HOW MUCH IS ENOUGH?

The idea behind financial independence is that your passive income — typically through investments — is enough.

But how much is enough? Enough for what?

The typical reaction that many people have to this question is to define “enough” based on their current standard of living.

For example: “Right now, my spouse and I are 27 and 29, with one child, age 2, and we live in San Diego, and our expenses are $5,000 per month. That’s our definition of enough, and as soon as we reach $5k per month in passive income, we’ll be financially independent (FI).”

Hmmm. I don’t think you need to be a master logician to spot the holes in this reasoning.

First, your current standard of living is a dynamic number. You could, with some effort, reduce your living expenses; the FI movement is based on this premise. Sure, your mortgage might be $2,500 per month, but guess what? You can move. You can sell your home, or rent a room on Airbnb, or rent out the entire house and move your family into a tiny house or RV.

Your standards might also increase. You may, over time, develop a penchant for $100 restaurant meals, Prada handbags and nicer furniture. Suddenly, you cannot imagine buying used furniture, like a dingy peasant.

Silly examples aside, there are legitimate reasons why your standards may rise.

Perhaps you discovered FI in your twenties, while living with random roommates from Craigslist. Maybe you live in a crowded apartment, with 5 or 6 people splitting the rent on a 3-bedroom. Sure, you can calculate FI based on your current standard of living, but do you want to live this way forever? Or do you, at some point in your life, want to experience the lifestyle inflation of living without roommates?

You may have one child right now, but do you want three or four? How will that impact your definition of enough?

The takeaway: Your standards may increase and that’s not a bad thing.

Furthermore, no matter how fat or lean your current lifestyle, it’s true that your standards have changed over time. Your living standards at age 18 were different than age 22, which differed from age 26. To define FI based on your current standards is to choose a randomized data point across the graph of your life, and select this as the defining yardstick for no reason other than recency bias.