A few weeks back, I checked my savings and investment balances, ran a few calculations for the thousandth time, and then called my boss to share that I was handing in my notice and would be leaving my full-time job at the end of the month.
Just seven years after starting my career, I’ve walked away. Over the coming months and years, my partner and I are planning to take off on a variety of adventures around the world, starting with a North American road trip in our newly acquired 1996 Dodge Caravan.
Beyond that, who knows? As I wrote when I announced my resignation, I have no idea exactly what the future will hold or if it will include a full-time job again. But if it does, it will be 100% my choice, on my terms. I may choose to work again, but I never have to work again.
I am financially independent.
On the rare occasion that I’ve shared this news with a family member or a close friend, it’s usually been met with disbelief:
- “How could you possibly pull that off?”
- “Did your company strike it rich?”
- “Are you planning on living in a van for the rest of your life?”
Frankly, I still have a hard time believing it myself sometimes.
In light of that understandable skepticism, here’s some more background on how I worked, hustled, and saved my way to financial independence at age 28.
What is financial independence?
Let’s start by defining what I mean when I say I’m financially independent (FI). By my definition, FI means having enough assets to cover my normal living expenses with passive income alone. In other words, now that I’m FI, I can support my current lifestyle (housing, transportation, food, entertainment, and everything else) in perpetuity without ever earning “active” income again.
My passive income in FI will come from two major sources:
- Investments: The majority of my assets are in stocks and bonds. There’s endless debate about what’s considered a safe withdrawal rate from these investments, but I generally subscribe to the 4% rule of thumb — expecting that I can withdraw up to 4% of my original portfolio value each year in perpetuity. In reality, we can’t know the true safe withdrawal rate today (perhaps it’s closer to 3% in today’s high-valuation environment), so flexibility will be important here, as in many other parts of my plan.
- Rental income: I own a condominium that will operate as a full-time vacation rental in the years to come, providing an additional source of monthly cash flow. There is a huge seasonality factor in demand (sadly, no one wants to visit the Pacific Northwest in February), so I’m planning for big fluctuations in month-to-month rental income.
I fully expect to continue working on a few side projects and perhaps do occasional contract work – but unless things get ugly in the stock market or the Really Big One leaves my condo and the entire city around it in ruins, I shouldn’t need these sources of active income to support my normal living expenses.
So, how did I get to this point? It started with a mindset.
1. I evaluated what made me happy — and, more importantly, what made me unhappy.
Every day, we’re bombarded with a familiar message from a variety of sources: “More consumption = More happiness.” Cars, cheeseburgers, clothes, houses, furniture, electronics… whatever it is, pretty much all of it is sold with the same underlying message: take your miserable self, add this wonderful product, and look at how happy you’ll be! (Yikes, I must sound pretty jaded for a marketing major.)
Growing up, I bought into a lot of those messages. Unfortunately, I didn’t end up finding lifelong satisfaction in any of my material possessions. The things that made me truly happy required time much more than they required money: exploring new places, sleeping in, exercising, cooking, playing guitar, being in the great outdoors, or enjoying the company of my friends and family.
Perhaps more importantly, I identified what made me unhappy: the pressure and constraints of a full-time job, sitting in traffic, and spending 40+ hours per week working on things I didn’t value, to name a few.
I knew from a very young age that I did not want to spend my entire adult life working only to enjoy a handful of years of freedom in my seventies and eighties. Starting my first real job only confirmed it: from day one, I knew there was absolutely no way I could happily survive 40 years of going to an office 5 days a week with only an occasional weeklong vacation.
2. Knowing that I did not want to work until traditional retirement age, I set big goals.
I set my first major financial goal before I ever set foot in a professional workplace: Retire by 50. There was no logic or backup calculation behind the number; it just seemed like a good starting point. My parents seemed pretty burnt out on working by the time they reached 50; I figured I would probably feel the same way.
When I started my first full-time job, I still thought it took millions and millions of dollars to retire. I didn’t know anything about safe withdrawal rates; I had never seen a table comparing savings rates with years to retirement. But I did know that even with no return on my money, saving 50% of my income could provide a lot of freedom. 1 year worked = 1 year off. Starting with my very first paycheck, my goal was to save 50%.
Over time, as I learned more about personal finance and grew my income, I started to push my savings rate even higher. The retirement goal became more audacious: Retire by 40. Retire by 35. Retire by 30… is that even possible?
