Financial Independence Retire Early – Legit or Hoax?

I am not a financial advisor. In this article I speak specifically to my personal experience with growing wealth and taking part in the Financial Independence / Retire Early movement, but am not advising that these options are the best avenue for you to take.

Have you seen the articles about people that “retired” in their 30’s and 40’s? If you’re like I was, you probably rolled your eyes and immediately decided that it was bogus and not possible for you. But here’s the thing…it isn’t bogus, and it is applicable to you. IF you’re willing to make the lifestyle changes and choices to get there.

I know this because I’m well on my way to financial independence and early retirement with just 9 short years to go. I began closely tracking my progress to FI in January 2021 and, with very intentional financial decisions, in that short time I’ve gone from 17% to FI to 25% and my total net worth increased by 43%!

Got your attention? Good – let’s dig in a bit!

Yes, You Can Retire Early (Even In Your 30’s)

…but a lot goes into it. To get started, we need to define (or redefine, really) the word “retirement”.

The idea of retirement actually started in 1881 when Otto von Bismarck, the minister president of Prussia, proposed that the government provide financial support (retirement) for those above the age of 70. The catch here is that life expectancy in 1861 was 39 years old ¹. People either worked until they died or reached an age where could no longer work. We still have a form of this with Social Security, which kicks in as early as 62 years of age.

Life expectancy in America is now 79 years of age. When you think about it, “retirement” in the traditional sense lets a person live out the last years of their life with needing to work. But this begs the question: why should we work for someone else until we die or can’t work anymore? Why shouldn’t we be able to step away from traditional work to fully enjoy the BEST years of our lives however we please?

Retirement in the context of FIRE means stepping away from the 9-to-5 a year (or 30) early. Instead of working well into your 60’s, you aggressively build a financial support structure to provide you with more time. Time to focus on your passions, your family, and enjoying all of life’s moments as they pass instead of losing your energy to the stress of a job.

In many cases, though, the early retiree finds that they really enjoy being resourceful and productive – they did plan and execute FIRE, after all. They often find ways to make money from their passions for fun.

The Key to Financial Independence Retire Early: Saving Money

“Right, people have said that since the dawn of time. What’s the strategy?“

Glad you asked! It all comes down to spending less than you earn. You’d be surprised at the number of people that spend all the money they make. This even applies to people you think are so well off, driving amazing luxury cars and living in lavish homes – many would be unable to pay their mortgage if even one income were lost, much less both in a family household. Some people even find ways to spend more than they earn!

Obviously this is wrong! Spending carelessly like this will make sure you’re working for someone else until the day you die.

Instead, we need to put money into growth assets that will beat the rate of inflation and grow real wealth. You can do this by:

1. Setting up a budget to track your spending
2. Paying down all high-interest debt like credit cards, student loans, auto loans >6%, rent-to-own purchases, title loans (PLEASE don’t say you have these!) etc.
3. Saving up an emergency fund that can cover your required living expenses (rent/mortgage, utilities, food) for at least 3 months
4. Investing your income (after paying expenses) into growth assets like index funds or rental properties

Building and Following a Budget

“I can’t do that,” you say! “Everything is just so expensive today that it’s not possible to save!” …Maybe, but let’s evaluate some typical spending habits to see.

• Do you go to Starbucks and get a $5 drink a few days a week? Or even every day? Well, that’s $60 – $140 you’re spending every month on (burned) coffee, or $720 – $1,680 per year. For reference, if that were invested in a broad-based index fund (which owns pieces of multiple companies on the stock market) at a average return of 7%, in 30 years that would be worth $68,468 – $159,759.
• What about going out for drinks once a week? These outings can easily run $50 – $100 in a night. If we take the middle ground there and say each weekend you spent $75, that would amount to $3,600 a year. After 30 years in the market at a 7% return this would amount to $342,342.

These are just two examples out of many. My point is that dollars spent today can be worth much more down the road. No, I’m not advocating cutting these things out entirely – you should spend money where you find the most value. Where you should cut, however, is in areas where you spend mindlessly out of habit or social pressures.

If you need some help, take a look at my article on how to set a budget for an easy walkthrough.

The most important part of financial well-being is taking a real look at your spending habits on a regular basis and being honest with yourself when asking if you really need everything you purchase.

F-U Money Gives You Freedom

Have you heard of F-U Money? It’s kind of the best thing ever. When saving money, you get to a point where the stresses of life really become much more…quiet. The exact number will differ from person to person, but it’s truly life-changing when you get there.

