We’ve all been there. “Why am I spending eight hours every workday in the office? I could be doing something a lot more useful or fun!” If you’re like me and you think that trading up to 1,800 hours every year simply to make a living is ludicrous, you’ve probably heard of financial independence already.
In a nut shell, financial independence is all about amassing enough assets or building enough passive income to sustain your lifestyle without having to work for money. Others define it as maximising happiness by balancing wants and needs, while some folks out there think of financial freedom as taking back time and making it their own.
Of course, all of these views on financial independence appeal to me. Having enough wealth to never have to work again sounds plain awesome in the same way that living a happy and balanced life sounds like a dream. However, the idea of making time my own again draws me most towards financial freedom.
Time shoud be mine and I should be able to use it as I please.
It’s often said that time is the only thing we all have equal amounts of – we’re obviously making abstraction of the fact that some people simply live longer. It’s true that we all have 24 hours in a single day, but that doesn’t mean we all value time equally.
Albert Einstein, who almost single handedly conjured up the theory of relativity, understood this perfectly. While he is often credited with the famous quote “compound interest is the eighth wonder of the world – he who understands it, earns it; he who doesn’t, pays it”, to me his understanding of time relativity and time dilation is infinitely more important to grasp the concept of financial independence.
Time dilation is the difference of elapsed time between two events as measured by two observers who are moving relative to each other. Wikipedia explains it best with two space ships carrying calibrated atomic clocks on board:
“When two observers are in relative uniform motion and uninfluenced by any gravitational mass, the point of view of each will be that the other’s (moving) clock is ticking at a slower rate than the local clock. The faster the relative velocity, the greater the magnitude of time dilation.”
The image on the right illustrates this effect beautifully from the point of view of the observer holding the blue clock. Without going into the nitty-gritty of special relativity theory, one of the basic effects of the theory is that the faster you go through space, the more you’ll slow down time around you. When you approach the speed of light, time will slowly grind to a halt.
Financial independence works very much in the same way.
When your savings rate approaches the absolute limit of 100%, you’ll find that time isn’t an absolute given, but rather a relative thing you can make your own. You can make your own retirement clock move at a faster speed than everyone else’s simply by saving tons more.
I’ve used this very same reasoning before. In a post called There’s a New Currency in Town I managed to link time to earning power, but we can just as easily compare it to savings potential. As we all know, saving trumps earning for people looking to become financially free, so it makes sense to do so.
Imagine for a second two people, the first one saving a mere 10% of his income with the second person stashing away about 70% of his income every month, just like me. While the first person needs over 50 years to retire, I’ll be home free in under 10 years. That’s a time gap of 40 precious years! Who ever said that time travel doesn’t exist?
By saving 70% of my income I’m basically expanding my own free time – time dilation at its finest.
A metaphor often used by financial independence bloggers comes from the Matrix trilogy where Morpheus offers Neo a blue and red pill. The blue pill will allow Neo to remain in a fabricated world called the Matrix, while the red one grounds him back to reality. For these bloggers, the red pill stands for an active choice to change their ways and to embrace financial independence instead of remaining consumerist cavemen.
Instead of a red pill though, I prefer a red clock running circles around everyone else, thus slowing my own time compared to theirs. That way I get to maximise my free time in the future at no loss of life enjoyment at all in the present. The forty year time jump will do the rest.
Travelling at a pace near the speed of light might not be possible yet, but saving a massive percentage of your paycheck is. So until physicists figure out how move at a near 300,000 km/s, I’ll remain dedicated to putting away over 70% of my income on average.
How about you?