3. I stayed focused.
At its core, building wealth should be simple. I could reduce this blog post to a just few sentences: Spend less than you earn. Invest the difference. Repeat. But as the pathetic U.S. average personal savings rate (currently ~5%) demonstrates, that’s easier said than done. Without discipline and continuous focus on your financial goals, you’re not likely to get ahead.
There is constant temptation to slip up, especially on the spending side of the equation. We make financial choices every single day – usually multiple times a day. Every activity in your day is a spending decision: the flow and temperature of your morning shower, your wardrobe, your breakfast, your commute, your lunch, your evening entertainment, your dinner, your residence to which you return home.
Unfortunately, I’m not one of the few naturally frugal people who make the optimal choices in all these areas without any effort. To keep my spending in check, I’ve tracked and evaluated it down to the line item – every single dollar – every week for the last 6+ years. When something is askew (most commonly for me, when restaurant expenses are alarmingly high), I take note and work to make changes.
To keep my motivation high, I read, read, read, and read some more. For 10+ years now, I’ve spent at least a few hours a week taking in personal finance blogs. It’s not because I need advice on how to pay down credit card debt or still don’t understand the difference between a traditional and a Roth retirement account. It’s to keep my motivation and not lose sight of the vision for a life of financial freedom.
4. I started on the right foot.
I’d be remiss if I didn’t mention the impact of the good fortune and privilege I’ve had in my life. If you’re reading this, perhaps you’ve enjoyed some of the same advantages: everything from a stable and healthy childhood, to access to the internet, to a wide variety of societal privileges (race, gender, economic, and others). Perhaps you don’t consider financial independence and early retirement to be privileges in and of themselves, but I’d argue that the circumstances into which I was born that allowed me to pursue FI aggressively certainly were.
I also started my career with one of the biggest (and increasingly rare) advantages a person could have: a college education with no student loans. When I graduated in 2008, I actually had a marginally positive net worth – probably around $1,000. That’s not to say that people with education-related debt can’t reach FI, but having a full-ride scholarship or generous benefactor certainly helps. It’s a lot easier to start at zero than with five or six figures of debt.
5. I made an above-average income.
Some writers in the personal finance community all but ignore income, saying, “It’s not what you make, it’s what you spend!” While I appreciate the spirit of that argument (even people making six figures or more can still easily live beyond their means, and even people making small incomes can reach financial independence), the math is clear:
Income – Spending = Savings
Both parts matter.
It wasn’t the deciding factor in my career choice, but I happened to have an interest in work that came with an above-average paycheck. My first real job paid mid-five figures per year– just north of the median income in the U.S. for an entire household. There are plenty of examples of people reaching FI and early retirement on less, but having a sizable income helped enormously with my savings rate and speed to FI.
6. I lived frugally.
I’d love to claim that I’m the pinnacle of frugality and simple living, but the truth is that I’m far from it. I spend money on all kinds of luxuries and non-essentials: dinners and drinks out, fancy craft beers, vacations, lift tickets at the mountain, wedding gifts, and sports and concert tickets, among other things.
But as I mentioned when reviewing my spending in 2015, there is a theme. The majority of my spending goes toward the things I value most: travel, time with friends and family, great food and drink, and the great outdoors. And I don’t just spend with reckless abandon on these items; I optimize every single one. I work to make these splurges as affordable as possible – whether that means travel-hacking for miles and points, taking advantage of happy hours, or being opportunistic with off-peak travel or trips with friends and family.
For everything else – the things I don’t truly value – I work to eliminate spending. Over the past seven years, I haven’t spent a penny on cable or satellite TV. I even went two years without home internet, opting to use my phone instead. With the exception of one TV set (purchased on clearance after waiting months for the best deal), I haven’t bought any new electronics or gadgets for as long as I can remember. I may have been the last person on earth to still be using a VCR and VHS tapes (in lieu of paying for a DVR), which I finally gave away in 2011. I’ve never paid to go to a gym. I don’t go out for coffee. I rarely heat the house above 65 degrees F. I spend next to nothing on clothing. I have never had a manicure or pedicure. I’ve driven the same used car – the only car I’ve ever owned – for eight years, and I try to walk or ride my bike instead of driving whenever I can, even in the rain.
I use the free Personal Capital tool to monitor my spending every month, which helps me keep tabs on where my money is going and adjust accordingly when I don’t like the answer.
To be clear, I’m not promoting my own choices as the correct ones. The expenses I avoid may be exactly the right spending choices for someone else. They’re just not in line with my values or the things that make me happy.
I’ll also note that I do not have children, though there are many examples of people reaching financial independence and early retirement with multiple kids.
