Financial Independence is that magical point where you have enough investments that you should be covered for the rest of your life. Figuring out that number and getting there can be quite the journey. On the way to Financial Independence, there is an important milestone worth noting, the point at which you can Coast.
The “Coasting” milestone is when you have saved enough that if the if all goes reasonably well, by the time you plan to quit working, you will have reached Financial Independence. That is, your savings will grow (based on projected returns) to the amount needed to provide for anticipated expenses…without you having to put in another dollar. Basically, you are done saving and investing, and your money just coasts its way to true Financial Independence level, like its on auto-pilot.
For example, if you……
- Plan to stop working in 20 years
- Have $500,000 invested
- Expecting a 7% return (after inflation)
- Anticipate annual expenses of $40,000
…..Then you would be Coasting. You only need to cover your current cost of living, and you could still expect to be Financially Independent at your projected future date.
So…..there’s a lot of assumptions, expectations, and straight-up faith in the above definition of Coasting Financial Independence. First of all, you have to believe that the sun will come out tomorrow, queue Little Orphan Annie.
You have to assume that your ‘projected returns’ are reasonable. If you have rental property, you have to have faith that the rents will continue to roll in. Or if you’re in securities, that the markets will perform similarly to how they have in the past. Also, you have to believe that you are correctly calculating your future expenses. And don’t forget, you have to be able to predict when you will have to start living off your savings. Get out your crystal balls, everybody?
What’s the point of Coasting Fire?
Since it seems like a pretty soft number, you might ask, why do I care about ‘Coasting’…is it worth even trying to figure it out? I would say yes, for a few reasons.
First of all, if you’re working towards Financial Independence, you may be years or even decades away from reaching it. You need to be able to celebrate progress along the way, to keep motivated. You have to do the work of figuring out expenses, what you’re comfortable with assuming as a return, etc, in order to establish a Financial Independence goal anyway. So, you’ve already done a lot of the work.
The secret sauce of the ‘Coast’ is the compounding growth over time, and it is powerful! The exercise of setting and monitoring your Coast milestone teaches you a lot about returns and time. Focusing on the Coasting calculation, you can see how front-loading savings and letting it work for you, is amazing! It can help motivate you to invest the most you can RIGHT NOW.
Not Just a Milestone
And while the Coasting milestone may be a bit of a soft number, it is not arbitrary. Beyond being a milestone, it really is a level of FREEDOM. It is a point at which you can begin to approach your journey to Financial Independence differently, if you so choose.
Once you have determined that you are at or near the point that if you never invested another dollar, you’re likely to have an okay retirement….you have given yourself more options. You might pull back some of your investing towards Financial Independence and deploy those funds elsewhere. You might decide to go back to school, start your own business, take on a career change. Maybe you will decide to do something crazy like take a career break, mini-retirement, adult gap year….whatever you want to call it!
Now, in actuality, you ALWAYS have choices, and you should leave bad situations, even if they might not make the most financial sense. But, if you’re at a Coast level of financial independence, you may be able to lower the bar of what is bad. You’re less afraid to leave that okay job with the lack-luster boss in search of a better fit. If you want to take that time off and the boss says “no,” you can say “bye!” Or it might be as subtle as speaking up more at work, when you otherwise might have kept your constructive criticism to yourself 🙂 That might actually turn that okay job into a better job, or maybe even to you being the boss!
Values Come Into Focus
There are many strategies and tactics for working towards Financial Independence. But what drives it all should be your personal values…your why. A lot of people are drawn to pursuing Financial Independence for the same reasons, at least initially. The why is usually a general statement like “to have more flexibility with time”. But as you progress along the path, you have to really start drilling into the specifics. What exactly do I want my day to look like? How do I want to engage in the world? What really brings me fulfillment?
The real work of pursuing Financial Independence is getting clear on what you value, and fiercely deploying all your resources in line with those values. Your time, your talents, your energy, your money. What motivates and fulfills you is deeply personal, and can take a lot of work to figure out!
By the time you get to Coasting, you may have figured out a lot about yourself that wasn’t so clear at the beginning of your journey. You have probably tweaked your Financial Independence goals, strategies and tactics. You probably have, even if you haven’t stopped to reflect on it. If you haven’t already been able to very clearly articulate in a handful of words your why by the time you’ve gotten to Coasting, then it’s a great time to stop and really do that work. Create your personal values statement, and let it guide your decisions as this new level of freedom is available to you.
Back to Annie
I’m a Gen-Xer, so as a kid, I had a record player. It was a hand-me-down from my older sister, who had upgraded to an early version of the boom-box. The only record I remember having was the soundtrack to the 1982 movie, Little Orphan Annie. I loved that movie so much, and practically wore out the groves on the vinyl.
Reflecting now, I can see how it was a great introduction to the psychology of money. There was great wealth disparity, but money wasn’t necessarily the fix to problems. With all his money, Daddy Warbucks wasn’t happy. And what Annie really wanted, money couldn’t buy. Chasing money often leads to catastrophe. Very relevant lessons when you’re figuring out your values, your why’s that will guide your financial journey.
Let Optimism be your Superpower
What I really got from Annie, though, was that optimism is a superpower. Well, that and a permanent soft spot for redheads. 🙂 What Annie can show us, is that when you have nothing else, you still have the power to choose how you think. Not only did her unflappable optimism seem to manifest a better outcome, it also made the dark days more tolerable. So, when you start to doubt if the sun will come out, the answer must be yes! Trust yourself, trust your path. The alternatives of despair, apathy, helplessness, not only make today miserable, but also don’t do your future self any favors.
As I type, I’m hovering somewhere around the Coasting milestone. Also as I type, the world is in chaos. The permanent scars of the pandemic mar people and relationships all around me. An angry and divided US is the fishbowl in which I swim. Armed conflicts (what a nice way to say war, right?) are killing people, cultures. The world feels on edge. Nevertheless, will I celebrate how far I’ve come, not only towards financial independence, but in figuring out my why? Will I believe that I will have the future retirement that I’ve laid out for myself? Bet your bottom dollar on it!
Are you Ready to Coast?
Hopefully, you’re tapping into some of that optimism, and are ready to start believing in a bright future for yourself. Getting your finances in order, getting your values in order are a great way to do that. If you’re ready to set a Coasting Financial Independence goal,
- This calculator is a good resource: https://walletburst.com/tools/coast-fire-calc/
- Daniel at Next Level Life is does a good job of running the numbers for you so you can see how it all works and why Coast is so cool: https://www.youtube.com/watch?v=kDSHHiFMJ_I
Leave a comment if you found anything in this article useful 🙂
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