How Do A Quarter Million A Year Manage To Retire By 40? (Hint: Most Aren't Rich!)

Bianca DiValerio retired at age 39, and no, not because she got an inheritance or won a lotto! She managed to save three fourths of her $75,000/yr. flight attendant salary, and lives on roughly $20,000 a year. Right: 'Now hiring' signs greet many, but those in the FIRE movement aren't interested.

Well, it appears from the tepid ('meh')  reading response to Part One, too many may have automatically assumed (when the header was brought up, e.g. on Google)  that the post referred only to the top 1 percent.  Well, newsflash, it didn't. The F.I.R.E. ( Financial Independence, Retire Early) movement is all about nearly a quarter of a million mostly younger folks leaving the rat race early - not because of being born with a silver spoon, or grabbing Social Security disability, but because of following proven financial principles. In Part One I skimmed the most basic aspects, based on the book by Vicki Robin and Joe Dominguez, Your Money Or Your Life')

As the latest  (May) issue of MONEY magazine makes clear ('The Millennial Money Whisperer', p. 38) this achievement is entirely within the purview and ability of almost everyone. Well, except those  committed to wage slavery, and who relish an 8 or 10 hour daily grind for 40 years or more. Also who love commuting through heavy traffic each way - burning up gas and time!

For example, one of those featured in the piece is Bianca DiValerio, who retired from being a flight attendant at age 39.  She lives on a $20,000 a year, which I grant most American consumers would find as impossible as flying on their own - using two arms.   See also earns additional income, when she needs to,  selling refurbished furniture on Craig's list.

More aspects (ibid.):

"She owns her own small studio apartment outright. She has no children and she has trimmed the fat out of her budget. She eats mostly vegetarian - with some fish....It also helps that all her hobbies are free or low cost, e.g. hiking."

Like many FI 'ers she turbo charged her saving near the end of her work career, working longer days - more hours - for the coming payoff of leaving work entirely. 

None of this is really rocket science.   Why are so many - mainly among the young - choosing to go this route and leave employment to the confirmed wage slaves? Because they know even in the current tight job market, employers will never raise wages - and hence cut profit margins. They'd rather take a tub bath in nitric acid.  As a story in Wednesday's WSJ noted, employers would "rather close early or halt third shifts, say at factories,  than pay workers higher wages."

This is bad on them given:

"The share of Americans who are working or looking for work has generally declined for almost two decades."

Many such accounts don't point out that a big reason for labor non-participation can be traced to  opioid or other drug addiction problems (See WSJ today, p. A3).  But also omitted are the large numbers of people simply opting to bow out of the rat race and pursue the FIRE route.  Most of these people, like Bianca, have no intention of ever coming back to the grind - no matter how much the WSJ, Forbes, The Heritage Foundation, CATO Institute, Charles Murray or other sources whine about the lack of workers.

In this case, why not just cop out and do your own thing?   Why be a slave to your employer? Well, presumably keeping some kind of medical care is the biggest reason, but now that the ACA provides policies to so many others it's not enough to keep younger workers tied down.

In a WSJ piece Wednesday ('A Reason Jobs Are Tough To Fill', p. B14)  we're alerted that another huge reason jobs aren't being filled is the low "churn rate" now dogging the labor market, i.e. how much movement exists between jobs, between employments. We're also reminded (ibid.)

"The bad part which mostly affects companies looking to expand their workforce, is that it can be hard to hire people without offering them strong incentives to do so.  And these incentives usually involve higher pay."

Well, yes.   And if such higher pay isn't forthcoming, many will either stay where they are (mostly older workers) or strike out on the FIRE route (mainly Millennials). 

It pays to examine the context of the new financial independence movement which has split into multiple subcultures, as reported in MONEY.  There are probably dozens but I will focus on what I will call the "big three":

Regular FIRE  just want to exit the rat race early and adhere mainly to the 9 steps program outlined in the book, Your Money or Your Life. The end objective is to get to the crossover point marking financial independence where one's monthly investment income exceeds living expenses. 

Bianca shown in the photo at top, is one of these regular FIREs.  She knows how to manage the purse strings so as not to overspend - but also knows slashing spending to the bone can be a downer. As she puts it (ibid.):

"You could wind up being miserable for months or years. You don't want to frugal yourself into a corner."