7. I resisted lifestyle inflation and pursued lifestyle deflation when I made mistakes.
Lifestyle inflation is the number one killer of financial goals. This is the root of the “It’s not what you make…” philosophy: earning more money is great, but only if you keep it. While it sounds easy in concept, resisting lifestyle inflation is extraordinarily difficult.
Most people I know, whether they make $20k/year or $200k/year, spend 80%+ of their income. Without a guiding financial philosophy and a focus on savings and financial independence, there is always opportunity to “upgrade” everything: upgrade your house, your car, your meals, your clothing, your vacations… upgrade it all until you’ve spent every bit of that higher income.
There’s a significant social component to lifestyle inflation, and it gets stronger as you make more money. When I was 18 years old and earning $7 an hour working in a coffee shop, there was near-zero social pressure from my peers to own fancy things or live an expensive life. We were all generally in the same situation. Maybe one of my coworkers had a fancier phone than the rest of us, but that was about it. Back then, it would have been easy to say, “Of course I could retire early if I made 10 times as much.”
Today, I make well in excess of the coffee shop wage, but my peers are completely different: I work and socialize with people who drive BMWs, own mountain vacation cabins, and have personal trainers in their homes every morning. My coworkers’ ideas of fun weekend activities aren’t “let’s have a potluck and play board games,” they’re “let’s fly to Aspen for a ski weekend.” I’ve had multiple colleagues shame me for driving a 12-year-old sedan. “Wow, you’re still driving that thing? You make enough to get a better car.”
It’s not impossible to resist all this peer pressure (my spending is still closer to coffee shop income level than today’s income level), but it’s exponentially more difficult when the people around you every day are living the “big earner, big spender” lifestyle.
I succumbed to lifestyle inflation before I had even started my first full-time job – and on the biggest expense category possible! After years of living with multiple roommates in student housing, I desperately wanted my own place. With offer letter in hand, I toured a variety of downtown apartments and signed a lease for an obscenely expensive 5th floor one-bedroom in the heart of the city. Of course, I just couldn’t furnish a luxury apartment on Craigslist, so I also went out and bought a few thousand dollars of furniture, including a beautiful leather sofa with matching chair and table set.
I lived there for two years. I won’t lie: that apartment was awesome. In spite of the price tag, the location allowed me to walk to work, making my transportation expenses next-to-nothing. And I hadn’t lost my frugal spirit by any means. (Even in my fancy apartment, I would still unplug the microwave after using it to save a few cents on electricity!) But with over half my monthly spending going toward rent (and frequent work travel leaving the place empty more often than not), I couldn’t justify it. It wasn’t making me happy; it wasn’t aligned with my values. I haven’t spent that much money on housing since.
Not satisfied to learn my lesson with housing, I succumbed to lifestyle inflation in a variety of ways over the next few years. My food and dining expenses went up. I went on an overly expensive international vacation. I started a new job that required a lot of driving, and I began toying with the idea of buying a new car.
I was still saving the majority of my income, but my frugal habits were weakening. Some of it was laziness; some of it was ignoring the root causes of dissatisfaction (like thinking I would fix excessive work commuting with a new car).
Thankfully, just as my spending was really starting to accelerate, I happened upon the online financial independence and early retirement community. For the first time, I was able to put a dollar figure on my “Retire by…” goals. For the first time, I realized how possible it would be – if I could just scale back my spending.
Since “peak spend,” I’ve reduced my spending in just about every category. It didn’t happen overnight, but lifestyle deflation is possible – and a few spending mistakes aren’t the end of the world if they don’t turn into bad habits.
8. I hustled to find new income opportunities.
I’m not one of those people who had started a business and made five figures by age 13, but I’ve “hustled” for years in a variety of ways.
In college, I found dozens of ways to pay the bills through odd jobs and little ventures. I flipped textbooks, football tickets, and video games on eBay. I scoured Craigslist for gigs – everything from hanging up posters around campus to promoting concerts and handing out flyers. I signed up to participate in every psychology and economics experiment I could find. I was a research subject in a hearing laboratory for a semester. I worked as a barista, a daycare supervisor, a campus tour guide, and an art school model (the attractiveness requirements are low, I assure you).
I graduated in autumn 2008, approximately the worst time in history to secure full-time employment. I hustled my ass off to find a job I genuinely wanted, going to 30 interviews and getting 29 rejections in a three-month period before something finally worked out.
