Money Toolbox

Barriers on the Road to Financial Independence

In the United States, the drive for financial freedom is baked into our national subconscious. It’s a part of the mythical American Dream, that belief that everyone – regardless of age, color, or creed – has the freedom to achieve personal prosperity and success.

But there’s a difference between dream and reality.

As we learned in lesson two, most people are reactive. They train their attention on things they cannot control instead of directing their time and energy to those things they can control. They’re trapped – trapped by unhelpful thoughts and beliefs, trapped in the Matrix.

Start where you are quote by Arthur Ashe

Start Where Your Are

Some folks sabotage themselves before they begin. The believe “I can’t”. “I can’t retire early.” “I can’t earn more money.” They believe they can’t achieve financial independence because of who they are — or because the system is rigged against them.

And there’s no question this journey can be more difficult for some than others. This is unfortunate but it’s true. Ultimately, it doesn’t matter. Your situation may not be your fault, but it’s your responsibility.

Regardless who you are and the degree of privilege you enjoy, you must start where you are, use what you have, and do what you can. If you wish to retire early, you must accept your situation as it is and work from there.

The Box Trap

Another obstacle people face on the road to early retirement is the box trap.

The box trap is the assumption that the cost of getting out of a situation is too great to consider. It’s the belief that there’s no way out of a box. But there’s always a way out of a box. You just have to be willing to pay the price.

The box trap is also called the sunk-cost fallacy. It’s the mindset that because you’ve invested so much money and time in something, you can’t let go of it. Maybe you spent four years in college to get an English degree but now you can’t find a job that makes use of it. When this happens, it’s time to let go, to think outside of the box.

The Long Middle

A third barrier on the road to financial independence is the excitement trap. After the initial rush of discovering FIRE — of escaping the Matrix — fades, you’re left with reality.

For many, the early part of the journey to financial independence is filled with milestones and new ideas. You get out of debt! You make your first 401(k) contribution! You pay off your car! You pay off your house! You save $100,000!

But eventually the milestones become less frequent and the journey can become a slog.

It takes a l-o-n-g time and lots of work to reach early retirement. The best way to fight the feelings of futility that arise during this Long Middle is to remind yourself of why you want financial independence, to remember your purpose from Lesson Two.

Everyone Hates a Winner

The judgment trap is the belief that there’s only one right way to do things, and that if you or anybody else does things differently, they’re wrong and must be corrected.

The judgment trap comes in two forms.

I’m a big fan of the /r/financialindependence subreddit, for instance, but folks there are very quick to fall victim to the first type of judgment trap. Many of them seem to believe there’s only one right way to pursue FIRE. They tend to criticize those who don’t do things exactly like they do.

This reminds me of the George Carlin routine about idiots and maniacs.

Look, there’s no one right way to do any of this. Each of us has a different path. Do what works for you and refrain from judging others.

What about folks who want to judge you? That’s just human nature. Everyone hates a winner. To avoid the judgment of family and friends, keep your financial situation and goals to yourself. Don’t evangelize. If somebody asks about what you’re doing and seems sincere, then fine. Share. But don’t go out of your way to display your wealth.

The Optimization Trap

I’m one of those who tends to fall victim to the optimization trap. The optimization trap is the belief that small tweaks make more of a difference than they actually do.

Does it matter which index fund you choose? Sure. Some. But that decision isn’t nearly as important as choosing to invest in the first place. In practice, picking the “best” solution provides only marginal benefits over choosing something “good enough”. Besides, it’s often difficult (or impossible) to know what’s “best” except in retrospect. (For more on this subject, see The Paradox of Choice by Barry Schwartz.)

Remember: The perfect is the enemy of the good. An imperfect plan you set into motion is always better than a perfect plan you never begin.

Big Ugly Events

The catastrophe trap is the worry that your financial freedom will be destroyed by a personal disaster – such as a car accident or a heart attack – or by a Big Ugly Event like war or disease or a stock-market crash.

People who fall into the catastrophe trap are overly focused on what might go wrong. And when things do go wrong, they often make major financial mistakes. The secret to overcoming the catastrophe trap is realizing that although bad things do happen, their effects can be mitigated through planning and preparation.

One way to do this is to develop financial resilience. If you’re following the steps outlined in this course, your financial life will naturally impart resilience, protecting you from catastrophe.

“One More Year” Syndrome

The scarcity trap is the belief that you’ll never have enough to retire – that no matter how much money you’ve saved, you need to save more.

The scarcity trap, as you may have noticed, is closely related to the catastrophe trap. They’re both rooted in fear. But while the catastrophe trap involves excessive worry about an acute crisis, the scarcity trap manifests as worry over a chronic condition. If you’re in the catastrophe trap, you’re afraid of losing everything all at once. If you’re in the scarcity trap, you’re worried that you’ll slowly run out of money at the end of your life.

You know you’re in the scarcity trap when you constantly convince yourself that you must work “one more year” before you retire. You’re never sure you have enough.

The cure for a scarcity mindset is — no surprise! — an abundance mindset…and a willingness to take a leap of faith. After all, if you’re so close to your goal that you think you need “one more year”, then there’s really very little risk to making the leap today instead of tomorrow.

Additional Resources

Finally, here’s a list of additional resources if you’d like to learn more about the concepts in this lecture. First up, here are some books on this topic:

If you’d rather read material on the web, here are some related articles:

And don’t forget: If you’d like some general resources for financial independence and early retirement, I’ve created a page here at Money Toolbox that links to useful FIRE apps and tools.