- In this article we describe what is required to retire early.
- It requires a lifestyle way different than the mainstream.
- We define early retirement as closer to late 40’s, any earlier seems risky. Most that claim to have retired in their 30’s typically side hustle (we used to call that self employment)
In many ways I view the financial independence community as a group of patriotic rebels! These are the folks that have decided to write their own rules and question the regular “mainstream” model of American life. Therefore reject the huge debt, huge house, huge cars, more, more, more treadmill until we die in debt! It’s what Money Vikings
call “Conquering Financial Freedom!”
Addiction to debt
The sad bottom line is that the American dream is currently fueled by record levels of debt. About $13 Trillion in fact. Let that sink in:
What that means is everything you see people using, is not theirs. Unless people wake up, I see no end to the addiction to the debt cycle. But we must for our lives, our families, our health, our sanity and out environment.
Financial Independence Retire Early (FIRE)
FIRE, These are people that have chosen to go against the norm and actually live well below their means, invest regularly, forgo the lifestyle inflation we see all around us. They are questioning the mainstream model. This is not easy in many ways. But if a person applies hardcore discipline they too can reap the long term rewards.
These are people that want to shape their own destiny and experiment to see if there is a different and perhaps better way to live, work, contribute, live freely and on our their terms. Therefore, I believe it is one of the most patriotic things we can do as Americans that cherish our freedoms.
You can make choices
But if you put your mind to it and take action, one gradually begins to realize that they can have some say in the script and the story. The world is shaped by those from the past but it belongs to those here now. You can eventually make your own story. But, it takes commitment, action and time to work out.
We have studied many financially successful middle class people and we present 5 common traits and actions. These are similar to the characteristics discovered in the Millionaire Next Door
research that changed the way we view a life of “True Wealth.”
Therefore, if it works for them, there is not much reason it cannot work for anyone! These are mainly normal folks that had normal jobs, but they developed habits/strategies and took action to manage life on their own terms.
What is magical about 65?
Did you ever ask why 65 is the magical “retirement” age? Germany was the first nation to adopt an “old-age” social insurance program in 1889. The German Chancellor declared that “those who are disabled from work by age and invalidity have a well-grounded claim to care from the state…”
Social insurance was instituted in America in 1935. They determined that 65 was a good age because it produced a manageable system that could be made self-sustaining through modest payroll taxations.
Life expectancy was 62
Actuaries worked their magic and crunched the numbers. In general, at the time, the average life expectancy of a male was 62 years old. Wow, what a shell game! You were taxed your whole working life and pretty much passed away the day before collecting a benefit! Thanks to great advancements in science and medicine, the life expectancy has risen to over 80, which means people can enjoy a few years of social insurance before passing on.
Our system has it own future flaws and full benefits may not be there for future retirees. This is one reason why I analyzed the importance of investing in a Roth Individual Retirement Account
. Save money on future taxes!
The point here is, we are on the verge of a revolution to re-think working and retirement and I believe the FIRE community is a great part of this discussion. I do not completely buy into the “retire early” part, but I certainly believe everyone at all times should be working towards financial independence. Plus, work is important to us as humans and can be a pleasurable and rewarding activity.
What is special about sitting in a cubicle in a specific building in the Year 2019?
Short answer: Nothing. Most white collar work can now be performed from almost anywhere, we clearly have the technology to make work more mobile and fluid. Yes, it can be nice to get together face to face every once in a while and synergize, but for most white collar work we are managing tasks, time, creativity, money and manipulating symbols on screens. That can be done from anywhere.
Perhaps we move to a system where we have a more flexible and fluid working life. Perhaps we work full time for a few years, followed by a sabbatical for creative work, followed back by part time or full time work. In other words, we play by rules that are more in line with our individual creativity, goals and desires, that is true freedom.
5 Practices to achieve more financial independence
At The Money Vikings
we focus more on the FI (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 than society in general, here are 5 tactics/methods to develop.
1. Lower expenses, mindset of frugality, waste nothing
Practicing frugality in all aspects of life is absolutely the cornerstone of financial independence. If you had a paid off house, you could probably live off a relatively low amount.
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 folks are practicing:
No car loans and purchasing sensible mid-level cars. These folks are not driving around in a new Mercedes or BMW. In fact they are not driving new cars ever! Cars are one of the biggest wealth destroyers I have come to see. Luckily I have never fallen into the trap of buying some outrageous luxury car.
Low house loans or a paid off house
It is critical to get housing costs under control. 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! In order to gain financial independence, a person must keep housing costs under control and preferably pay off their house.
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.
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.
2. 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. These folks are looking out for ways to own assets of all kinds that they know and understand.
Investing starts by saving and having something left over every two weeks to begin building. Most investment portfolios are built one brick at a time for us regular folks. Aim to invest over 15% so you can maximize chances of reaching high levels of assets than can produce income for life. See related chart for using the 4% rule:
3. Act & 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.
4. Delayed gratification muscle strengthening
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 sets to improve delayed gratification
Warren Bueffett 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 amount of capital required to generate significant income. I have found in general that many things we think we want, we probably never need or needed to begin with.
5. 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 perfect. And we wield new and powerful technological tools that have negative and positive 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.
I am a pretty optimistic guy and in spite of all the seeming challenges, I think the future is bright. Each one of us has a precious opportunity of life to make things a little better, to love, to save, to invest in our children, relationships, communities and wealth.
Striving for early financial independence is well worth the journey. And even if you do not hit your goals right on “time”, you will be better off overall for the effort and have greater self realization in the present.
Develop a personal vision and conquer financial freedom in the way that suits you!
- This is not individual investing or life advice for anyone, these are personal opinions expressed on this web log.