Financial Independence and Early Retirement Playbook

I retired in 2017 at the age of 31. I've never been happier. If you don't know who I am yet, check out my about page.

A lot of people were asking me how I managed to achieve all of this at such a young age. I'm not a trust fund kid. I didn't win the lottery. All it took was a few years of hard work, radically reducing my expenses and investing my income properly.

I've got lots of friends that were making more than I ever could, living paycheck to paycheck. There is a high chance they will keep working until they die and be miserable.

Although I've settled down in Spain, most of the things that I'm explaining here apply to US residents only. I still pay taxes in the States, and a lot of my money is invested there. Things are a bit different for European citizens.

Whether you choose to relocate with your family to a lower cost-of-living area, or just cut down on eating out, gaining control of your finances is a fulfilling goal accessible to anyone.

Financial independence is all about aligning your values with your consumption habits to get the most out of life. Safe investments, aggressive savings, and income optimization are all tools that will bring you closer to early retirement.

Read through this entire post before you start implementing any changes. Even better, read it twice. After you understand everything, get some books to expand your knowledge further.

  1. Get a better job.
  2. Radically minimize your spending.
  3. You get up to two million dollars. It will take you 40 years. 20 if you do it with a spouse. 10 if you get some windfall or take risks along the way. 5 if you're frugal and only need 1 million.
  4. Put 60% of your money into VTSAX. You now own a stake in every publicly traded company in the US. Every common guy is now sweating to make you richer.
  5. Put 20% into VBTLX fund to diversify your investment into lower-risk bonds for a smoother ride.
  6. Put the last 20% into VTIAX fund to invest into international corporations for more diversity.
  7. Use the 4% rule. Pull 80k a year and don't spend any more. That's your base. That's your fortress of fucking solitude. That puts you, for the rest of your life, at a level of "fuck you." Somebody wants you to do something? "Fuck you!" Your boss pisses you off? "Fuck you!"
  8. Spend 5000 dollars on an indestructible Japanese economy shitbox.
  9. Buy a cheap house with a 25-year roof. Or even better, rent yourself a nice place in a low cost-of-living area and let the landlord worry about the maintenance.
  10. Have a couple bucks on a high-yield account for emergencies.
  11. Don't buy shit you don't really want to impress assholes you don't really like.
  12. Don't drink. Don't do drugs. Don't cheat on your wife.
  13. These rules work for anyone on any social level.

—inspired by The Gambler

My three simple rules of financial independence



Why I wanted to retire early?

The main reason is I wanted to work less to have more time to lead a more meaningful life. It's that simple.

Most people are stuck in their jobs until their mix-sixties. They think it's normal because almost everybody is doing it and they want the security of a full pension. When you look at what people are working for, things don't add up.

Modern culture almost demands that people radically overwork themselves for luxuries that are not really necessary. What if we freed up our time by leading more frugal lifestyles and focus on the most important things in life? In my opinion, time and health are the only invaluable things in life.

What I wanted to do when I retire early?

You might think that retiring early will be boring. Actually, many people who retire early do not stop working entirely. They still run their side-projects or small business. If they enjoy them. Retirement is only scary because you're imagining old people in nursing homes.

Financial independence means having access to sufficient wealth that you no longer need to work to pay for your needs. By retiring early you will be able to make all kinds of flexible career choices or starting the business of your dreams.

If you're not interested in working at all, you can use that time to travel, volunteer, or pursue other creative passions such as painting or writing. In the end, how you spend your free time is up to you! Personally, I always have a million little projects going on, and I'm never bored.

Reduce your spending

Frugality is all about making savings wherever you can and spending money according to your means. The key to frugality is finding ways to make the most of what you have, rather than spending everything on stuff that is not essential.

The first step is tracking where your money is going right now. Figure out how much you saved and spent in the last year, and see if you can make any improvements. A typical goal for financial independence is saving and investing around 50 to 80 percent of your overall income.