It’s a point where regardless of the bad things that could happen (lose your job, have a surprise medical expense, need a huge car repair), you know that all will be fine because you have 3 months, 6 months, a year, 3 years, 5 years of expenses available whenever needed.

You’ll also find that you’re comfortable speaking your mind at work without worrying about the consequences. Somehow, this often leads to more respect, promotion opportunities, and income!

Even if financial independence and retiring early aren’t the focus, everyone should be working to get to a level of F-U money so that they can significantly reduce stress and focus on the things that matter to them.

The Stock Market is Scary – But Index Funds Aren’t

Did you miss out on the TSLA boom (or even got in late)? Lose money trying to time GameStop? Or maybe you haven’t even touched the stock market due to the fact that computers are able to move money faster than we ever could, so why even try?

Well, have I got news for you. The simple path to early retirement is VTI/VTSAX and chill.

Seriously though, index funds are an incredible way to build wealth. These are broad-based funds that have a ticker/symbol (like GME/TSLA/VTSAX) but own a piece of many companies in the market. I personally invest significantly into VTSAX. To quote USNews:

The Vanguard Total Stock Market Index Fund tracks the CRSP U.S. Total Market Index and is designed to provide investors with exposure to the entire U.S. stock market. The index covers virtually all U.S. investible stocks.

This means that whatever the market as a whole does, your invested money will do too. While this is not an ideal situation for a short-term investor looking to make money quickly, it is absolutely wonderful for those of us that are looking 10, 20, 30 years down the road. Why?

Because (in the long term) the stock market always goes up. And when the market is down, we buy more! A lower price means the fund is on sale, and when the price recovers we’ll be riding the wave with more shares and more growth.

Those with the fortitude to hold fast and not panic sell with market swings will find that their invested money brings them to the retirement they’ve been so focused on (possibly even sooner than they’d thought)!

Alternate Path to Financial Independence/Retire Early: Real Estate Investing

“Landlords? Hate them. Scum of the earth!” Recently a lot of people have had these thoughts, and when looking at the large businesses (both foreign and domestic) that are buying up houses to rent out I can see where those people are coming from. But there are many landlords that only have a handful of properties that act as their retirement fund, and it makes complete sense why when all the details are laid out.

Real estate has the potential to be extremely profitable. If done right, an investor can buy a property at a low cost, repair/rehab, and either sell for a one-time profit or rent out to have an ongoing stream of passive income. If an investor opts to rent the property out, there are also substantial tax benefits that they can take advantage of.

I have a rental property and wrote this article to cover the process from start to finish. I purchased it several years back, did significant repairs and renovations on it with the help of my brother-in-law, then listed it for rent. While this cost a fair bit of money up-front, I’m now growing wealth on the back end every month as tenants pay down my mortgage and I capture a small profit to reinvest into my business. I say this to give validity to the claim that, if it’s in your wheelhouse, real estate investing has the potential to seriously accelerate your wealth accumulation as you build toward financial independence.

I have to say the obvious, though: it’s important to focus on providing value to your customer! If you rent to someone the idea should be to provide them a nice place to call home, not an unsafe dump that’s just the best they could get. Be a responsible landlord, not a slum lord.

In Order To Succeed, You Need To Find Your “Why”

Has anyone suggested that you do something to better yourself? Work out more, quit smoking, go back to school, etc. etc.

…How has that worked out?

When it comes to changing something significant in your life, there has to be a strong intrinsic drive, or motive, to deal with the challenges that transition will bring. You have to want the result strongly enough that you’ll weather the hardship.

New Year’s Gym Members

Getting into shape is an excellent example to describe this issue. As a gym-goer for many years, my meathead friends and I would watch closely every January to see the influx of new, unfamiliar faces. As daily visitors we’d review how quickly faces disappeared, never to be seen again.

These guys bought a membership with the thought of getting into shape. What they didn’t realize is that getting those results requires dedication and sacrifice. It requires getting to the gym regardless of how inconvenient it is. Outside the gym, they need to watch what they eat even when their friends and family are living it up with junk food and sugary drinks.

The issue is that when you like the idea of something, but there hasn’t been an event that’s truly moved you, you’re far more likely to stop when things get challenging.

This ties closely into financial independence and early retirement. A mindset shift needs to take place to stop impressing people they don’t know and stop feeling good about spending so much money on things (and feel awesome about spending the least instead!). It’s important to focus on finding satisfaction with what they have today instead of what they want to get next. Keeping up with the Benjamins is the worst thing to chase if you want a secure financial future.

