Has the pandemic changed your financial plan?

This was the title of a podcast I listened to recently and that made mention of a US based financial advice firm that had conducted a survey among its clients early in 2020 (pre-Covid). Respondents were asked two questions:

1. How much money is needed to be financially comfortable?
2. How much is required to be wealthy?

The same survey was then repeated towards the latter half of 2020. The responses to the two questions pre-Covid were $ 934,000 and $ 2,600,000 respectively. When repeated a few months later, the response to the first question came in at $ 655,000 while the amount required to be wealthy was now thought to be closer to $ 2,000,000.   

The podcaster was cautious not to infer any definitive reasons for this shift in thresholds. One possible question that arises however is whether the pandemic has not forced people to re-evaluate their priorities and whether this could have resulted in a realisation that we actually do not need all of the clutter to be financially comfortable thought to be necessary pre-Covid? In which case a more appropriate question would have been: "Has the pandemic changed your perspective?"

If I think about the way in which conversations in general have changed of late both in terms of content and depth, the answer to this question looks to be an emphatic yes. It would seem that the pandemic has lead people to introspect about issues that vary from the deeply existential to making changes on a more concrete level like one’s daily routine. And so while content is personal, the process of having taken time out to re-evaluate and to re-prioritise seems to be fairly universal. 

FINANCIAL INDEPENDENCE

Getting back to the question of what is needed to be financially comfortable or wealthy, I want to reference a book titled “Your Money or your Life” (Robin and Dominguez, 2018) in which the authors argue that financial independence is more about mindset than it is about a number.

While this line of thinking is easily dismissed in times of affluence, there seems to be a greater openness towards it right now given all of the challenges we are facing at the moment. 

In essence the authors argue that to become financially independent, we need to unhook ourselves from the messages that society gives us about wealth.  They introduce the concept of "FI Thinking" which challenges conventional societal beliefs about money, wealth and happiness. I just want to highlight three.

1. Internal Locus

A strong internal locus of control is the antidote to the “Keeping up with the Joneses – syndrome”.

This requires effort on two fronts: first to do the necessary introspection that helps us figure out what it is exactly that is important to us and our very personal circumstances and secondly to stick to our own path in the face of ever present peer pressure.

2. Enough point

To counter the incessant feeling of wanting that lies at the core of our consumer society, we need to identify our “enough” point. While this will be different for each of us, the mere idea of asking the question "What is enough for me?" flies in the face of convention because it upsets the idea that many of us have bought into, namely that more should be better.

3. Frugality

I had to look this one up in the dictionary because the word is so seldom used. In our society where our worth is tied to the address where we live and the car that we drive, being frugal just seems to be so out of place and yesterday. Frugality really links to the previous point but adds the dimension of mindfulness while we consume finite resources. The notion that we need to tread lightly because others will depend on these same resources long after we are gone can help us resist the self-centeredness that seems to be a side-effect of our capitalist value system.

It may not be the worst of ideas to question the conventional ideas that our society will have us believe about money, wealth and happiness. Part of achieving financial independence may just be changing one’s mindset.