It seems impossible, but when you realize how much you're spending on housing, groceries, transportation, and non-essentials, you will look at things differently.

Transportation

What kind of car is early retirement friendly?

Unfortunately, we've got no Eric Andre to help us.

A good pick will be a Japanese, used car in the $5,000 range could last a decade without putting a lot of money into it. Japanese economy cars consistently rank among the most budget-friendly cars on the market.

Food

If you're busy working, a slow cooker and a rice cooker are your two best friends in the kitchen. You come back from work, and you got a hearty stew and some healthy brown rice warm and ready.

Don't over pay. These machines are all the same. They are just simple heaters. Buy two of these and use one as a rice cooker and the other as a slow cooker.

Make more money

How to invest your money to retire early

Financial independence affords you to have the opportunity of not having to work for money.

The math behind early retirement is easy: you just needed to cut down on my spending and accumulate enough assets to be capable of living off the returns. Now it's time to put the theory in practice.

So how much cash do you really need to retire? Let's take a look at the numbers.

According to the highly-acclaimed study by Trinity University, I'm following the "4% rule."

The Trinity Study was a financial study published in 1998. It analyzed how different investment portfolios held up over each 30-year period from 1926 to 1995 based on various withdrawal rates and fund allocations.

The study concludes — A retirement portfolio of 50% large-cap stocks and 50% long-term bonds survived 95% of all 30-year periods from 1926 to 1995, considering that 4% of the entire portfolio was withdrawn at the beginning of each year.

The study was updated in 2018 with current data by Wade Pfau.

This is where the famous "4% rule" originated. Many people use it to determine how much money they need to accumulate before they can retire.

To make things simple, you can reach financial independence by saving and investing twenty-five times your annual expenses.

How should you invest your savings then? I was completely new to this. I didn't want to invest directly in the stock market, as single stock investments are inherently risky.

After months of reading books and available online resources on safe and diversified investments, the answer was pretty clear. I decided to put my money into low-cost index funds.

Enter Vanguard.

It's the biggest provider of mutual funds and the second-biggest provider of exchange-traded funds in the world.

In 2007, famous investor Warren Buffett wagered $1 million against Protégé Partners, claiming that hedge funds won't outperform an S&P index fund, and he won.

Buffett's fund of choice, the VFIAX, compounded a 7.1 percent return annually, while the investment funds of his competitors offered a return of only 2.2 percent.

Buffett advises index funds as the most reliable way to finance your retirement:

Consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically all of the time.

The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently. Costs really matter in investments.

If returns are going to be 7 or 8 percent and you're paying 1 percent for fees, that makes an enormous difference in how much money you're going to have in retirement.

Low-cost index funds use strict rules to decide which stocks on the market to buy. The capitalization of the stock market increases at a general pace of about ten 10 percent annually.

Index funds behave in a similar fashion. They are also cheap. You don't want to pay enormous fees for someone to manage your fund. It will eat up most of your returns.

Index funds are also, historically, one of the safest and most profitable choices when it comes to investing money. They are a great alternative to hedge funds. You can survive typical market ups and downs by following the "4 percent rule."

If you're very risk-averse, have a big family, or are planning a retirement longer than 30 years, you should adjust your retirement fund goals and withdrawal rates to something that you're more comfortable with. Essentially it means accumulating more money or reducing your spending further.

Family, relationships, friends, and marriage

When considering early retirement, think about your core values first.

Once you realize you want to retire early, for sure, you will be excited about the prospect of not working anymore in the near future. You will want to share it with your spouse and your loved ones.

Try to sit down with your significant other and discuss the list of things that make you both happy. In case of any conflicts, try to negotiate a common goal.

I made my own list of things that make me happy. I was surprised. I found that the list was strictly non-commercial. Spending time with my friends and family, volunteering, being active outdoors, and working on my DIY stuff didn't cost a lot of money compared to buying a brand new BMW.

It was obvious that my current spending habits did not reflect my values.

