POSTS – Living The FIgh Life

After Almost Two Decades of Investing, Why Weren’t We Rich or at Least Well on Our Way?

I thought my wife and I were doing everything right to achieve a rich, free life. Avoid debt – check! Spend less than we earn – check! Invest the surplus – check! So, after almost two decades of investing, why weren’t we rich or at least well on our way?

This essay is published in J.L. Collins new book Pathfinders (Harriman House publishing) — a follow-on book to The Simple Path to Wealth capturing personal stories of people who applied the many financial concepts from the book. Pathfinders is available on Amazon and other places where books are sold.

When I calculated our net worth 19 years after we started investing, we had invested $103K in principal into IRAs but their value was only $92K. We had actually lost money! I had also lost $15K out of $50K invested in a taxable mutual fund account and all of the $5K invested in individual stocks.

I thought I had done my homework. I had read an investment book, read several articles on investing, and sought advice from friends, but it wasn’t until I read J.L. Collins’ book The Simple Path to Wealth that I finally understood that my investing problem was…me.

I have been frugal and a great saver my whole life but, as you can tell already, I was a terrible investor. J.L.’s description of the “typical investor”– who panics and sells when the market takes a tumble, waiting to reinvest cautiously long after the market recovers – described me perfectly.

In 1992, when I was a young lieutenant in the US Air Force, I understood that investing in stocks for the long term was the path to financial success. My wife and I each opened a traditional IRA (this was before Roth IRAs) and invested in mutual funds.

With monthly automatic purchases, we invested the annual limit and put the rest in a savings account. After 5 years, our $17K invested had grown to over $90K and our savings was over $90k. So far so good, right? But, then along comes yours truly. Here are the most egregious examples of my rocky investing.

Individual Stock Picking Fail

In 1997, I purchased 1,000 shares of Boston Chicken (later known as Boston Market). We had recently lived in Boston and I loved our nearby Boston Chicken restaurant. I was convinced that home meal replacement was a growing trend and thus a great investment.

Unfortunately, the company was cooking more than delicious chicken. Just weeks before I purchased the stock (and unbeknownst to me), the company revealed it was recycling money by loaning to its franchisees to build new restaurants, masking its true, troubling financial picture–huge debt.

Boston Chicken soon filed for bankruptcy. I watched that stock drop from around $5 per share to pennies as the company financially collapsed. Believing that I simply needed to learn more about stock investing, I read The Motley Fool Investment Guide. It was no fun to read their take that delicious chicken does not necessarily make a great investment. I learned picking individual stocks can be very risky.

Buy High, Sell Low?

Not to be deterred, I continued to closely watch the markets for three years, saw their year-over-year gains, and thought: We can’t miss out on the tech stock boom any longer. So, in January 2000, after the Y2K scare passed but right before the dot.com bubble burst, I invested a quarter of our net worth ($50K) into mutual funds (half in a tech fund and half in an S&P 500 index fund).

Yep, I bought high, joining the excitement of a hot market. But the value of my shares burst along with the bubble. I held them for a measly four years, and when there was little to no recovery, I sold our shares, locking in a $15K loss.

I didn’t yet understand how to hold and wait for recovery. In fact, many of the remaining companies, such as Amazon and eBay, would eventually fully recover and make a lot of money. Sigh. Luckily, we left alone our only remaining investments–our IRAs–and they continued to grow… until the Great Recession hit.

In September 2008, when the Great Recession was in full swing and the stock market was way down, I convinced myself and my wife that we needed to pull our IRA investments to safety and avoid further “losses.” So with much angst, I transferred our IRAs into money market funds and locked in losses of approximately 25% percent each.

The recession made me wary of the market, so I kept our investments in money market accounts until February 2014, when I felt I couldn’t let the market rise without us any longer. By then, the market had long recovered, but my jitters remained. I was certain (as were many pundits) that the market would once again drop.

