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I have exhibited tendencies toward pyromania most of my life. As a Boy Scout, my favorite activity was starting and stoking a campfire. As an adult, my best birthday gift ever was a flame thrower designed by my son which made quick work of a pile of pinecones and balloons safely arranged in our driveway.
One thing I have discovered as a pyromaniac: it is usually easier to start a fire than put one out.
This is one reason I'm not a big fan of the Financial Independence, Retire Early (FIRE) movement, which advocates extreme frugality in order to retire as early as age 30. Recently, my associate Nathan Gehring wisely noted that the biggest challenge with the skills and discipline needed for a FIRE plan is not starting to be frugal (which isn’t necessarily easy) but stopping (which can be very difficult).
Why?
Like starting a fire, building frugality into one’s lifestyle starts slowly. The benefits of spending less and saving more aren't immediately obvious. It can take decades to accumulate enough to support your desired lifestyle.
For some savers, especially FIRE advocates, frugality can become a way of life, a game, and a habit that's hard to break. It can become, not the means to reach the goal of financial independence, but the goal itself.
This is what I call the "frugality syndrome."
When someone with frugality syndrome reaches the original threshold amount needed for financial independence, they often move the goal ahead. Sometimes it’s because life circumstances, the economy, or values have changed. Many times, however, it’s because a long-term focus on frugality, like a raging wildfire, has a momentum that’s difficult to stop.
It’s hard to pivot from accumulation mode to distribution, from saving to spending. Actions that once threatened one's financial survival – like taking money out of investments instead of putting it in – become necessary for one's financial survival. This is a tough about-face for the brain to implement. As a result, people who have reached their financial goal often continue to work or restrict their spending to avoid drawing down their investments.
What can you do to prepare for the day when you have enough to fund your lifestyle from your investments plus Social Security and pension income? How can you turn around a habit of frugality?
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Realize frugality syndrome Is normal. Very few people that accumulate a nest-egg large enough to sustain them in retirement don’t have deep-seated frugality. Give yourself credit for your financial achievement. Add some grace and understanding that you probably will not transition from earning and saving to spending down your nest-egg quickly or without experiencing some difficult emotions.
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Prepare a spending plan. Just as you had a savings plan to create financial independence, now put together a detailed spending plan that will ensure your money will last your lifetime. This will set clear spending limits so you know how much you can spend without anxiety or guilt that you are endangering your future financial welfare.
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Get a checkup. You don’t need to do this yourself, and don't wait until you quit your job to go into action. A year or two before you will no longer need to work for an income, get some professional help in planning for the transition and unforeseen contingencies. You might consider consulting a fiduciary financial planner, a Certified Financial Therapist, or a Certified Financial Transitionist.
If you find that starting a FIRE is much easier than putting it out, plan early in retirement to address the financial and emotional aspects of the transition from saving to spending, so you can enjoy the security you've built with your frugality.
Rick Kahler, MS, CFP®, CFT-I™, ChFC, CCIM, is founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
