The 3 Levels of Financial security (aka F-you money)

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How much money do you need to say “F*** this, I’m out”?

If you grew up in an Asian immigrant household like myself, you probably grew up with a strong scarcity mindset. In other words, you never felt like you have “enough” or you’re doing “enough”.

You’re constantly worried that you’re falling behind relative to your peers and your goals, and you’re afraid of failure / criticism. (If this isn’t you, please tell me how your parents raised you 😂 )

This lends itself easily to a victim mindset and a lack of autonomy. In other words, you feel like you have no control over your environment and your future. In a work environment, you might fear losing your job and thus your sense of income, so you’re willing to go with whatever the higher-ups tell you to do, even if you don’t think it’s the right direction or approach. And you end up sizzling underneath, frustrated about what you’re doing but feeling stuck.

According to Self Determination Theory, autonomy is one of the three core psychological needs, along with relatedness and competence, which contribute to a sense of intrinsic motivation. Aka, the feeling of “I want to do this.”

  1. Autonomy = I feel like I have control over my life

  2. Relatedness = I feel like I belong

  3. Competence = I feel like I’m good at what I do

While you need all three in order to achieve that sense of “I want to do this”, I believe autonomy is the most important. Autonomy gives you a sense of control over your own destiny, which enables you to look for ways to fulfill your other psychological needs.

Having a sense of autonomy does not mean you fight back whenever you disagree with leadership or your coworker.

As a PM, I’ve learned that you’ve got to pick your battles. And when you work with all kinds of stakeholders, there’s a lot of battles. It’s not worth dying on the hill for every one – that would be exhausting and emotionally draining.

Instead, it’s more of a shift in thinking to say “Hey, I might not agree with this, but I’m choosing to do this. I’m in control, and I can always do something else if I really wanted to.”

So what can you do to feel this sense of control?

That’s where financial security comes in. There are 3 key financial milestones that help progressively unlock a stronger sense of autonomy over your career and life decisions.

1. Fully-funded emergency fund

It’s hard to ever have a true sense of autonomy if you’re living paycheck to paycheck. Because your day-to-day needs are dependent on your source of income, losing your job matters.

The first step to developing basic financial security is to create an emergency fund.

What is an emergency fund?

An emergency fund is a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies, such as losing your job.

Most financial advisors will recommend saving between 3-6 months of expenses in your emergency fund. For people working in more volatile industries or have less stable source of income, this recommendation may stretch to 6-12 months of expenses.

How do I start saving up for my emergency fund?

  1. Calculate your monthly expenses (you can use this calculator, or use a budgeting / spend tracking tool like Copilot)

  2. Create a High-Yield Savings Account with an online bank like Capital One, Ally Bank, or Marcus by Goldman Sachs

  3. Set up an automatic transfer to send 10% or more of your regular income to your new savings account

  4. Once you’ve saved up 3-6 months of expenses, you’ve funded your emergency fund!

What are the benefits of emergency funds?

Emergency funds provide basic security for the short-term, giving you:

  1. Reduced day-to-day stress/anxiety. You are less worried about how you will survive if you lose your job, giving you more confidence at work.

  2. Less desperation if you do lose your job. You have the leeway to be more picky with your next job, making sure it’s a good fit and not just the first offer you receive.

  3. Peace of mind when an emergency does happen. When emergencies happen, you know you have the funds to cover it and don’t need to tap into debt or friends/family to help you cover the expense.

2. Coast FI

I’ve written an article about Coast FI in the past, and this is the milestone where I personally felt the biggest difference in my psychology.

What is Coast FI?

Coast FI (FI = Financial Independence) is when you have enough saved and invested that with no additional contributions, your net worth will grow to support a traditional retirement (typically around age 65).

How do I become Coast FI?

In order to become Coast FI, you have to have investments that will grow over time. Typically these are investments in things like stocks, bonds, or real estate. For simplicity, I’ll focus on stocks/bonds.

Here’s one path to becoming Coast FI:

  1. Calculate your Coast FI number (you can use this calculator)

  2. Open an investment account (also see “what is a 401k?” and “what is an IRA?”)

  3. Start contributing 10% or more of your regular income to your investment accounts, following this flow chart

  4. Invest in a target date fund, or create a 3-fund portfolio with an asset allocation that matches your risk tolerance

  5. Once your investments hit your CoastFI number, you did it!

What are the benefits of being Coast FI?

Being Coast FI provides you a sense of security for the medium-term, allowing you to:

  • Feel comfortable exploring different career paths. You have the flexibility to pursue a job that may be lower income but more aligned with your values / preferred work environment.

  • Take bolder risks at work. You might be more willing to pick up a project or join a team that might not work out, since in the worst case you can find a lower-paying job to cover the bills.

  • Take a step back from work. Whether you want to quit out of frustration, to focus on your health, or to pursue a life-long dream of traveling the world for a year, Coast FI gives you the flexibility to do so without having to worry about having enough money in retirement .

3. Financial independence

Financial independence is essentially the end game, when you become truly untethered from work.

What is financial independence?

Financial independence is when you reach a point of having enough savings and investments to live comfortably for the rest of your life without relying on earning more income.

How do I become financially independent?

  1. Calculate your financial independence number, which is typically defined as 25x your expected annual expenses in retirement (aka the 4% rule).

  2. Follow the same steps as above for CoastFI.

  3. If you’re looking to accelerate your journey to financial independence aka FI/RE (Financial independence, Retire early), look into ways for how you might be able to increase your income, reduce your expenses, or optimize your investment strategy. Check out the r/financialindependence subreddit for like-minded folks.

  4. Congratulations, you’re financially independent! Make sure you have a withdrawal strategy that’s sustainable and will take you through retirement. While investing is simple, withdrawal can be quite complicated, so it may be worth consulting a flat-fee financial advisor to work with you to create a strategy.

What are the benefits of becoming financially independent?

After reaching financial independence, you’ve established financial security for the long-term, allowing you to:

  1. Do only work that you truly love and want to do. With no more pressure to earn income to support your needs, you don’t have to put up with a job that you hate or feel ambivalent about; the only work you do is work that you truly want to do

  2. Complete time freedom. You have the ability to spend your time however you please, whether that means waking up at 11am on a Monday or not feeling rushed to finish that morning coffee, you have full control over the pace of your life

  3. Give back to your community and the world at large. Because you have time freedom and no financial risk, you can pursue opportunities that will help you give back to your community without worrying about financial gain, whether that’s through mentorship, a social venture, or philanthropy.

In summary

The key needs to feeling intrinsic motivation are:

  1. Autonomy

  2. Relatedness

  3. Competence

To develop a stronger sense of autonomy, work towards the following milestones:

  1. Fully fund your emergency fund

  2. Save and invest enough to become Coast FI

  3. Keep at it until you’re fully financially independent

That’s all for this week, reply this email to let me know what you think! Let me know if you have any suggestions for topics you’d like to hear more about 🙂 

Cheers,
Tim

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