There Has to Be a Better Way

Finally, in early 2018, I found the Financial Independence movement and took on a new perspective of how to build our financial future. I discovered J.L. Collins on the ChooseFI podcast. I checked out The Simple Path to Wealth from my local library and read it from cover to cover. I gave it to my wife. I bought copies to share with my kids and friends.

Reading the book felt like J.L. was speaking to me directly, as if he knew me personally and my poor investing history. His approach is so simple, yet it eluded me for years. Armed with J.L.’s wise words (we began to think of him as “Uncle J.L.”), I now understood the importance of investing in broad-based index funds, paying low investment fees, and giving like a billionaire. But most importantly, I learned how to hold (and even buy) when the market is falling and sell (rebalance) when it is up.

Testing My New Resolve

My first big test was in March 2020 when the COVID-19 pandemic hit and the market plummeted. In the past, I would have pulled out my money after it dropped precipitously, but now I had Uncle J.L. over my shoulder reassuring me to stay the course.

I didn’t sell. In fact, I confidently optimized our available investment dollars and shifted into more stock. I now trusted that, eventually, the market would rise again.

In early January 2022, I rebalanced our portfolio, selling stocks at their peak and buying government securities (I needed to wait on bonds as interest rates were rising). In early June 2022, when the market dropped 15%, I shifted funds from government securities to buy stocks “on sale.”

When it further dropped into bear market territory, I purchased more stocks at a deeper discount. If it drops past 25% or even 30%, I’ll do it again. Since reading The Simple Path, our stock portfolio has increased by 60% and we have achieved financial independence.

I am no longer investing with angst and a trail of lost opportunities. Now, my wife and I are investing thoughtfully, our eyes on the horizon, confident the market will eventually recover. Our two children, both in their early 20s, are getting a great start to a lifetime of smart investing. Thanks, Uncle J.L.

Real Estate is Passive or I Make $2,800 Per Hour

What? $2,800 per hour? This must be a crazy MLM scheme or some sort of bait and switch scam, right?

Not at all. On average I work one hour a month managing my two real estate properties. Each month I clear an average of $2,816 (including my principal and net of expenses and taxes). So my hourly rate is $2800!

But “passive”? That is impossible, you might say. Yes, really. As I show below, the average percentage of my time (.006%) that I spend each year managing my two rental properties rounds to zero! It essentially takes me the same amount of time as investing in stocks.

For 19 years I have owned one or two rental houses at a time (I have two right now). I like to say I am a lazy landlord, but actually I’m an efficient landlord.

I bought and lived in all of my rental houses before I rented them out. I have calculated that buying is often a better investment than renting (comparable houses), but ONLY if you are willing to keep the house for 7-10+ years, much like long-term stock investing. Since keeping these houses instead of selling was the better long-term investment, I now rent them to other people instead of renting them to myself.

So How Much Time Does It Take To Manage a Rental Property?

Let’s put this in perspective: In the 13 years (156 months) of self-managing my current property in Ohio, I had 87 maintenance and repair expenses. In other words, on average I had a 20-minute issue to resolve every 1.8 months.

Of course, I can’t ignore the upfront and more time-consuming effort to get a lease, advertise, screen tenants, and then handover the property (~10 hours) and the infrequent work of replacing my tenants (6 hours) or renewing the lease (2 hours)–a great house rents quickly. There is also the rental-property related work on my taxes that takes about an hour each year, and maintenance inspections of the properties that take about two hours per property each year. (My trusted handyman actually inspects for me in OH, so now I only visit that property once every 2-3 years).

On average over the last 13 years, I have spent about 35 minutes a month managing my OH property (not even a full hour!) and I clear over $1000 per month. That’s $12,000 a year for 7 hours of work – a pretty good wage. I make even more on my VA property ($1800 per month) and I average even less time per month managing it (25 minutes). I think you get the point–it doesn’t take that much time to manage a property if you have good systems in place.

Most months, nothing happens except the rent arrives by direct deposit.

