Financial independence is an outdated goal

Amazon lists over 9,000 books on the topic of ‘financial independence’ or ‘financial freedom’. 'Financial independence' and 'financial freedom' won’t always mean the same in each of these books. After all, these are not clearly defined (or even definable) terms.

At its core though, financial independence means being of working age but not having to work because one has enough money. It's understandable that financial independence is a dream for many. Not having to work (and having enough money), we think, must mean having more time for hobbies, family, and friends, etc. If only we had the money, then we can do all the things we really want to do. We can be who we truly are. And so on…

However, the goal of financial independence is naive for several reasons. First, as we get older, we need more money. It's a simple calculation. Even on a modest lifestyle, let's say getting by on a meager £15,000 a year, living 10 years longer means needing an additional £150,000. Where should this money come from? From the state? From the employer? An inheritance? Personal savings?

There are many guides promising financial independence. ‘Rental income’, ‘options trading’, ‘Bitcoin’... Various routes are presented as an easy way to become financially independent. In one bestseller, the author rather audaciously claims that you’ll soon have a million in the bank account only by changing your mindest. The only ones who make a nice extra income from such claims are the authors themselves. If it were really that easy to be financially independent, then many more of us would be. Here’s the thing though: we are not all that stupid as to overlook a simple trick.

Moreover, it is also naive to assume that once we have all that money so that we could be considered financially independent -- wherever that point may be -- we have more time for hobbies, family, and friends. Various super-rich people demonstrate this -- Larry David in Curb Your Enthusiasm perhaps in the funniest way: just because we are financially independent, doesn’t mean our problems stop overnight. What often happens instead: new problems arise.

From all this follows that ‘financial independence’, especially in the longer, healthier lives we’re living today, is the wrong goal. And Financial Wellbeing is a better one. Financial Wellbeing is the financial and mental ability to earn, spend, and manage money in a way that allows you to live a meaningful and enjoyable life today, tomorrow, and beyond.

Let me reiterate. I spent a long time crafting this sentence: Financial Wellbeing is the financial and mental ability to earn, spend, and manage money in a way that allows you to live a meaningful and enjoyable life today, tomorrow, and beyond.

Let me highlight a few points from this: First, Financial Wellbeing recognises that financial success has both a mental and a financial component. It's not just about mindset. Nor is it just about the money. It's both. However, I would argue that long-term financial planning is primarily a mental challenge, and secondarily a financial one.

Secondly, this concept acknowledges that it's about how we earn and spend money. These are two sides of the same coin. We need money not just for spending; we also need to earn it. The big question is how we earn it. Is it through work that we dread (not good!), or through work that fulfills us (congratulations!), or maybe something in between (realistic)? Maybe the money comes from savings that have been set aside earlier – in which case we don't need to work for it now. But we did work for it before. For economists there is no such thing as "saving"; there's just deferred spending. This perspective emphasises that the money had to be earned first and that it might have been earned at high emotional, familial, or other non-monetary costs.

Thirdly, it recognises that it's about facilitating joy and purpose in life. What's the use of all the money if we don't earn it in a way that makes us happy? And what's its use if we don't spend it in a way that brings us joy? Many think that financial independence automatically brings happiness. It doesn't. Not at all.

Fourthly, Financial Wellbeing acknowledges that it's about both the present and the future. Or conversely, it's not just about the future, it’s also about the present. In the pursuit of financial independence, the latter is often forgotten. Many save frantically for a distant future – to be financially free one day. They forget that they are also living today.

A prime example of why financial independence or financial freedom is the wrong goal is Thomas Mann's fictional (but biographically inspired) merchant family, the Buddenbrooks, from 130 years ago. They were financially independent, but they all ruined their lives: Senator Buddenbrook because for much of his life he considered status and success in business the only meaningful goal; his brother Christian, who secretly yearned for the theatre and arts but never admitted it; Toni, who left major financial decisions to the men in the family; Hanno, whose future was tied to a company he had no interest in. In the end, their one-sided focus on wealth and riches led to personal failure for everyone.

Their story shows us: Financial independence is the wrong goal. The associated hopes and assumptions are not only economically naive. They also fail to consider how people really tick. They don't understand that our long, healthy lives are more complex. We no longer have just an education, then a work phase, and then – boom – retire at 67. We live multi-stage lives. Education still stands at the beginning, retirement at the end. In between, there are productive phases with various careers and transitions (unemployment, childcare, caring for elderly relatives, sabbaticals).

The hope for financial independence is rooted in the three-stage model. But this model no longer matches our current reality. The idea of financial independence as an end goal, where one completely withdraws from working life, overlooks the dynamic and diverse life phases we experience today. The multi-stage life, on the other hand, acknowledges that we have different needs and goals at different life stages.

Financial Wellbeing is more aligned with the challenges and opportunities of a multi-stage life. It's about enjoying life in all its stages, yet being financially and mentally prepared for crises. It's the art of finding a balance between achieving financial security and experiencing life quality. This means not only saving for the future but also enjoying the present. Financial Wellbeing also emphasises that instead of saving frantically, one might consider looking for a new job if one so eagerly wishes to be free from work.