage we only have to earn enough money to support us – we don’t need to worry about saving or investing, we just have to make enough to live on. In our case, this would be a small fraction of our current “work” stage income. What I like about “work less” is it creates a bridge or transition into increasing our freedom while decreasing our earnings. Plus, I actually want to work and earn money after I quit my corporate job – I just want to work and earn money doing things I enjoy (which will likely pay considerably less).
- Work Optional – you could also call this stage “retire” but I like the sounds of “work optional” better. In this stage, we don’t need to earn an income – our earnings from money we saved during “work” stage have grown to an amount that will fully support our desired lifestyle. If we opt to work and earn money, it will all be gravy.
Path to Financial Freedom – Pros & Cons
The clear advantage in a Traditional Plan is attaining the complete freedom of retirement earlier. Plus having the security of a solid financial foundation. The downside is it means working at our corporate jobs several more years.
The clear advantage in a Transitional Plan is in attaining partial freedom. We would be able to quit our corporate jobs sooner and free up more of our time. The downside is it carries more risk. We still need to earn a certain amount of money to maintain our desired lifestyle until our savings grows enough that we can shift into “work optional” stage.
Path to Financial Freedom – Key Considerations
Everyone’s situation and circumstances are different. What’s best for one person, may not be best for another. And the path to financial freedom can certainly be more varied than the two models I’ve laid out in this post. I just like to keep things simple.
Next week I’ll share more on our situation and the key factors we’re taking into consideration while working to answer the question:
Do we work a few years longer and then take one giant step into the security of a traditional (early) retirement, or do we settle for good enough and transition into varying levels of freedom over time?