After spending years consuming personal finance content, I’ve observed two recurring themes that appear to be significant motivating factors:
Financial Independence: Achieving complete financial independence that allows for early retirement – with the option to never work again.
Financial Flexibility (or as I like to call it Flexi-FI): Achieving a flexible work-life balance with the ability to take extended breaks or work part-time and regain more control over one’s time.
While both destinations offer the potential for a more autonomous and flexible existence, there are significant distinctions between the two that need to be explored when assessing options for designing an ideal lifestyle. Hint: They are both deeply connected.
- Purpose and Lifestyle
Financial Independence: Early retirement with complete financial independence involves accumulating a significant wealth base that generates passive income, sufficient to cover living expenses without relying on traditional employment. This path appeals to individuals who prioritise more extensive leisure time, exploration, or pursuing passions that may not align with a traditional 9-to-5 job. A phenomenal outcome for those who can do it – but it’s no easy feat and often takes at least a decade or more of dedication and focus. Some would argue that in the scheme of things 10 years of hard work for 50+ years of freedom is totally worth it.
There is the paradox that has been well documented in the financial blogosphere, that many individuals reach FI then, after a brief reset period can find themselves lost or without purpose. My observation has been that many return to some form of ‘work’, not necessarily for income but as a means to remain productive. I mean if you’re the kind of high achiever that is able to knock out a lofty goal like Financial Independence, you’re unlikely to be the kind of person that’ll sit around on their hands all day once they’ve got there.
Another important consideration that appears to crop up regularly is what if you’ve discovered Financial Independence later in life or can’t stand the thought of another 10 years of the daily grind? Enter Financial Flexibility.
Flexi-FI for a flexible work-life: Pursuing a flexible work-life balance could be supported by having enough savings and investments to support a reduced work schedule or sabbatical periods. It could be to provide a supplementary income, or it could even mean investing enough so that there is a suitable buffer in place to protect you from unexpected extended periods without work. When not using the buffer, it could continue to grow and compound its way towards traditional Financial Independence.
This approach is often embraced by those who value continued engagement in their careers, enjoy their work, or seek a balanced routine that includes both professional and personal pursuits.
Flexi-FI can be achieved in a shorter time frame than full Financial Independence, and offers many similar benefits – particularly if you’re feeling burned out by work or are craving change or an extended break.
To be fair, this can be achieved without investing and passive income – but it changes the risk profile (depending on your tolerance) and reduces flexibility if you’re solely dependent on the part-time pay cheque.
It also requires exposure to work or a career that lends itself to periodic or part-time work. There are so many ways to creatively approach this that with some effort, most individuals could come up with an acceptable solution – even if it means preparing for and taking an unexpected career pivot.
There are SO many permutations of how Financial Flexibility could materialise in your own life, here’s a couple to consider:
Part time: Cutting back hours or switching to a part-time role, giving you a long weekend every week might provide a better work life balance.
Project work: Taking on a project where you work full time or part time in blocks of time, with breaks in between could give you greater freedom for meaningful travel or to take time off aligning to milestones or events like kids school holidays.
Seasonal work: Some jobs only operate for part of the year, providing an extended fixed term break each year
Self-employment: Perhaps starting or purchasing a business that has the ability to provide any combination of the above solutions could also work well.
- Engagement with work
Financial Independence: Achieving Financial Independence often entails stepping away from traditional work entirely. While some early retirees choose to engage in volunteer work or entrepreneurial pursuits, there is also the opportunity to focus towards leisure activities and personal interests. If you’ve failed to plan adequately for what you’re going to do with all this new time, you might find yourself bored or feeling a lack of purpose.
Flexi-FI: This route encourages ongoing work engagement, albeit on a reduced and more flexible schedule. Individuals maintain their professional skills, industry and workplace connections, and for some, the sense of purpose that is often derived from having a vocation.
- Risk Tolerance and Investment:
Financial Independence: Achieving early retirement through Financial Independence necessitates a robust investment portfolio capable of generating consistent passive income. This approach often involves taking on a higher level of investment risk to attain the necessary returns and requires a level of monitoring to ensure performance (unless you’ve achieved Fat FIRE, where your investment income is significantly more than your expenses).
Flexi-FI: People following this route typically require a balance between liquid assets and investments that can sustain their desired lifestyle changes. They might allocate a portion of their savings into investments that could generate a passive income, while also maintaining a cash cushion to cover expenses during time away from work.
- Timeline and Planning:
Financial Independence: Early retirement planning involves an accelerated timeline, focusing on building substantial wealth within a finite period. The timeline might be more rigid, as achieving financial independence requires hitting specific financial milestones.
Flexi-FI: Individuals pursuing a flexible work-life balance might transition gradually, reducing their work hours or taking intermittent sabbaticals aka ‘mini-retirements’. This approach allows for more controlled adjustments over time. If done carefully, a portfolio could potentially even continue to compound after flexible work is achieved.
- Long-Term Sustainability:
Financial Independence: Achieving and sustaining financial independence demands rigorous planning to ensure that passive income sources remain sufficient to cover expenses for decades without traditional employment. There is the risk that if someone retires too early with too little, and spends a significant amount of time out of the workforce, it may be a challenge (but not impossible) to re-enter. However, following extremely conservative methods such as the 4% rule combined with a 1-2 year cash buffer, should see this risk largely mitigated.
Flexi-FI: The sustainability of a flexible work-life approach depends on maintaining a delicate balance between work and leisure. Individuals must continue managing their finances and career engagements to ensure a stable lifestyle – which could feel like an extra layer of complexity to having to work.
Personally, I gravitated to Financial Independence when I discovered the concept of FIRE and for many years it was the ‘top of the mountain’ that I was focused on climbing. Nothing would stand between me and my #1 goal. While it’s no easy path, the concept is simple – once you can extract income from your investments that is equal to or greater than your expenses, you can quit your job.
What I failed to recognise was that as my career developed, there were parts of work that I enjoyed that gave me significant and often intangible value, beyond just a pay cheque. However, I was and still am diametrically opposed to the current societal work paradigm, being a permanent time commitment of 40+ hours a week for 40+ years of our best and healthiest years, spent in a cubicle with up to 4 weeks off per year for most jobs (even less in other parts of the word). That ain’t livin’ Barry. I love living a life that’s more aligned to some of the Flexi-FI principles outlined above, knowing that full FI is on the cards as my portfolio continues to compound, while not utilising it.
The choice between pursuing a flexible work-life with part-time work or extended breaks and achieving complete Financial Independence for early retirement is deeply personal. Each path offers unique advantages and challenges, appealing to different aspirations and lifestyles. By understanding the distinctions between these approaches, individuals can make informed decisions that align with their values, goals, and long-term financial well-being.
Put another way, if you’re already on the train steaming towards Financial Independence, perhaps Flexi-FI just means getting off a few stops early so you can slow down and enjoy the scenery along the way.