My Financial Independence/Retire Early “Why”

The main question is “how do we get this to stick”? Well, that will differ from person to person. For me, it was finding out that there are potential medical complications that could take me from my loved ones way too soon. I have a wonderful wife and kids, and I need to maximize the time I have with them before worse comes to worst.

Financial independence and early retirement are how I plan to do that. Instead of working until this nasty event comes around, I plan to sacrifice some of the more extravagant luxuries today. The reward for this will be the unlimited time I have for anything I want, for the rest of the time that I have. All it’s going to take is 8-10 years of discipline and intentional spending.

The Freedom Number: When Will I Be Able To Quit?

“Dave, I have to be honest – this all seems pretty ‘out there’, and I don’t know what my number would even be! How do I know what to shoot for to retire?”

Ah, this is the part that makes everything come together! The number that is typically referenced is a 4% Safe Withdrawal Rate (SWR), which was determined in the Trinity Experiment as the percentage that is safe to take from your investment accounts without running out in a 30-year timeframe, with a 95% success rate.

So what does this mean? Well, you can find the amount of money you need to save up by taking your annual expenses and dividing them by 4% (or multiplying by 25).

• Here’s an example: Let’s say your annual expenses are $25,000 per year. Based on the 4% SWR, you’d need to accumulate $625,000 in index funds (ex. VTSAX) to never have to work again.
• Another example: Your annual expenses are $40,000 per year. Based on the 4% SWR, you’d need to accumulate $1,000,000 in index funds (ex. VTSAX) to never have to work again.
• Last example: Your annual expenses are $65,000 per year. Based on the 4% SWR, you’d need to accumulate $1,625,000 in index funds (ex. VTSAX) to never have to work again.
  

This seems like a lot, but it really highlights how your spending today affects what you’ll need long-term, and that small lifestyle changes today can make a very big difference on the road to financial independence!

Can you cut the Starbucks we mentioned earlier down to 3 days a week from 7? Well, that’s nearly $24,000 less that you need to save up. What about the nights out drinking? If you cut this down to 1 night a month instead of 4, you’d need to save $67,500 less!

Conclusion: So Which Is It? Legit or a Hoax?

In case you came to the end to see a summary, here you go: the Financial independence / Retire Early movement is very real and absolutely attainable if you have the grit and determination to knuckle down on your expenses, lock up your budget, and play the (somewhat) long game.

This is not a get rich quick scheme! It is a way to consistently grow wealth, building towards financial freedom and a life that is entirely yours.

Where Should I Start?

Ready to learn more? Congrats, you’re on your way to a better you and a very free future! I’ve included a list of my recommendations below to get you on your way.

Websites

Mr. Money Mustache – AMAZING blog that got a lot of people started on their own frugality and Financial Independence / Retire Early journey. Get ready to lose some time to Peter Adeney’s awesome writing style and content.

Millennial Revolution – The blog Kristy Shen and Bryan Leung, authors of the book I recommend to people the most: Quit Like a Millionaire.

ChooseFI – One of the fastest-growing FI resources out there. These guys put out consistent high-quality content with their weekly podcasts and released a book fairly recently that is also an outstanding read for someone looking to get into the idea of Financial Independence.

Mad Fientist – An awesome site with very detailed analyses and calculations! Mad Fientist’s site also has helpful calculators and trackers.

Books

When you make a purchase using the retail links below, we may earn a small commission at no additional cost to you.

Quit Like a Millionaire by Kristy Shen and Bryan Leung

Your Money or Your Life by Vicki Robin and Joe Dominguez

ChooseFI: Your Blueprint to Financial Independence by Chris Mamula and Brad Barrett

The Simple Path to Wealth by JL Collins

The F.I.R.E. Planner by Michael Quit

Cash Flow Quadrant by Robert Kiyosaki

Rich Dad, Poor Dad by Robert Kiyosaki

Podcasts

ChooseFI (start with episode 038 – The Why of FI)

Mad Fientist

Afford Anything

Financial Samurai

Bigger Pockets Money Podcast

Bigger Pockets Real Estate Podcast

FIThinking FIRE Resources

Part 1: Optimizing Your Money Mindset

Part 2: How to Set A Budget

Part 3: Investing in Index Funds

Part 4.1: Investing in Real Estate

ChooseFI Retirement Projection Calculator

Still convinced the Financial Independence / Retire Early movement isn’t for you? Motivated to start? Already on the journey or FIRE’d? Share your thoughts in the comments!

1. According to statista.com ↩