Two years into my career, I experimented with entrepreneurship. With enough savings in the bank to feel comfortable taking some career risks, I helped a colleague build a small business, going a whole a year without a paycheck – something I never could have pulled off without strong frugal habits.
Some of my friends, having heard about our travel plans, have asked me if I’ve been the beneficiary of a big buy-out or windfall. Unfortunately, no. To date, my total earnings from launching the company sit at $0. It’s possible my minuscule equity stake could amount to something someday, but I don’t factor it into my declaration of financial independence.
Regardless of the financials, that entrepreneurial “hustling” experience was the best thing I’ve ever done from a career satisfaction perspective. I had more fun in the couple years we spent building a business than I ever have in another work environment.
Over the last couple years, I’ve worked on building a few additional income streams to accelerate my progress toward FI. In anticipation of full-time travel, I started renting out my condo as a vacation unit when out of town and launched a small consulting gig on the side.
None of these things made a huge impact alone, but the mindset of always looking for opportunities has absolutely played a major role in my progress toward FI.
9. I invested my savings – however poorly.
I did a few things right here, but there’s plenty I would change if I could do it over again. With a few easy tweaks, I could have been worth tens of thousands of dollars more without a single change to my income or expenses.
In the spirit of positivity, I’ll start with the things I did right:
- I never carried a balance on a credit card, ever. Anything purchased with a credit card was paid in full every month.
- I opened an emergency fund savings account and stocked away three months’ living expenses, ensuring I wouldn’t need to tap any high-interest credit lines.
- I funneled every extra penny toward my only debt, a car loan, until it was paid off.
- I developed a target asset allocation and invested accordingly. I didn’t try to pick winning stocks, instead buying a variety of ETFs.
That all sounds pretty good, but I also botched a few major things:
- I didn’t take advantage of tax-deferred retirement accounts. For four years, I left my 401(k) empty. I wasn’t oblivious to the tax benefits (I had read plenty of mainstream financial advice emphasizing the importance of contributing), but I was focused on financial independence and early retirement, and the 59½ minimum age for withdrawals just wasn’t compatible with my plans. Before finding the online FI community, I had never heard of a Roth IRA Conversion Ladder, the simple way to access retirement funds decades before my sixties.
- I allocated my assets far too conservatively. After living through the 2008 crash and subsequent recession, I was skeptical of the stock market. If you had asked me what my investment goals were, I would have said capital preservation, not appreciation – not an ideal answer from a 22-year-old, looking back on it. Though I did buy some stocks, I was overly cautious and held far too much in bonds, gold, and cash, missing out on some of the highest-return years for equities in decades.
If there’s one takeaway from my mediocre investing, it’s this: it didn’t really matter that much. With a high savings rate, contributions to investments are far more impactful than market returns. Even in a bear market, I would have come out ahead each year just by continuing to save and funding my investments.
10. I automated and waited.
With reasonably good habits in place, there was just one final step: wait.
Over the course of my career, I ended up saving 70% of my income. Depending on your exact assumptions, if you’re starting from a baseline of $0 net worth, a 70% savings rate should allow you retire in a little over 8 years – very close to my actual experience.
A few months ago, my biweekly paycheck posted and pushed my net worth just above my target FI level. After years of working toward this goal, I had finally achieved it… and I felt absolutely no different. How’s that for yet another piece of evidence that money won’t buy you happiness? If you’re not happy going in, hitting some arbitrary “magic number” isn’t going to change that. And if you have uncertainty and concerns about financial risk today, they’re not going away either.
Financial independence is a fantastic goal; don’t get me wrong. I wouldn’t want to give it up. But it’s by no means a guarantee. The stock market, or the economy as we know it, could collapse tomorrow, however unlikely that may be. There will always be plenty of risks. Where possible, I plan to mitigate them – like by maintaining a small side income that I could scale up if needed. Where not possible, I accept them – and know that I’m smart enough and flexible enough to make it work.
So, what’s next?
With financial independence under my belt, I can now cover my ordinary living expenses through passive income alone.
But wait a minute… who said anything about ordinary living???
Now that I’ve quit my job, I’m not planning on sitting around the house all day. We’re selling everything we own and taking off on a worldwide adventure, starting with a months-long road trip.
I’m FI at home, but am I FI on the road?
How much is this trip going to cost, anyway?
And it’s not just me traveling – there will be two of us, and Daniel’s career and financial history look pretty different from mine.
Can my FI fund support all these changes? Will our relationship stand the test?
Tune in next time on… The Resume Gap! (i.e., I’ve written a novel here already, so I’m saving those thoughts for an upcoming post.)