Exposing 3 Financial “Fart-flowers” Masquerading as Roses

A rose by any other name would smell as sweet

That is one of the most famous quotes from the work of Willam Shakespeare. The idea is that what we choose to call something should not impact our enjoyment of it. If we started calling roses “Fart flowers,” they would still smell sweet.

Conversely, if there was such a thing as a flower that smelled like farts, you could call it a rose, but it would still smell like farts.

In personal finance, we have a lot of fart-flowers that are masquerading as roses.

What is a financial fart-flower, you ask? Here is the definition I use in this article;

Ideas and concepts that?have catchy names and make big promises, but don’t pass the sniff test.

In this article, I expose three personal financial concepts for the fart flowers that they truly are and how we should replace them.

#1 — Passive income

One of the biggest buzzwords in personal finance these days is “passive income.” There is no shortage of internet marketers that want to sell you on the idea that if you simply listen to them (and buy their “program”), you too can kick back and start generating income with minimal effort.

Usually, when you hear someone refer to “passive income,” what they really mean is?a business with scalable income.

Scalable income means you are not guaranteed to make a dime, but there is no limit on your earning potential.

And while it is true you need to work less for every additional dollar of scalable income; it’s not like you can kick your feet up and stop working. Passive income is money you can earn without doing any work. If I stopped working on my business, it wouldn’t be long before the income dried up.

The only true source of passive income comes from investment income.

• Dividends from stocks.
• Interest earned from bonds.
• Rent collected from real estate.

Unless you have inherited a lot of money, the only way you’ll generate a significant amount of passive income is by generating active income from working, living below your means, and investing the difference.

Don’t trust anyone who tells you any different.?People who tell you it’s possible to earn money without working are either trying to sell you something, delusional, or both.

Passive income is a fart-flower, but scalable income is a rose.

#2 — Early Retirement

For most people, early retirement is nothing more than a pipe dream. At least, if you use the traditional meaning of the word “retirement,” which is to stop working.

In a world where so few people can even afford to buy a home, the idea of retiring in your 30s, 40s, or even 50s is not realistic.

Consider the depressing math behind early retirement

Most people who are planning for early retirement are using the 4% rule, a?financial rule of thumb?that tells you how much of your investment portfolio you can withdraw to cover your living expenses in retirement.

If you had a $1 million portfolio, you could withdraw $40,000 (4%) in your first year of retirement. And then increase that $40,000 withdrawal by the rate of inflation.

The best way to illustrate why early retirement won’t be possible for most people is with an example.

Let’s assume the following.

• Your 25.
• You make $50,000 per year after tax.
• Your annual living expenses are $40,000.
• That leaves you with $10,000 per year to invest towards your goal of early retirement.

To cover your entire $40,000 annual living expenses from your investment portfolio, you would need $1 million. If you were saving $10,000 per year, it would take 33 years.

Saving 20% of your income, starting at age 25, would mean you would have enough investment income to cover your living expenses by age 58. That is earlier than most people would be able to retire, but it’s probably not what most people envision when they think of “Early retirement.”

The key to a happy life is managing your expectations.

If you expect that you’ll be retired by age 40, you could be setting yourself up for disappointment. I’ve found that one of the most freeing experiences has been putting the idea of?early retirement?out of my mind.

Does that mean you need to be chained to your desk at a 9–5 job that you don’t care about for the next 40 years?

No.

Rather than trying to run out the clock on your life and continuing to work a job, you don’t like while dreaming of early retirement, why not find work you love and start living financially free?

The financial freedom equation

If you want to do work you love without ever having to worry about money, you simply need to solve the financial freedom equation;

Financial Freedom= (Passive income + income from work you love) > Your living expenses

If you can make enough money through a combination of passive income and money doing work you love to cover your living expenses, financial freedom can be yours.

As we’ve already discussed, passive income can only come from your investment portfolio.

Income from work you love can make up the difference between your passive income and your living expenses. This might mean making less money than you do right now.

But ask yourself this;

Would you rather spend the next 20–30 years working a job you tolerate in pursuit of one day retiring, or would you rather spend the rest of your life doing work that fulfills you?

I am not saying you should quit your job tomorrow, especially if you have a family or people who depend on you for economic security.

What I am saying is that you can begin putting plans in place to pursue financial freedom.?Maybe you pick up a side hustle and begin slowly replacing your income from your day job with work that you love.

That will help you move towards financial freedom in two powerful ways;

1. It increases your income today, allowing you to invest more and build passive income.
2. Over time you can eventually replace your current income by doing work that you love.

I discuss this idea in more detail?in this story?about “The 10% Rule to financial freedom.”

Early retirement is a fart-flower, but financial freedom is a rose.

#3 —The Latte Factor

According to the so-called “latte factor,” if you cut out small purchases like trips to the coffee shop, you can one day become a millionaire. I know, it’s patronizing and devoid of logic isn’t it?

Don’t get me wrong; there are times in life where you need to tighten your belt and cut back on such indulgences. There was a time when I was a proponent of the latte factor. It was when I was broke and deep in debt. Money was tight enough that a few lattes actually could be the difference between paying my rent or not.

But, let’s be clear; I did not have a latte problem. I had an income problem.

We all have three phases of our financial life;

1. Forced frugality. When your income is barely enough to pay the rent.
2. Optional frugality. When you start making more money but choose to be frugal so you can save money and pay down debt.
3. Thoughtful abundance.?When you have reached a certain level of financial security where you can spend stress-free on some luxuries.

If you're in the?forced frugality?phase, I agree you shouldn’t spend money on lattes. Once you hit the?optional frugality?phase, a few lattes a month aren’t going to change your life but don’t go nuts.

Once you hit the phase of thoughtful abundance, enjoy the occasional trip to the coffee shop, order whatever the hell you want, and don’t stress over the few dollars you just spent; it’s not going to materially impact your finances.

The latte factor is a fart-flower, but thoughtful abundance is a rose.

If you're interested in learning more about financial freedom,?consider picking up a copy of my book "The Financial Freedom Equation" Here.