Optionality: An Amazing Superpower

Most people are familiar with the old adage “Fortune favors the bold”. Apparently this phrase goes back more than 2000 years, and is one common translation of a Latin proverb. A great related quip is “Fortune favors the prepared mind”. But I think we can do even better than that one, so here is yet a third gem of similar vintage:

“Luck is what happens when preparation meets opportunity”

-Lucius Annaeus Seneca the Younger (Seneca)

I absolutely love this quote because it says a lot in very few words. In my writing, I’ve acknowledged the role that good fortune plays in the success of many – including myself. We all understand the idea of “good timing”, right? But to succeed, you must be sufficiently prepared to take advantage of the situation when it arises. This element is often under-appreciated in my experience.

Today while hiking I got thinking about the related concept of optionality. This term comes up often on Two Sides of FI, most recently in an episode about market volatility. My show partner Eric and I love optionality. That is, whenever you can take decisions that enable you to have more options down the road, this is invariably a good thing. On my hike, I thought about all the times where I’d done things that enabled optionality and how that worked out for me. Here I’ll share just two of the disparate ideas which came to mind.

Building breadth is a powerful enabler of career optionality

While not explicitly described as enabling optionality, this idea came up several times in my previous Keys to Success series. This wasn’t initially a deliberate strategy on my part – I’m not so clever. But after a few jobs I realized the power that came from broadening my skills + experiences. On reflection, I understood how in each successive company and role, I was learning new technologies, developing new management skills, and understanding new industries. Each of those added new tools to my arsenal which in combination, could be leveraged to advance me in my future roles. They gave me more options!

One example of this was in a pivotal role in my career which I’ve written about before. In this case, I was offered a job which on paper I wasn’t even qualified for: running a customer support organization. I had never worked in nor led such a group before! Sure, I knew the technology area, had a solid scientific background, and had managed teams before. Why would they take such a chance? Were they just desperate?

My new boss confided to me a year later that it was my broad base of experience that got me the job. He’d hired me because with my diverse background, he’d determined I had the skills both for the job at hand and also provided the company options for how to use me for future, not yet identified needs. He was impressed that I’d had such broad experience and success in a variety of different roles. In his mind, that meant he was bringing optionality in the company. Over time this idea played out, as I moved through several different roles in the company. This was a turning point in my career, and I carried this important lesson learned into the roles that followed.

Optionality is essential for financial + mental health

In the Two Sides of FI show linked above, Eric and I talked about the merit of a fixed income allocation in your portfolio. That is, having sufficient assets that aren’t stock-based, such as bonds and cash. The latter are viewed by many (particularly younger) investors as unattractive, boring, or even “bad” ideas – even for those nearing retirement or who have already retired. While incorrect, their thoughts are understandable, since the only market many of them know is the past >10 years of a bull run. Cash (ugh, inflation!) and bonds look pretty boring compared to a booming stock portfolio.

Needless to say, as soon as the market started dropping, those comments fell off quickly. Why? Well, at least partly because those people are too busy freaking out about their net worth plummeting to comment on our videos. I like to think still others are acknowledging what we already know: along with a risk-appropriate asset allocation, having financial optionality is essential. This is particularly important for those who are already drawing down their assets, because they are no longer earning income from a job, and don’t want to run out of money. What do I mean by that?

Having an appropriate cash position means that you can fund your lifestyle without having to sell assets you don’t want to sell. Why wouldn’t you want to sell them? If the market is down, you’d have to sell more shares of stock or a mutual fund to generate the same cash vs. when it’s up. This is inefficient and effectively “locks in a loss” in a down market. Similarly, you’d rather refill those cash reserves by selling bonds, which would be expected to hold value better in a downturn vs. stock.

Having financial optionality is essential, because you don’t need to take actions you don’t want to take. You have choices because you’re prepared for contingencies. But wait – in a good year, won’t my portfolio return be lower than one 100% in stocks? Absolutely! But I don’t care, because I need to have appropriate options in place during a downturn, like now. I’m sleeping fine despite all this churn because I have optionality on my side.