By which she means attaining financial independence through draconian means, because that cold lock you into a miser's spending habits for the rest of your days.

But in fact that is the primary modus operandi of another subculture - the frugal FIRE adherents- who base a lot of their ideology on the writings of Peter Adeney, a "FIRE hero who started blogging about his retirement at age 30 from his short career as a software engineer."

According to Adeney, aka "Mr. Money Moustache":

"A majority of people are clueless with money, and that's why a majority of people are unable to save for retirement and save for fun and are stressed out.  The average person has great earning potential, and they do earn a lot over their lifetime. It can be $1 million or more, but it all goes out on stuff they don't even realize how expensive it is."

Some of the strategies of the frugal FIREs - also originally endorsed by YMOYL,  include:

-  Eliminate all but one credit card for emergencies

- Pay cash for all purchases even major ones like your car

- Pay off the mortgage as quickly as possible.

- Walk to do errands whenever possible.

- Use public transportation

-Learn basic automotive maintenance if you have a car.

- Carpool to work

-  Be proactive in minimizing medical costs, e.g. don't smoke, eat a proper diet, exercise etc.

- Get a cheap ACA policy (or a high deductible one) to at least secure basic medical coverage.

- Sell your house and get a motor home

- Do your own home repairs.

-Instead of buying new clothes, trade with friends who are he same size

- Borrow books and magazines from libraries instead of buying them.

- Clip coupons

- Go to Thrift stores to save money.

- Consider moving to a cheaper area.

The preceding, obviously, will be out of the question for many, but for those who aren't wealthy or who had high paying jobs, it can provide a path to financial independence.

The last subculture is known as the "fat FIRE" group  - who want to spend a healthy amount in retirement. They are not at all inclined to do any of the skimpy steps given above. Generally these folks are high earners in good paying jobs, e.g. software engineers, statisticians, tenured university profs etc.   They usually plug in long hours to ramp up savings and their favorite investment vehicles for accumulating cache include low cost mutual index funds, exchange traded funds (ETFs) and also real estate.  This segment of the FIRE movement, to be sure:

"remains a culture of very entitled white men who are very proud of themselves ...when it wasn't much of a stretch for them anyway."

Well, they're "entitled" because they're already high earners who "disdain all the Midwest minions who can't get out in front of their truck loan."

For all intents then, the subgroup which be least likely to be emulated by interested readers would be this last group. It would be about like fantasizing becoming one of the 1 percent when one lack any potential to attain that.

Hence, the two FIRE subcultures that would most seem to resonate in a practical sense are the first two. And for many people, the frugal "draconian" path may well be the only one to escape the grind..

For many more details on the FIRE movement, see also:

https://www.mnn.com/money/personal-finance/stories/fire-movement-retire-early

HOW Do Those F.I.R.E. Folks Manage To Retire By 40? (Part One)

Many people want to know how on earth those subscribing to the F.I.R.E. ('Financial Independence, Retire Early') Movement manage to do it. Retire by age 40 or even as early as 30 or 35 years of age. It's  not really that much of a secret and for all intents has been hiding in plain sight for the past 26 years, since the publication of the book 'Your Money Or Your Life' by Joe Dominguez and Vicki Robin.  The current movement then is merely a reboot of the original one - so it pays to examine the basis of the earlier iteration first.

The principles laid out in the book are straightforward and can be summarized as follows:

1) Treat hourly wages as tapping your life energy, each hour worked for $X wage equals that much life energy - then you won't squander it.

2) Aim to save enough money to compile into a "cache". This is a large pool of money accumulated over time - beyond your immediate capital or job earnings - and  there for future use.  It can  then be used to reach the "crossover point".  This is reached when the "income from your invested capital (cache) exceeds your monthly expenses" (YMOYL, p. 277)

3) Follow the steps to financial independence defined in YMOYL  to achieve financial independence.

Let's now consider each in turn:

If you treat each hour worked in a wage job as a quantum of life energy - never to be replaced- you will be more judicious and temperate in how you use that money. Also you will be more motivated to conserve that precious life energy to do the things YOU want to do, not what some external agent or corporation wants you to do. This is especially what motivates the drive for financial independence: not to be able to act like a lazy bum and goof off all day, but to find meaningful activity or work that you want to do. (Say to be able to join the  Peace Corps and build village reservoirs in sub-Sahara Africa.)

