Mission Accomplished

Mission Accomplished (Lake Atitlan, Guatemala)

Two and a half years ago, Winnie and I left the working world behind to pursue a life of travel and adventure.  By becoming Financially Independent, we were able to become Location Independent, and we used this new found freedom to begin exploring the world and our passions

In a world obsessed with bigger houses, faster cars, and luxury for the sake of luxury, we are a little odd.  So odd, that when our story was shared in some mainstream media it went super viral.

If our lifestyle sounds like an interesting and exciting alternative, this post will outline a recipe to duplicate our success and put you on the path to living life on your own terms

Conceptually, retiring in your 30’s is quite simple, albeit not necessarily easy.

  • Maximize Income
  • Live Well Below Your Means
  • Invest the Difference
  • Wait

Maximize Income

Becoming financially independent requires building up a large amount of capital, a task made much easier by earning a high income.

For those yet to enter the workforce, selecting a career path with a high income per year of education is important.  For example, with an Engineering degree it is possible to earn a 6-figure income with only 3-4 years of college.  Medicine and Law degrees offer high incomes, but at the expense of a decade spent in an ivory tower.

For those with no interest in attending college, or those with a degree in a lower income field, time outside of work can be spent on a side hustle.

J Money has examples of over 50 ways to bring in additional income, and Nick Loper of Side Hustle Nation is dedicated to helping others build a side business.  Being an entrepreneur offers unlimited upside

No matter which path you choose, with hard work and dedication it is possible to grow income over time.  By inflating savings rather than lifestyle, this will result in rapid growth in wealth

Live Well Below Your Means

A high income only goes so far, as taxes becoming increasingly burdensome at high incomes.  It isn’t so much what you earn, as what you keep

If you choose to live a typical lifestyle, you can expect typical results.  Saving 5% of after-tax income is the same as agreeing to work a minimum of 55 years.

On the other hand, if you do some unconventional things (at least relative to your typical consumer unit) and aim for savings rates of 50% – 70% (or more) we can shorten our work lives to just a decadeBy using tax advantaged savings vehicles, we can shorten this by an additional 20%.  If you have debt, the Financial Freedom Clock begins when you get debt to zero

Fortunately, the typical American consumer lifestyle is an incredible example of waste and inefficiency.  See this graphic based on data from the US BLS

For this typical American “consumer unit”, a full 80% of after-tax income is spent on Housing, Transportation, and Food.  Using the Pareto Principle to our advantage, we can focus first on these “Big 3”

Live Large in a Small Space

Since the 1950’s, the average home size has nearly doubled.  Besides extra bedrooms, extra bathrooms, extra closets, and extra garage parking, this also brings extra taxes, extra utility bills, extra maintenance costs, and extra time spent cleaning.

By contrast, we chose to live in a small apartment that cost a fraction of the price of a home or condo.  All of the savings went straight into our brokerage account

Learn to Love Your Bicycle

We carefully selected the location of our apartment, such that we could walk and bike everywhere.  We were within a block of the farmer’s market and a grocery store, a few blocks from the library, and nearby a large park.  As a result, we didn’t own a car.

Biking resulted in a slimmer waistline and a much fatter wallet

On occasion, public transit, car share services, and Uber filled the gaps

Cook Better than Restaurant Food at Home

Dining out was reserved for special occasions, and the vast majority of our meals were prepared at home.  Why go out to eat, when the best food in town comes out of your own kitchen?  We even made our own Artisan Bread for pennies

Cooking is a skill like any other, and improves with practice and experience.  Whenever we would ask if friends wanted to spend $50 on some eggs for brunch, or come over to our place for a home cooked meal, guess which one they picked

Dinner Party at Our House in Mexico

Dinner Party at Our House in Mexico

Bonus Points

For bonus points, entertainment options such as having friends over for dinner, playing in the park, and reading books from the library will add an additional boost to savings.

One fine evening years ago, we attended a Soup Cook Off at a friends’ home.  There were 30 participants in total, and we blind taste tested each soup and voted for our favorite.  The only prize was bragging rights.

Years later, we still have fond memories of that evening.  Now quick, what was your favorite move that you saw last year?

As a result of these practices, our overall spending was a fraction of our peers.  We lived very luxuriously, we were just very efficient

Invest the Difference

Now that the savings account is starting to grow by leaps and bounds, we need to put that money to work

Learning to invest is probably the most valuable skill one could ever learn, and fortunately Jim Collins has laid it all out in an easy to use Stock Series.  This two hour reading adventure explains not only how to invest, but the psychology behind it.

The stock market is one of the greatest wealth creating vehicles ever created (perhaps second only to a bicycle) and is a critical component of building a portfolio that will support a retirement of 60+ years.

By owning stock, we are hiring the world’s brightest and most motivated to grow the companies we own, so that we can focus on our real interests

Wait

When it is working for you through investing, compound interest is your best friend.

A classic example is the Penny Doubling Though Experiment, in which we start with 1 penny and double it every day for a month

On January 1st, you have $0.01.
On January 2nd, $0.02.
On January 3rd, $0.04.

Now how much do you have on January 31st?  $500?  $1000?  How about $10 million?!  That is the power of compound interest (and in the opposite way, debt will rob you of your future, guaranteed)

Now in the real world, we aren’t going to double our money every day.  But by  investing in a diversified portfolio of stocks, we are putting this force to work in the most powerful way possible

At the point where our investments are worth 25x our annual expenses, we are at the cusp of financial independence.  Spend $20k/year?  You only need $500k.  $40k/year?  $1 million will suffice.

At this point, you are able to do whatever you want, whenever you want.  This includes travel, volunteering, or continuing to work if you want to buy more stuff.  (As a guess, most people won’t choose work as they internalize the concept of Enough.)

Summary

By maximizing income, living well below our means, investing the difference, and allowing compound interest to work for us for many years, we were able to build a portfolio that would support our desired lifestyle to the end of time

By following a similar path, it is possible to replicate our results

It will take effort and dedication, mistakes will be make along the way, and at times your friends may question your sanity.  But the journey itself is fun and exciting, and the rewards are more than worth it

Best wishes, and good luck

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