Here at The Money Vikings we focus more on the Financial Independence portion since in general we like being productive and working. Good healthy work provides people with more than a paycheck, it can promote social ties, lead to continual learning, serve a great mission or purpose beyond ourselves. I have always tried to keep learning as a main driver of working. But, it would be wise to create a more flexible working life for people as they work towards their FI goals! So, if you desire to think outside the box and achieve FI or even retire earlier in general, here are 7 tactics/methods to develop.
Any one of these will help your financial picture, but when you combine them they become a powerful Viking army of wealth building potential!
1. What do you want from life? And make some mistakes!
In other words, have you defined your priorities or thought through your options? Do you know yourself well? This is a journey that takes time, reflection and experimentation in life. It is also painful at times because we will all make mistakes. I included make some mistakes because we all do, yet we think successful people were just born that way. No way. Everyone makes mistakes in life and it is time to release the guilt of past financial sins and move on with your future! Now is all we have to take action to make our future better.
I think as part of our FI goals it is important to define what kind of life you want. If you want to be some hot shot wall street type you will be paying for a high cost of living area and buying fancy suits and dinners, you will need a very big number. If you want to travel the country in a Eurovan and live out in the open, your number for FI will be much more attainable. Most people may want something in between these two extremes.
2. What is your number?
This is not a cheesy “pickup” line. Try to put some thought and pencil to paper to determine your savings and investing number/goal. This makes the goal tangible and you quickly realize it is achievable. We have this fear of big numbers and big lofty goals because we want to quantum leap in our mind, but that is not the way the real world works! The real world is building the pyramids and Roman aqueducts one stone brick at a time. Yes, I know they had slaves, but you can think of every dollar you invest and save as your little worker, building your personal pyramid!
The general rule of thumb is that you should invest/save 25 times your annual salary or the salary you can live on. Therefore if you can live off $50k per year, then you need about $1.2 million in investments. From this a person can withdraw about $50,000 per year or 4% and sustain the principle over a long period of time. Like any rule of thumb it is a general guide and must be tailored to a persons particular situation. BUT, THE POINT IS THAT WHEN YOU HAVE IDENTIFIED A NUMBER YOU ARE NOT JUST BUMBLING ALONG IN THE DARK, THERE IS A CLEAR TANGIBLE GOAL! And that goal, although a big number, is much more in people’s reach than they realize. It is not easy, it will take years of concentrated effort, focus and automated discipline, but it is not impossible!
3. Low expenses, mindset of frugality, waste nothing
From what I have seen, in order to achieve early retirement, you have to get expenses and liabilities as low as possible. Most of the financial FIRE types that are blogging their journey are working very hard to live a very low cost of life existence. Here are several of the examples they are practicing:
A. Transportation. No car loans and purchasing sensible mid-level cars. These folks are not driving around in a new Mercedes or BMW.
B. Low house loans or a paid off house. Where I live it is very hard to have a completely paid off house. It takes many many years to achieve this. The main strategy is to buy an older home in an established middle class neighborhood. Not striving for the house with the million dollar view of the ocean, someone has to pay for that view!
C. Low consumption of material luxury baubles. These people are saying no to the Gucci bags, designer clothes, fancy decorations for the house, expensive furniture acquired via credit cards, etc., etc.
D. Food. These folks are super thrifty when it comes to food. This means bringing lunches and making as many meals at home as possible. Buying in bulk when possible, etc. If we do go out to eat, it is usually a good idea to try and split a meal and avoid ordering alcohol which is extremely expensive.
4. Extreme saving & investing
These folks got into the habit of saving and investing early and often. If it becomes automated and a habit then it is hard to stop. Getting started and signed up is the hardest part. The majority of their money is invested in large low cost index funds that capture a large breadth of the market. This way they are not wasting mental band width on studying a bunch of individual stocks. Individual stocks are fun but should be considered a hobby, not the sole focus of a person’s retirement and net worth strategy.
Investing starts by saving and having something left over every two weeks to begin building. Most investment portfolios are built by starting small.
5. Act and think independently
These folks have a mind of their own. They tend to not be swayed to extremes by the media, politicians, companies, etc. They are looking at the world with reality and optimism. They try to think for themselves. The reason this leads to financial independence is that they are not trying to “keep up with the Joneses” or the latest Instagram pictures of their friends. They are focused on their own life and creating a strong environment for their families and communities.
6. Delayed gratification muscles
Those that achieve early retirement are somehow able to develop and strengthen their ability for delayed gratification. We have written before about a few methods to develop this strength, habit and skill set. Warren Buffett says that investing and saving is delaying consumption today for consumption tomorrow. This is a very important aspect of early retirement. One will have to make some concessions in order to build the small amount of capital that with time and prudent investing can become a large amount of capital. I have found in general that all the things we think we want, we probably never need or needed to begin with.
7. Start early or at least now!
Part of this discussion is about time. Time is the magic ingredient for making capital and assets grow in value, therefore supporting a financially independent life or early retirement. It is never too late to start something because we have today. Even very wealthy people only have this day and this moment to take action or make a decision that could effect the trajectory of their life. Everyone you read about in the FIRE community started from somewhere and many started in the hole with large amounts of student debt.
The great news
The great news is that we hold the power and ability to make our financial independence dreams come true. That does not mean it is easy or that we will always succeed. This is life, we are almost guaranteed to make a few mistakes. There are some classic and time tested methods and behaviors that support wealth creation and the possibility of financial independence.
The difficult news
Humans are imperfect, never will be. We wield new and powerful tools that have negative externalities. As you approach your FI goals, you may want to continue to learn about what is happening in the world and develop strategies to protect your family. There are many potential future existential threats to our livelihood, trade wars, cybersecurity issues, climate change, destruction of the environment, will all take a financial toll. Take in information from all points of view and make your own decisions. Be informed and try to be prepared.