There are a whole host of areas in which I feel optionality is incredibly valuable. I suspect with a little thought, anyone reading this could identify at least several ways in which they’ve benefitted from it. If optionality is not something you’ve deliberately thought about much to date, I’d recommend it. Leverage this superpower for yourself!

image credit: Alexander Schimmeck on Unsplash

Post-FIRE spending, tracking, and budgeting, oh my!

About 16 months ago, I left behind my 23-year biotech career and started writing this blog, and later started making videos with my friend Eric at Two Sides of FI. After I began talking more openly about my FIRE journey via these outlets, I quickly learned that a few questions came up very frequently. Some of the most common include:

What are you going to do next?”

Aren’t you bored?”

“How is living on a budget going?”

I’ve spoken to the first two questions in previous posts and videos but haven’t spent much time on the last. Perhaps it’s because it’s a rather mechanical question and I didn’t really think it was terribly interesting to write about. But as it’s come up repeatedly it seemed a good topic for an article.

Looking back: “The old days”

I’ve never been someone who was terribly interested in budgeting at home (unlike at work where it was required). But I have always analyzed our spending. Until the last few years, I tracked expenses in Excel or Google Sheets with the support of Mint.com. It always kept my mind at ease to know what money was coming in and going out. But I certainly didn’t have a detailed monthly budget of $X for groceries, $Y for utilities, etc. where I monitored our spending against each category and actively managed those funds.

Rather, pretty early in my work life, I began a strategy of “paying ourselves first”. In that sense, I first made sure we could meet our fixed and other essential expenses – rent or mortgage, utility bills, groceries, etc. Then, keeping our variable expenses in mind, next made sure we were meeting all our aggressive savings targets – contributions to our 401(k), IRAs, 529, and later on a taxable brokerage account. Over time, we steadily increased the savings goals in alignment with our income. We had a goal to retire early (RE) and that approach worked for us. All money remaining after that was for us to spend how we wished. So we didn’t really tightly control that spending at all. Surely this would have to change once I stopped working, right?

Pre-FIRE planning: “The goal is in sight”

About two years before my last day at work, Lorri and I got more specific about trying to nail down our “FI number” i.e. the assets required to achieve financial independence. We needed to improve the level of detail in projecting our annual expenses going forward. Using all the data we had accumulated over the years, we did just that. We made decisions about what was in or out. And then we started to zero in on the trickier aspects of post-career finances: how much would we like to spend on vacations each year? What will our healthcare costs be? Where will we live? Are there other expenses we haven’t thought much about to date that we now need to plan for? This wasn’t one conversation, but rather a series of them. Over time, we refined that model. But it was still just that: an untested model for our future budget.

I next entered our new budget into software form using You Need a Budget or YNAB (affiliate link – get a free month!), a popular budgeting package. I created a series of budget line items to correspond to all our expenses, and grouped these into high level categories:

Several category names censored here because I’m a nice guy and this is a family program!

For example, within “Entertain Me” you’ll find all the recurring subscriptions: things like Netflix, Hulu, and annual software licenses. Our emergency fund’s name reminds us that there is always money in the Banana Stand (SPOILER: Arrested Development)! Finally, “Coffee is for Closers” (NSFW audio) is where we capture our side hustle and other part time work income and expenses – more on that below. Since YNAB connects to our credit cards and bank accounts (similar to Mint), all our expenses are automatically categorized and “charged to” the correct budget items each month. It’s pretty simple, really.

This framework made it easy to make our expenses visible, and iteratively test and refine our assumptions. That also included the use of “sinking funds” for categories like our vacation savings (under “Quality of Life”), or our computer replacement fund (“Future Sh*tstorms”) to which we allocate money each month. This allows us to “save” for planned / likely expenses without having lumpy withdrawals later on – potentially at times when you wouldn’t want to take distributions, for example. This process went well, and we ended up with nearly 15 months of data prior to me stopping work. This really gave us a lot of confidence that we’d be stepping into early “retirement” with a good system in place.

Post-RE: “Where the rubber meets the road”

As soon as my last paycheck was deposited in the bank, the reality of the situation was upon us: We were drawing down and no longer saving. Our monthly “paycheck” was now an automated transfer from our brokerage Money Market account to our checking account. We’d been testing the budget for nearly fifteen months but was that enough data? With the YNAB system in place, we’d certainly have clear visibility on it.