Let's take an example of a Walmart worker who earns $15 an hour.  Then each hour's worth of his life energy is rated at 15 dollars by his employer. Eight hours work in a given day translates to $120.  Every purchase made by him can now be referenced to a fraction of a day's life energy equal to that amount.

Let's say he wants to buy a new HDTV at a cost of $360 at the same Walmart. Then that equates to three whole days of his life energy. Is the set really worth that?  These are the sort of calculations that now enter into every financial decision. The ultimate goal will be to drive the person to save more than he or she spends. A cache provides extra cushion for emergencies, or should.

This brings us to (2), for which the end result of saving is to build up a cache. The latter can come from savings (e.g. of earnings), inheritance, or even a small lotto.  In the days soon after publication of YMOYL the authors still wrote about purchasing treasurys (gov't bonds)  and using money from the interest - say at 5 percent - to live off of. If the person had managed to sock away $500,000 then that would amount to getting about $25,000 a year in investment income. This is roughly $2,080 a month.   Dominguez and Robins make clear (p. 268) this is "to provide a steady income for life from a source other than a job"  In other words, they saw this as supplementing a job income not replacing it.

However, this led to many people, i.e.  who followed their other principles,  to just shrug and ask: "Why not just do away with the job, period? SO I can be totally financially independent!"

But this necessitates being able to keep monthly costs down below the $2,080 a month in investment income.   For most people, in most places, it is simply not feasible without at least part time work as a complement.  But Dominguez and Robins do acknowledge it is possible for many people to achieve, e.g. p. 274: You CAN Stop Working for Money!

But in order to attain that financial 'nirvana',  integrating the 'steps' into one' plan may be needed.  It is profitable here to just elaborate on the authors' Step 6: Minimize Spending, which includes a raft of subsidiary steps. Some of the main ones are listed below:

1. Don't go shopping. If you don't go shopping you won't spend money. So you stays away from malls and avoid amazon.com.

2. Live within your means. If your income is $2,000 a month then keep expenses below that. Of course, all the other subsidiary steps are designed to ensure that!

3. Wear it out. Whether shoes, shirts or paper, keep using it or translate the use into other areas before consigning an item to the trash, garbage.   The authors elaborate (p. 174):

"Old letters become scrap paper. A chipped cup becomes a paper holder. A broken toaster becomes an assortment of screws, plus an electrical cord.  Old furniture can provide the wood for your next carpentry job..."

The key point to ask oneself:

"Do I already have this item I want in another form, so I don't have to buy it?"

4. Do it yourself:   Repair your own plumbing leaks, tune your own car etc.

The more skills you have across the board, the less need there will be to hire others to do assorted jobs. Hence, you can bake your own cakes - or wedding cakes for others, build your own book shelves, cut your own family's hair, and do some limited repairs on your car.  The authors write (p. 175):

"Ask 'Can I do this myself?' What would it take to learn how. Would it be a useful skill to know?'

All of this self-skill development is directed to saving $$$.

5. Buy it used.  Buy as much as you can used. Clothing, kitchenware, furniture, drapes  - all can be found at thrift stores.  If you live in a small compact town or village, consider foregoing a car entirely and just getting a bicycle, or even a scooter.  Less costly upkeep - more money saved.

The authors' conclusion is clear (p. 181):

"The steps of this program have been successfully followed by thousands of people who have found they lead to a transformed experience of money and  the material world.  All the steps matter. They synergize to spur you on."

In Part Two: We examine more steps focused on the primary directive:  Valuing Your Life Energy via the conscious lowering or eliminating of expenses.

We will also see how Vicki Robin's prescriptions translate to the 21st century arena and how it's allowing numerous younger citizens to retire early. Specifically, I'll look at how the original movement has broken into three main subcultures: the 'regular FIREs' - who just want to exit the rat race early; the frugal FIREs - who have adopted the original YMOYL austerity provisions and then some, and the 'fat FIREs', who prefer to be able to spend a healthy amount in retirement - and thus save aggressively via higher paying jobs, more DIY and being frugal early - to be able to spend more freely later.