Ding ding! Finance heavyweight showdown
In case you missed it, Paula Pant a FIRE heavyweight and key proponent of the movement, interviewed Suze Orman (American, high-profile financial guru) on her podcast Afford Anything, episode #153. This promised to be a showdown.
I wasn’t particularly familiar with Suze Orman. I am now. She is clearly a big name in the U.S. having written many personal finance books (including Money and Women & The 9 steps to financial freedom), affiliations with the Oprah Winfrey Network and living on her own private island. She’s done alright for herself (she talks a lot about this on countless occasions during the interview) and supporting women and equality can only be a good thing. She also has a reputation for being outspoken, incredibly direct and borderline acerbic. I’m sure Paula knew this was always going to be controversial, to say the least. And why not? It makes good podcasting.
The social media hype certainly advertised high controversy and suggested a proper shit-storm. Somewhat ironically, the debate afterwards has in many ways been the true contention: was it controversial or not? Is Suze Orman a self-important narcissist who doesn’t really understand FI, or does she actually know what she’s talking about and have some valid points? Is, as she states, FIRE financially fatal and ‘the worse decision you will ever make’?
What I found was actually both. But either way, creating a platform and the space for debate around her views is valuable in itself. Paula opens the episode by emphasising how important it is that we listen carefully and respectfully to others with opposing views. Amen to that.
What this article isn’t:
- The place for debate – out of respect for Paula any comments you’d like to make on the podcast should be directed to Paula’s show notes. She alone has taken the ballsy move to bring on such an outspoken and controversial character to her show so she should be the one to benefit from the media response and traffic. We should also say we are a fan of Paula’s and in particularly LearntoFI.com co-author Cash Curator (bit of a FI crush going on here CC??).
- A Suze Orman bashing post. A quick Google search for Suze Orman yielded top results for articles such as ‘Six reasons I’m no fan of Suze Orman and why you shouldn’t be either’ or ‘14 reasons not to listen to Suze Orman’. I’m all for opinions including less popular ones, but I like to think that here at LearntoFI.com we have a smidgen of decorum and respect.
- A technical article that tries to lay out the math which discredits her assumptions, predictions and tenuous calculations. There are many such posts out there already which do a better job than I would. But actually, I think it’s irrelevant and misses the very essence of Financial Independence.
‘I hate, hate, HATE the FIRE movement’
I got sucked in by the media hype, listened to the episode and it really got me thinking. In fact it got me challenging my own financial planning. I guess one benefit of having a blog is a being able to document those thoughts.
Suze launches in to the interview with a strong start: ‘I hate, hate, hate the FIRE movement’. It was clearly a well scripted, headline grabbing introduction but still, at first I was winded. Someone of such eminence and esteem single-handedly reaching in to my deepest financial desires and crushing my dreams of being free with a single blow. Was this true? Have I got this completely wrong? Does this not work out in the end?
Her unwavering belief in her own grandeur and self-importance with her ‘I want to sell a book’ passion and enthusiasm was at first convincing and many of her arguments were compelling.
As the first half of the interview sped forward like the proverbial bull in a china shop however, the flaws started to unravel. While I still agreed with many of her observations, it soon became clear that she totally misunderstands the core philosophy of Financial Independence, the community and it’s people but most importantly, the psychological and emotional benefits this concept incubates.
Why is FIRE the ‘worst financial decision you will ever make’?
In a nutshell, the main components of her argument as to why FIRE is financially fatal are:
1. You’re too young to know what you’re doing
People retiring in their late 20’s and early 30’s (which is the only age range she really references within her argument) do not have the dogged wisdom, maturity and experience to realise that life is not linear. Things will happen that they do not accommodate within their financial plan. Such major life events could include paying for a loved one through their twilight years and the associated healthcare costs (darn expensive in the US remember), personal injury that prevents you from working ever again and natural disasters. All of which can be financially devastating without insurance.
2. Artificial Intelligence and increasing taxes
Artificial intelligence will take over a large portion of human jobs in less time than we may think, reducing the quantity of people paying taxes and therefore the total revenue, resulting in an increase in tax rates on those that do still work in order to compensate.
Inflation will only rise in an increasingly unstable and unpredictable economic climate. If you’re lucky enough to be 25 then you’ve been used to low and stable inflation most of you’re working life. This is also true with the major bull run we’ve been experiencing. In both cases, it ain’t gonna last forever!
4. Not enough money
Because of the factors above, a few $million is nowhere near enough. Not even a draw-down of $80k a year is enough money to live on (certainly not enough to run a small private island). High earners have a less healthy relationship with money compared to low or average income workers. But we all (read: the proletariat) live beyond our means.
Everyone pursuing FIRE see’s the Retire Early part as the only end goal. They will then sit back, enjoy themselves permanently in whatever depravity takes their fancy and generate no further additional income for the rest of their lives.
Retirement is unhealthy. Without purpose and enjoyment there is nothing. This can lead to destructive behaviours. Indeed Ms. Orman herself returned to work after three years living on her private island. Or perhaps these things don’t just pay for themselves, who knows.
Why Suze Orman is right
For starters shit, indeed, just happens (hear about the couple that spent their savings on a boat that sank two days later?) and with age comes wisdom. A tragic event could potentially wipe out a major chunk of your change that could be catastrophic to your financial arrangements.