If you're planning to share your early retirement ideas with your friends, avoid being too preachy and know-it-all. Nobody likes being told how to live their life. People might benefit from your ideas, but they need to do their own research and realize some things for themselves. Truth is sometimes hard to swallow.

My journey to early retirement

Like most young people today, ever since graduating from college, I've been overworking myself to afford a luxurious lifestyle I thought I needed to be happy.

I took overtime so that I could afford my trendy lifestyle. I was convinced I needed luxuries like a brand new BMW or eating out on a nightly basis to be happy.

With an annual income of high five figures, I felt that I was doing well enough financially that I could afford these splurges. And besides, wasn't I contributing to my 401k and Roth retirement accounts every time as well?

I felt trapped by my unsustainable habits. Then I discovered that I don't have to work for the rest of my life, and it is actually possible to retire early.

One day I read an article about a group of young people who were trying to make lifestyle changes so that they could retire before they are 40. It inspired me in a big way.

There were new significant expenses on the horizon. I was planning to buy an expensive house and start saving for my future family. At that time, I realized how small my $10,000 annual savings really were, and I was confused.

Should I stick to my company for the rest of my days and try to go up in ranks to make more money just to afford basic things like owning a house? Or should I try moving to Silicon Valley to get a really high-paying job?

This would also mean giving up my entrepreneurial dreams, as I wouldn't have time for that. I knew I need a big break if I ever wanted to change my situation.

I found a simple online retirement calculator. Turns out, if I cut my expenses in half and invested most of my savings, I could retire in over 15 years.

That was when I realized that I didn't need a successful startup or a windfall. I just needed to change my habits.

I knew that I could cut my expenses down to $40,000 a year, meaning that I would need to have precisely $1 million to retire.

If I invested my potential savings, I could expect at least a five percent rate of return, on average, earning me $50,000 per year. I also knew I will always work on some side-projects, so I would probably have additional income.

By spending a maximum of 4 percent of my $1 million principal each year – the $40,000 I had budgeted for my expenses – I could build up a cushion by saving the extra one percent of returns leftover. This way, in the long run, my principal of $1 million should not diminish. In other words, I could live off of those savings until I die!

Here stood a massive obstacle in front of me. I had to figure out how to cut down my spending to the estimated $40,000 per year. I already knew that the key to early retirement is to make radical changes.

I started doing cuts.

I was paying over $3200 just for rent. I was living in a very high cost-of-living area. What could be more radical than moving back to live with my parents? I guess not much.

It wasn't a perfect solution, but their house was close to my work and, anyway, I just wanted to stay there for a little bit. I don't think there's anything inherently wrong about living with your folks.

My next issue was transportation. I own an almost brand new, gas-hungry BMW. Buying it was one of the worst decisions of my life. I decided to sell it at a considerable loss.

I got a decent used Toyota Corolla for about $5,000.

I was spending over $1500 monthly on food. I was eating out every day. I quickly learned cooking on the weekends and, surprisingly, I enjoyed it. With the help of meal prepping, slow cooking, and Soylent, I was down to about $500.

Financial independence has allowed me to do a lot of things, including retiring early, making excellent career choices, pursue projects that I was enthusiastic about, and make my life simpler. In the end, I discovered that this kind of lifestyle isn't reserved only for the ultra-rich. Turns out anyone can live a more intentional life with a bit of persistence.

Ultimate list of financial independence and early retirement resources

Blogs

  1. Mr Money Mustache — probably the most iconic blog about early retirement
  2. The Coffeehouse Investor — a popular minimalist investor
  3. Mad Fientist — advanced strategies for pursuiing financial independence
  4. Early Retirement Extreme — a combination of simple living, anticonsumerism, DIY ethics, self-reliance, resilience, and applied capitalism
  5. Frugalwoods — a super-popular blog of ex-urban, rookie homesteaders on 66 acres in rural central Vermont along with two young daughters

