Retiring early with empathy

Retiring early with empathy

Who doesn't want to retire early or gain financial independence? Having the luxury of walking away from your job if you don't like it frees you to be yourself. You no longer have to pretend to be the employee your boss wants. You no longer have to set the alarm to wake up at an unnatural time.

Financial independence/retiring early (FIRE) is a luxury. It's a benefit of living in a society that follows the rule of law, letting you accumulate investments that have government protection. While you have to trust institutions to hold your money, stocks, bonds, and other financial instruments, that trust is reinforced by law and society's will to enforce that law. If your investments are in real estate and your income is from renters paying rent, you still have the government on your side protecting your ownership of that real estate.

To become financially independent or to retire early, you must save money. Then, use your retirement savings to buy equities, bonds, real estate, or other investments. Unfortunately, simply putting it in a savings account won't lead anywhere. Banks don't pay enough for customers to benefit from using them for anything beyond emergency savings you might need at a moment's notice.

There are two ways to get the money needed to save for retirement: you can earn more money and keep spending the same or earn the same amount but spend less. Either way, the goal is to increase the gap between earnings and expenses. So you can expect to use a combination of the two: saving what you can while finding a job that pays more.

If you're making no more than a living wage, then there's no hope of retiring, much less retiring early. A living wage, by definition, is a wage that pays for necessities and nothing more. If you find yourself in this situation, then the only way to achieve a FIRE goal is to find a higher-paying job or otherwise increase your income.

If you're making more than a living wage, then you have some options. You can decrease some spending, at least until you get close to what a living wage would support. You can also try to increase your income.

Spending less seems like a simple thing. Just buy fewer or cheaper things. For example, rather than ordering takeout, cook dinner at home. Ingredients for meals are more affordable at a grocery store than the final cooked dinner is when ordering from a restaurant. On the other hand, you have to invest in the right tools and clean up afterward.

Cooking at home is trading time for money: spending more of your time so you can spend less of your money. Is your time spent cooking worth more than that same time doing something else? Even if it's not, you can't spend all of your time making money. You have to take a break. Tasks like cooking can give your mind or body that break.

Many writers in the FIRE movement encourage you to cut expenses to a bare minimum, to pay as little as possible for as much as possible. This isn't a bad suggestion, but this can have some unintended consequences. When cooking, buying generic or store-brand items is probably fine. It's what chefs do. Almost everything is good enough quality when buying commodities that it's okay to buy based on price.

But there's another aspect important in reaching a FIRE goal: what is the cost to those around us? Does retiring early hurt others? Can we retire early and help others at the same time?

If we always buy the cheapest of everything, then we force retailers to compete based on price rather than other characteristics such as product quality, environmental impact, or employee happiness. When we encourage large retailers who can offer the lowest prices, we can hurt our local economy. (A Downward Push: The Impact of Wal-Mart Stores on Retail Wages and Benefits, 2007) When we lower wages, we increase pressure to buy the cheapest thing, depressing wages even more. It's a death spiral that impoverishes smaller communities.

Buying local isn't always the answer. Instead, buying what you can from smaller businesses will have a positive impact wherever they are. It might mean an extra trip downtown, but it could also mean a mail order from a mom-and-pop company. It could just as well mean ordering from another hemisphere if that helps someone make a better life.

Ensure that your contribution to the global economy is thoughtful and not just buying the cheapest thing. Buying based solely on price makes companies cut costs wherever they can, including wages. If price isn't what we make them compete on, then cutting wages might not be the answer they find to remain competitive.

Paying higher wages can mean better quality goods and services. It can mean less inequality. How much inequality is worth preserving your standard of living? How many people should be on government social welfare programs so that you can have an extra television? Only you can answer that.

Some inequality is good: it motivates people to find better options in life. For example, inequality allows us to increase our income so that we can save more. But too much inequality creates an insurmountable psychological barrier that can keep people from even trying. If they don't see people like themselves reaching the next rung and climbing the ladder, they may assume the rung is out of reach.

What Can You Do?

Examine your spending habits. Are there businesses in your area that pay higher wages and offer a product you want to use? Can you afford to buy from them? If so, then support better living standards for your community by patronizing those businesses.

Are you a business owner? Can you afford to give all of your employees at least a living wage? This might cut into profits a bit, but consider if maximizing profits is always the best answer for society. Maybe moderate profits with a better standard of living for your employees end up being better for everyone. If you are a first mover in your line of business, consider advertising what you're doing.

In the end, don't think only about the money. Instead, consider how your use of that money impacts those around you.