Similarly the changing political landscape, parties in power and legislative whims of the time are all unknowns. Take Brexit for example. No-one knows, and I mean no-one has a single clue about the real impact or the short or long-term ramifications, financial or otherwise. This is unchartered territory. We just don’t know.
Taxes and inflation will fluctuate. They are likely to increase and decrease over the course of our life time.
The stark reality is that the world is changing at an unprecedented pace. Now more than ever is it true that the past does not predict the future. The next 25 years will not be like the last 25, not even close.
Her point that most people live beyond their means is also generally true and higher earners are often the worse culprits of this. I know I was.
And finally yes, never working again in your late 20s / early 30s is definitely going to mess with your head. A Burning Man 24/7 lifestyle with Charlie Sheen as your wingman is going to eventually get old and leave you, well majorly ‘burnt’ out. You may have a permanent smile on your face from whatever debauchery you were embroiled in, but it’s eventually going to leave you with a sense of listlessness, being lost and a lack of purpose. Or that may just be the come-down, who knows.
Or is Suze Orman wrong?
Whilst Financial Independence is still relatively niche there is a huge amount of resources, debate and help out there on how to best plan for your financial goals based on your personal circumstances. One of the cornerstones of this principle is planning.
People plan, evolve and adapt. It’s one of the things that humans in general are good at. Indeed none more so than those with the personality traits typically held by people pursuing Financial Independence, which by loose definition itself means planning. Planning for scenario A, B, C and beyond.
If things go wrong, people pursing FI often have a plan B that is the same as those not pursuing FI; they get out there and generate income. Even if they can’t return to their former profession or career in some way, there’ll be something. In the UK, working 38 hours a week on the national minimum wage of £7.83 per hour earns you a gross annual income of about £15,000. That’s enough for most people to get started with, given they are usually living a frugal lifestyle already.
For those living in the UK we are also incredibly fortunate to be supporter by one of the greatest social services (albeit an ailing and beleaguered one); the NHS. It may not be perfect and you may still wish to have private cover. But when the chips are down and you need healthcare which is free at the point of delivery, the NHS is our saviour. We may not be able to predict the future but I doubt any political party wishing to stay in power will remove this privilege from UK citizens.
If you’re concerned about a future event happening that means you can’t work in any way, that’s what insurance is for. Plan for it, save for it, budget for it. We make it part of the plan and we don’t pull that trigger until it’s accounted for.
It’s the same for inflation, taxes and stock market fluctuations. They get planned for too. In fact stock market changes are expected and wanted (sale time everyone!) by most people pursuing FI. The standard 4% withdrawal calculations accommodate for these things but again, people adapt to this based on their personal circumstances and tolerance risk and will be adjusting as constantly.
Furthermore, by being in a position of some Financial Independence when these situations hit, means you are usually in a better position to weather a storm than those with little to no financial planning or resources.
Suze Orman does not understand the FIRE community
Although I’ve not been in the personal finance world for long, I have done a lot of research. Reading, listening, talking and getting to know some of the people in this community.
What seems clear to me about people pursuing Financial Independence or generally those looking to improve their financial fitness, is that they share common traits: ambition, drive and never standing still. These people are do’ers. They take action.
Most FI people are not happy just sitting down. Never working again is their worst nightmare! Even to get to some level of Financial Independence, they’ve worked an extra five, ten, twenty hours or more a week on overtime or their side hustles. They work bars, sell creative artefacts or set up online businesses.
This work ethic doesn’t just stop once they hit FI, it continues and thrives! Which addresses the next point – additional income. Just because someone can retire because they are Financially Independent doesn’t mean they will.
Financial Independence is far more than a means to an end
What Financial Independence means to me is a safety net to go and try something else. I like my job but I also want to try my hand at other things. Or I may go back to working with animals and in Conservation, my original background and career choice. What’s held me back is risk. We are a family of four living off one income. If it all goes wrong, the stakes are too high. But if I had a safety net, a war chest full of money, then I could take that leap. I don’t even have to be fully Financially Independent. A few years’ living costs may be enough. I’m not pursuing FI because I want to jack it all in, I want to jack it up!
There is a reason this site is called LearntoFI.com and not LearntoFIRE.com. Being Financially Independent is the enabler to freedom and happiness, not the end goal in and of itself. Financial Independence or Financial Freedom would be better terms to market this movement to the masses. Some people may not want to retire but who doesn’t want to be financially free?
I love, love, LOVE the FIRE movement
The other major benefit of a ‘FI approach’ to money is the freedom from consumerism. Many people embrace the frugal aspect of FI, not just because it is often the quickest and easiest way to increase your savings rate, but because the emotional and spiritual benefits of not being blinded by the marketing puppet-masters that rule the world and hack our spending psyche. Not being controlled by our possessions and living in more physical space have huge emotional benefits. For me, this has been one of the biggest impacts FI has had on my approach to life and I’m all the happier for it.
To return to Ms. Orman’s example then, that all earners have poor relationships with money and live beyond their means: what if some of us don’t? Imagine being in control of your financial destiny and growing your income to build significant long-term wealth. Imagine this and having a healthy, non-materialistic and enabling relationship with money that allows you to live the life you want and with purpose. That for me is the spirit of FI and why I love, love, LOVE Financial Independence.
Here’s to the pursuit of financial fitness and freedom.
FI Guy 101
This blog has been part of the Money Mindset series which discusses one of the most important elements of financial fitness.
For more information on my background and financial goals, check out my first Personal Update #1 – Introducing FI Guy 101.