Forums

  1. Mr Money Mustache
  2. Early Retirement Extreme
  3. Bogleheads
  4. Simple living
  5. early-retirement.org

Wikis

  1. Bogleheads
  2. Early Retirement Extreme
  3. Investopedia

Tools

  1. FIRECalc
  2. CFIREsim
  3. Networthify
  4. The Earth Awaits
  5. Social Security Calculators

Reddit

Early retirement subreddits

  1. /r/leanfire
  2. /r/fatFIRE
  3. /r/financialindependence
  4. /r/Fire
  5. /r/retirement

Money subreddits

  1. /r/personalfinance
  2. /r/freelance
  3. /r/povertyfinance
  4. /r/investing
  5. /r/realestate
  6. /r/entrepreneur
  7. /r/juststart
  8. /r/jobs
  9. /r/forhire
  10. /r/digitalnomad
  11. /r/sweatystartup
  12. /r/business
  13. /r/startups
  14. /r/smallbusiness
  15. /r/economics
  16. /r/tax

Frugal subreddits

  1. /r/frugal/
  2. /r/bikecommuting
  3. /r/homestead
  4. /r/livingofftheland
  5. /r/lowcar
  6. /r/patientgamers
  7. /r/permaculture
  8. /r/selfsufficiency
  9. /r/simpleliving
  10. /r/tinyhouses
  11. /r/vagabond
  12. /r/vandwellers
  13. /r/minimalism
  14. /r/publictransit

Food subreddits

  1. /r/budgetfood
  2. /r/dumpsterdiving
  3. /r/eatcheapandhealthy
  4. /r/MealPrepSunday
  5. /r/slowcooking
  6. /r/soylent
  7. /r/SoylentMarket
  8. /r/fitmeals
  9. /r/loseit

High-risk investments subreddits - tread lightly

  1. /r/CryptoCurrency
  2. /r/Bitcoin
  3. /r/btc/
  4. /r/ethereum
  5. /r/wallstreetbets
  6. /r/stocks
  7. /r/RobinHood
  8. /r/StockMarket
  9. /r/pennystocks
  10. /r/InvestmentClub

Regional subreddits

  1. /r/fiaustralia
  2. /r/dutchfire
  3. /r/fican
  4. /r/fireuk
  5. /r/FIREIndia
  6. /r/europefire
  7. /r/ausfinance
  8. /r/personalfinancecanada
  9. /r/ukpersonalfinance
  10. /r/eupersonalfinance
  11. /r/Omatalous — Financial independence Finland
  12. /r/Finanzen — Germany
  13. /r/dkfinance — Denmark
  14. /r/MalaysianPF
  15. /r/PersonalFinanceNZ
  16. /r/financaspessoaispt — Portugal
  17. /r/IndiaInvestments
  18. /r/ItaliaPersonalFinance — Italy

Youtube channels

  1. Retire Earlier and Better
  2. Debt Free Dana
  3. [One Big Happy Life]https://www.youtube.com/channel/UCawSNY3jbIhXKHCwMxz5CSg/featured
  4. JJ Buckner
  5. [Ben Felix]https://www.youtube.com/channel/UCDXTQ8nWmx_EhZ2v-kp7QxA/featured
  6. Retired at 40- Live.Life.Simple.
  7. Our Rich Journey

10 books that are worth their weight in gold

When I first got into the financial independence game, I got caught up in the stock market and lost a lot of money. I wanted more control over my investments to start putting my money into long-term, diversified funds.

When I was younger, I liked to read a lot. Many of the books I was reading were about investing and entrepreneurship.

A few of them made a big difference in my life.

The books described here are not just the best way to learn the importance of investing; they can also help a few other areas of your life.

