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Julian Power

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The power of fuck you money

Time magazine has published an interesting article about fuck you money. The article tracks down the origin of the phrase and defines it as follows: “Having f–k you money is the logical extreme of a certain conception of American freedom: complete ownership over yourself and your time…To get a ballpark estimate of the money you’d need, multiply the annual expense of maintaining your preferred lifestyle by the number of years you’re likely to live.”

The article gives the following example: “if you want to storm out of your office at 40 and plan on living another 50 years with $60,000 in annual walking-around money, simple arithmetic indicates you’ll need $3 million.” This example doesn’t account for inflation and investments, which is why the 4% rule is more useful. The definition is a good starting point, but I want to adjust it for practical purposes.

Time period

I think the assumed period of the remaining lifetime in this definition is too long for two reasons (macro and micro):
1. As an individual, you are subject to macroeconomic trends, which you can’t influence. Most notably interest rates and inflation. The former impacts your income, while the latter impacts your spending. Both factors are constantly changing and it’s impossible to predict them over a lifetime. And we are not even talking about the possibility of black swan events like the 2008 financial crisis.
2. The costs for your preferred lifestyle change over time. When you start a family, you need more money than a bachelor, who is only taking care of himself. It seems more feasible to calculate the fuck you money for a specific period of life.

The calculation of my fuck you money is limited to my time as a bachelor.

Lifestyle

The preferred lifestyle and the linked costs are highly subjective, which is illustrated by this New York Times article about millionaires who don’t feel rich. The other end of the spectrum are people like Mr. Money Mustache, who try to reduce their expenses as much as possible. His fuck you money is $625,000, which is based on the 4% rule and annual spending of $25,000.

You can find me somewhere in the middle, but I am leaning towards Mr. Money Mustache. I don’t like penny-pinching and saving money as an end in itself, but I like the idea that you can increase your personal freedom by reducing your expenses. If you look at it like this saving money becomes all of a sudden sexy. Here are popular roadmaps for money management:

1. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
2. The More of Less: Finding the Life You Want Under Everything You Own
3. The Simple Path to Wealth: Your road map to financial independence and a rich, free life

4. Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence

Your expenses are highly dependent on your location (e.g., New York vs. Chiang Mai). Therefore, your location is a lifestyle choice, which has a massive impact on your fuck you money. Personally, I think there are enough great affordable cities, so I don’t have to live in cities like New York, Paris, Tokyo or Zurich. I think cities like Barcelona or Medellín offer a better value for money.

The main recurring expenses are (accommodation, transport, food, activities, insurance and healthcare). While you can determine the first four factors, your influence on insurance and healthcare costs are somewhat limited. Let’s assume you pay for basic insurance and healthcare.


Expenses

My fuck you money estimate is based on the premise that I am a bachelor and that I am living in different cities around the world for three to twelve months at a time. Let’s say that holds true for the next five year. I think it’s more practical to calculate monthly instead of annual fuck you money. My monthly fuck you money is 1500€, which is roughly $1800. It’s based on the following calculation:

Accommodation (A room in a centrally located shared flat, more or less depending on the city)$500
Food (Mainly cooking myself, occasional street food and daily coffee)$360
Transport (I prefer cities, which have a good metro system and/or bike-friendly streets. The main expenses are international flights)$300
Activities (Weekend trips, day trips and hiking)$240
Basic healthcare       $240
Other (Subscriptions, books, clothing, etc.)       $160
Total$1800

I can certainly live with less money, but this number enables me to live a very comfortable life without any trade-offs. To give some context, the minimum wage in Germany is 1500€ per month, roughly 1100€ after tax. Therefore, my fuck you money is fairly modest. The only caveat is that you remain independent and don’t give up your autonomy for the monthly target. That means your 9-5 accountant job doesn’t cut it and the most viable option for achieving this goal is entrepreneurship.

Net income

One of the central assumptions of the concept of fuck you money is that you don’t have to work for the rest of your life. I disagree with the notion that not working at all is something desirable. I think this line of thinking results from working in a soul-crushing job stuck in a cubicle. Work is something highly rewarding when you can choose your projects, working time, location and overall purpose.

I like to create shit, but maybe it’s just me and my protestant work ethic. I don’t mind working till I drop dead as an old man as long as it’s on my own terms. In my experience, chilling at the beach and slurping Mojitos gets old really fast. Therefore, my fuck you money is based on an ongoing income stream.

It’s not enough to earn $1800 net income in a good month, because that’s relatively easy to do. You have to average $1800 net income over a period of at least six months. The variance shouldn’t be too large (± $200) and the income stream should reasonably prolong in the medium term.

I haven’t reached fuck you money yet, but it’s always on my mind. It’s the first thing on my mind when I get up and the last thing on my mind before I go to sleep. The number 1500€ is burned in my mind and I pinned a sticky note above my desk, which constantly reminds me of my monthly target. I don’t care about becoming a millionaire at the current stage of my life, because mo money mo problems. 1500€ monthly net income is plenty for the time being. Rome wasn’t built in a day.

Runway

The business environment is highly complex and there are many variables, which are out of your control. For example, if you have an FBA business and a new competitor with deep pockets arrives, who wants to gain market share in your segment and undercuts your prices and takes a loss, you are fucked.

Therefore you need a safety buffer, in case business goes downhill. I think accumulating savings for covering expenses for six months is a sound idea. In this six month you can move to a cheap location and reduce your expenses to a minimum while fixing your revenue stream. In this time you can hunker down and grind to the max, Julian Power style.

I think expenses of 1000€ per month is a reasonable number for this period. Based on this number, you need to save 6000€ (ca. $7100) to have a decent runway. It’s like an insurance for bad times and gives you peace of mind. In summary, if you save up $7100 and build a stable revenue stream, which churns out $1800 net income per month, you have achieved financial independence. This seems much more attainable than the $3 million mentioned in the Times article.

The important question is how you define financial independence for yourself. I haven’t achieved it yet, but it’s an essential motivational driver for me.

Conclusion

The more clear you are about your goals, the more likely you are to achieve them. I have a clear vision of what I want my life to look like and the costs of this lifestyle. If you have a concrete number, you can start executing and work towards this goal. Now you know everything you need to know about financial independence.
The rest is up to you,

 

Recommended books

1. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
2. The More of Less: Finding the Life You Want Under Everything You Own
3. The Simple Path to Wealth: Your road map to financial independence and a rich, free life
4. Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence

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