Early in RE year one, I developed a practice of reconciling our expenses weekly. That took about 10-15 minutes once I got comfortable with the process. I ensured things were categorized correctly (like Mint you basically “train” the software), and paid any bills due that weren’t already on autopay. If we overspent in any categories, I moved money around in the budget and adjusted spending elsewhere if needed. This wasn’t super rigorous, but was rather a useful exercise to retrain our brains about spending and making good choices. Lorri is wholly uninterested in a regular “budget meeting”, and at this stage it’s not really necessary. We just check in with each other if there are decisions to be taken.

Earlier I mentioned that we have a small amount of employment income: Lorri does some tutoring and works one day a week at a brewery. I work one day a week at a winery tasting room. We don’t plan for that optional income in the budget as it’s not assured and our FI number didn’t contemplate it. Rather, we treat that money as a sort of “slush fund” in the budget, and mostly spend it on fun stuff outside our discretionary funding in the main budget – for entertainment, wine, special occasion dinners out, etc. Do we need to use that money because we can’t possibly ever go over our budget? Definitely not. We just view it as being responsible, particularly in these earliest years post-RE where the Sequence of Returns Risk (SRR) is highest (more on that in a future post!).

Beyond the mechanical: “How does it really feel?”

OK so the operational stuff is pretty basic. But how did it truly go? Well, early on I will freely admit I was a little anxious at times. I was scrutinizing expenses more than I needed to, occasionally to the irritation of Lorri. I didn’t mean to come across like I was micromanaging the budget, but I know it felt that way. My motivation was just to ensure I knew what we were spending to confirm that our budget was accounting for all our true needs and desires. Mapping unclear expenses (I’m looking at you, Venmo, PayPal, etc) to categories helped me understand our spending a lot better.

There were times were I worried that our discretionary spending was growing and that our optional “fun jobs” were at risk of becoming mandatory, because we wouldn’t want to curb spending back to purely budgetary levels. I’m keeping an eye on it but I don’t believe it’s a real issue. While we’re both enjoying the extra money we are bringing in, we know it’s not required. Our current withdrawal rate (WR) is below 3% given market performance. So we could certainly elect to increase that amount if we need to, as my target max WR is 3.5% presently. But as I mentioned earlier, it also gives me a lot of comfort knowing that in these first 3-5 years where SRR is highest, we are acting more conservatively.

Have there been any surprises? Not too many, thankfully. Our out-of-pocket healthcare expenses are higher than forecasted in 2021 vs. 2H20. It’s not a huge deal, but I have increased our monthly transfer a little to ensure we can pay these bills without dipping into emergency funds or cutting back in other areas. We’re still well within the guard rails around our withdrawal rate. We’ll soon be shopping for an ACA plan for 2022 as our COBRA runs out. I expect a little lower premium (but a higher deductible) based on last year’s research, so that will also help add some funds for OOP costs and perhaps we’ll lower our WR back down.

Current status + future plans

Largely, I’m feeling good about the budget at the present time. I’m a bit looser now about how I think about our expenses and I find myself asking very few questions of the family at this point. I definitely still think more about spending than I did pre-RE and I know that’s a good thing. Importantly, we have ample “fun money” and other discretionary funds available and that’s working out well. We don’t feel overly constrained like some of the folks in a recent Two Sides of FI video do!

The YouTube channel is also starting to earn a little money at this point given our channel’s growth. If that continues, it could lead us to further reduce our WR due to the additional income – or perhaps we’ll allocate more funds to travel. Both of those sound like pretty good options to me. I’m also definitely feeling more comfortable about increasing WR after a few more years, though this will depend on market conditions.

Will I keep budgeting? Honestly, my current approach is far closer to tracking expenses than it is to budgeting. I suspect that trend will continue and I see it as good benefit for little work. Will I feel as confident in the midst of an inevitable market downturn as I do now? Perhaps not, but the systems we have in place will certainly benefit us during those times. In addition, the asset allocation strategy we have in place is absolutely intended to ensure we can properly weather those storms.

To wrap up: while it’s still early days for us, tracking + budgeting is working well and helps me feel confident. The transition from saving to spending has largely gone pretty well, with only a bit of tension or concern at times along the way. YNAB has been a really great tool to help me organize and make our expenses visible. I’m looking forward to see how I feel a year from now about all this!