Frugality

Your Money or Your Life
Amazon Kindle Edition; Robin, Vicki (Author); English (Publication Language); 366 Pages - 12/10/2008 (Publication Date) - Penguin Books (Publisher)

Currently on Sale −35%
The Millionaire Next Door: The Surprising Secrets of America's Wealthy
Great product!; Thomas J. Stanley (Author); English (Publication Language); 272 Pages - 11/16/2010 (Publication Date) - Taylor Trade Publishing (Publisher)
−35%

Investing

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
Hardcover Book; Bogle, John C. (Author); English (Publication Language); 216 Pages - 03/05/2007 (Publication Date) - Wiley (Publisher)

Currently on Sale −50%
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
HarperBusiness; Benjamin Graham (Author); English (Publication Language); 640 Pages - 02/21/2006 (Publication Date) - Harper Business (Publisher)
−50%

Early Retirement

Currently on Sale −5%
Early Retirement Extreme: A Philosophical and Practical Guide to Financial Independence
Used Book in Good Condition; Fisker, Jacob Lund (Author); English (Publication Language)
−5%

Building Wealth And Being Happy: A Practical Guide To Financial Independence
Amazon Kindle Edition; Falco, Graeme (Author); English (Publication Language); 152 Pages - 11/28/2016 (Publication Date)

Entrepreneurship

Currently on Sale −14%
Zero to One: Notes on Startups, or How to Build the Future
Audible Audiobook; Peter Thiel (Author) - Blake Masters (Narrator); English (Publication Language)
−14%

Currently on Sale −13%
Never Split the Difference: Negotiating as if Your Life Depended on It
Audible Audiobook; Chris Voss (Author) - Michael Kramer (Narrator); English (Publication Language)
−13%

Mindset

Currently on Sale −11%
A Guide to the Good Life: The Ancient Art of Stoic Joy
Audible Audiobook; William B. Irvine (Author) - James Patrick Cronin (Narrator); English (Publication Language)
−11%

Currently on Sale −13%
The Life-Changing Magic of Tidying: A Simple, Effective Way to Banish Clutter Forever
Audible Audiobook; Marie Kondo (Author) - Lucy Scott (Narrator); English (Publication Language)
−13%

Word of advice

I sincerely believe early retirement is suitable for people of all social classes and all income levels.

If you don't make a lot of money, you might be thinking about all of this as just a sassy trend for rich folks, but you don't have to retire in 15 years. Even if you retire 10 years earlier than your friends, it's a huge win!

While having a six-figure salary typically allows you to achieve financial independence much faster, people with higher wages often struggle with reducing their spendings significantly. I've often seen people with mid-range salaries live very frugally and be able to retire before they're 40.

I know working hard until you're 65 makes you feel depressed and tied-down.

Whether you can retire early in 10 or in 30 years, the true lesson here is that we all can value our happiness over consumerism. That's available to anyone — regardless of our wealth.

Sometimes, your new frugal lifestyle will feel like a massive pain in the ass. You shouldn't push yourself too hard in my opinion. Look for a long-term solution that makes you happy. You can be as flexible as you want to.

Don't wait for financial independence and early retirement to enjoy your life right now!

About the author

Living on the road for over ten years felt a bit unreal. Traveled to more than a hundred countries and met my wife along the way. In the end decided to settle down in Spain.

Please don't leave comments that are in any way hostile to me or my readers. They won't be approved. Constructive criticism is welcome, but I simply don't have the time to answer all of the trolls. This comment section is only welcome to friendly, positive-minded people who wish to add something meaningful to the conversation. If you don't like the language that I'm using or stories that I'm telling, you are free to choose one of the million other blogs where you can read the usual politically-correct fairy tales. You won't convert me. Hats off to those who get it!

2 thoughts on “Financial Independence and Early Retirement Playbook”

  1. That was an inspiring read! What do you intend to do to continue being mentally stimulated? Are you at a stage right now where you’re open to volunteering and stuff? Or do you favor just spending time with your family and putting time into your interests?

    Reply
  2. I want to say this is a great article. Most people are either $500k salary STEM professionals or early-retired with $10M and a ton of passive income.

    You’re doing things right, and you aren’t crazy rich. Good for you, man. I’m not progressing as good as you did financially, but your explanations give me the inspiration to try to save even more money.

    Reply

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