What's the "North Star" for Financial Independence?
Re-thinking the concept of doing whatever it takes
In startups, there’s this concept of a “north star metric”. The goal is have a single metric that measures the success of the product or business. And at it’s very least, holds a team accountable to an outcome when you’re measuring success.
But north star metrics have their own cautionary faults. For example at my last job I worked within the monetization division of Nextdoor. At risk of missing our revenue goals for the quarter, the email marketing lead asked me to pull the email addresses for every single customer we’ve ever had in the database.
Why? So that he could send everyone a 10+ email sequence to buy advertising slots before the quarter ended.
This did help us succeed in reaching our quarterly goal. But next quarter, guess what trick did not end up working twice. Even worse, our long term customer base took a big hit, and so we had to spend more money acquiring new customers to make up for the loss.
Net Worth = North Star?
Which brings me to this obvious emphasis of the north star metric for many in the FIRE community: their net worth. That magical number where once 4% of your net worth = your yearly expenses, you’ll likely never run out of money.
This formula is what powers most people in the FIRE community today. They save a bit of money each month, invest it in the market, never touch it, and wait until the day that their savings reach their target FIRE number.
But this framework can also generate negative second order effects.
For example, a career in investment banking job sounds perfect for FIRE. Senior director and vice president salaries reach $500K to $800K after 10 years which hypothetically means a lot saved. But side effects of 80 hours work weeks, high stress environments, and an industry that needs you to keep up with the Joneses, and you might not reach financial freedom with your sanity.
So if reaching FIRE as quickly as possible is your north star metric - your career choices will be detrimental to every other aspect of your life. Even worse, it leads to burning out of the field quicker than expected and an incompletion of FIRE as expected.
One way to improve upon the north star metric framework is to have proxy thresholds. If Nextdoor’s monetization team made sure some metrics such as customer happiness and active users didn’t fall beneath certain thresholds, then the team would have understood spamming our customers couldn’t be the right solution.
This can then be applied to FIRE through a number of ways. One would be to choose a job that is less stressful even if it means less money and a longer time to reach FIRE. Another would be to reduce expenses to live more frugally. And of course, finding a career that you actually enjoy for the long term.
Rethinking FIRE
A few years ago I read a biography on Warren Buffet called “The Snowball Effect”.
Buffet was the best investor in the world, but mostly because he invested for such a long time, from the age of 14 all the way until his current age of 92.
What people don’t realize is how Buffet not only focused on compounding and investing in finance, but also in his relationships with friends, business partners, and bridge partners as well as emphasis on taking care of his health*. The snowball that Buffett packed over his life was what ensured his longevity and success.
Let’s put this all together with the last way to implement a north star metric in business.
Due to all these risks, the only “north star” should be the product vision. The vision should be clear in what value the product provides to customers, and since it’s qualitative and very long-term in nature, it can’t be hacked.
The product vision in this case is similar to the life vision. In which we envision a “Rich Life” that we want to achieve in our career and lifestyle instead of a target wealth number or thresholds to keep under. And by having a clear vision, we can work towards what it might take to achieve the goal.
For some people, it’s easy to imagine retirement as a heaven. Then you go without work for a few months and realize maybe it’s not the funnest thing to do nothing all day.
So the best way to build the vision is to find a career path that maximizes the overlap between what you want to do and how you can generate income to reach financial independence. We need to value our happiness today in our career as equally or more important as our happiness when we retire*.
Practically speaking this is always hard. Because understanding what sticks with us and what we want to do can always change*. It has to be built through experimentation of what we want combined with a long term mindset. Testing and failing. Quitting things and trying new ones. And deciding whether an investment is worthwhile or not.
Ultimately, the goal is to do something like what Buffett did - which is pursue your interests, goals, and personal incentives because that’s what will last over the longest period of time possible.
If you really can find something that is sustainable and passionate about doing for 90 years old, then the effects of compounding will almost always work in your favor.
Warren Buffet has a famously horrible diet even if he’s sharp AF.
The existing problem with FIRE is the same that Bill Perkins tackles in his book “Die With Zero”. While you don't want to put off living your life and spending your money when you're old, you also don’t want to be focusing on retirement as the time to live your life while struggling through a job.
This is surprisingly hard to do for almost everyone. What we enjoy doing on a day to day basis can change. But as a whole - our core values generally stay the same.
For example - I believe nurses or doctors that go into medicine because they truly want to help people every day do not struggle with after retirement because there are many opportunities to not only practice part time afterwards but also to spend time living a fulfilling life volunteering for other causes.