Financial independence and the freedom to choose…to work?

More than a year ago, I wrote an article titled “When can I retire?” That piece was largely about achieving financial independence (FI) – that is, when your assets can securely cover your anticipated expenses for the duration of your lifespan without reliance on your current employment income. That said, achieving FI does not mean you have to retire early (RE). It simply means you have the freedom to do so when you are ready. In other words, you have the option to retire. But that freedom gained from FI enables other options as well!

For the last few days I was visiting a college friend. We had a really great time doing all sorts of things, including going wine tasting as pictured here. Hanging out without other people around most of the time (weekday travel is the best, and a real benefit of me no longer keeping a “standard work schedule”) meant we got a lot of time to catch up and chat. Flying home earlier today, I realized his story was a worthwhile jumping off point for an article!

The freedom to pursue a new venture

Until about five years ago, my friend had a very successful career at a fast growing company. He was a business leader at a technology firm that was later acquired by a much larger company. At that point, given his many successes on that career journey, he could have stopped working entirely, just as many choose to do once they achieve financial independence. But he didn’t! In fact, he moved into another career entirely – in a totally different business and segment, at a company he’d helped to found five years prior.

Fast-forwarding to today, my friend is now the CEO of that company, one presently in its ninth year of operation. The business is growing well and he is still working full time. Wait, what? You read that right – and there’s absolutely nothing wrong with his decision! The freedom to spend your time how you wish might including taking the opportunity to be an entrepreneur, to follow your passion, and grow a business. Yes, that may include taking on another job after you leave your primary career. Many people choose this path and find it incredibly rewarding. Sounds great to me!

Is he happy? By all measures I have at my disposal, absolutely. My friend is at a great company, enjoying making products he believes in, working with a strong team of talented people. He and his family are living where they want, and he is no longer traveling the crazy hours + frequency at which he did when he was in his former career. Talking with him, it’s clear that sometimes he misses the positive parts of business travel – as well as aspects of his former career. I can certainly identify with all of that. I loved much about my career! But it’s also clear that he is super happy to be around his family a lot more, helping to raise his kids. I can identify with that too! But wait – wouldn’t he earn more money if he stayed in his former field? 100% yes. And I could say the same thing. But we don’t need to, and we both elected to walk away from our highest earning years to take a different path.

“Yes, there are (at least) two paths you can go by…”

Led Zeppelin certainly wasn’t writing about the then not-yet-named FIRE movement in “Stairway to Heaven”. But that lyric is an apt way to frame the point I want to make: to continue working or not is just one of the high level choices to be made once you achieve FI. The first option can itself take many forms: many continue to work in their existing job for some time, post-FI. It may be because they love the work, or want to keep at it for some period of time. I worked a year longer after hitting my own number. There were several reasons for that, including wanting to finish working on a project of which I was a team member. Other people might elect to stay in their job but reduce their hours or number of days working. Still others may choose to work in a new field entirely, or like my friend, start their own company!

As regular readers will know, I haven’t yet elected to start working in a new career, and I don’t think doing something full time is likely anytime soon – barring perhaps at a business I start myself. Outside of the one day a week I pour wine at a local tasting room, I don’t have “a job” right now. Rather, I have spent most of the first fifteen months since leaving my career exploring different areas of interest to me, learning new skills – like content creation via this blog and the Two Sides of FI YouTube channel, volunteering, and essentially “random walk”ing through a wealth of different things. I’ve also written about and filmed a YouTube episode about all the things I have learned so far after more than a year since I left my career. See those links for more details.

Any of these choices are “correct” so long as they resonate with you and are aligned with your earnest interests. I fully agree with something that my friend told me a few years ago when we discussed my plans to retire early: “People need to feel that they are contributing to something that they are passionate about. Make sure you know what that is.” He’s right! My passions don’t presently include working for someone else, and certainly not in my previous field, but perhaps that will change should the right role with great people comes up! Or if my wife and I elect to start a small business in an area we are passionate about (yes, yes, I know some of you really want me to start a brewery!). Who knows? In the moment, what feels right is exactly what I’m doing: exploring!

What are your plans? If you’re not on the FIRE path but you suddenly won a $10M lottery prize, would you stay in your job or would you do something else? I’d love to hear from you!