Setting Up Good Systems Saves Me A Lot of Time

Number one is finding good renters. I don’t skimp on tenant screening. I always call work and housing references, and I complete credit checks unless they are active duty military, and even then I still collect all the info needed for a credit check.

Great renters are looking for a quality home for their family. They tend to care about their belongings, their credit score, the appearance of the yard, and they will care more about my house. Many of my renters do simple maintenance and repairs themselves, or they are willing to pay for improvements they want. One renter (with the help of her handy dad) offered to install new composite decking if I paid for the materials. The house now has a huge, great-looking deck for 10% of the cost I would have had to pay a company to install it.

Getting great renters requires a great house. I buy houses in desirable school districts and neighborhoods, which I know first hand because I first lived in them myself (my system works for a small number of rentals). I have bought in military communities, and I usually rent to senior-grade military families.

I make sure my lease agreement is comprehensive. Setting standards and expectations up front is key to avoiding problems later. My first lease was OK, but every renewal since I have strengthened it with lessons I have learned myself or learned from smart friends with more experience.

Set expectations with renters up front on maintenance and communication. I walk through with my new tenants how maintenance and repairs will work. For true emergencies (e.g., no heat in the winter or a water break), I empower them to call for repairs directly with the appropriate company if they can’t reach me quickly and it can’t wait. When they do reach me with a problem, I either have my handyman look at it (with a quick email or text), or I have the renter call a company of my choice (or theirs if I don’t have one lined up already). I have the bill come directly to me. This saves everyone time as the repairman has to schedule with the renters anyway, and the renters are very happy to be in charge of scheduling.

A reliable handyman is recommended but not required. I have a great handyman for my OH property but I have yet to find one for my VA property. While addressing maintenance issues takes the same amount of my time, having a reliable handyman saved me money and improved my confidence in getting quality work.

Take advantage of the quality and often free resources online to make renting a property easier. Online sites like Zillow (no endorsement intended) work great for advertising, tenant applications, and background checks. I invested about 3 hours, one time, to modify a premade lease for each state I rent in to make sure I comply with state landlord-tenant laws. I set up my property management tracking spreadsheet, where I keep a simple on-going record of income and expenses, in about 30 minutes.

If I only focused on the initial one-time effort needed in the first few weeks of renting out my house, then it may feel like a lot. But over a 19-year time frame, each month it is hardly any time at all.

Skip The Property Manager – It Doesn’t Take That Much Time

Since I have two properties and live far from either of them, I must have a property manager, right? Nope! I learned the hard way that a property manager doesn’t really save you any time.

If the water heater broke, the tenants contacted my property manager who would then call me about it. Then the manager called a repair person and scheduled the repair with the tenants. Then I was sent the paperwork each month that I needed to file away for taxes with the amount subtracted from my rent (or I was billed if the repair was major).

Now that I’m my own property manager, the renters text me if the water heater breaks. I ask them to call a repair company and schedule the repair at their convenience and have the company bill me. It’s the same amount of effort on my part and more convenient for the renter to schedule their own repair, but without having a middleman or becoming the middleman between the renter and the repair company.

With a 5-minute call from the tenant (or usually a text with a picture), and a 5-minute call to the company to pay (usually an online payment), the work is done and the problem is solved. I then open up my property management spreadsheet and record the expense (another 5 minutes). So after 15 minutes of work, the problem is solved.

On more complex issues like working with a neighbor to take down a shared tree, I had to write a good 10 texts back and forth to coordinate the work. It took me a whole hour total to get that job done – whew!

As my good friend and real estate expert Keith Nugent shared with me at a CampFI, you need to be your own property manager until you understand every aspect of it and then only consider hiring one once you own five or more doors. My experience confirms this. Since I’m not planning to expand my properties past two, I’m never planning to hire a property manager.

Don’t Confuse Stress With Work

It can be a stressfulI conversation to demand overdue rent or pursue eviction action, but these actions do not take up much actual time. The one time in 19 years I needed to pursue eviction it was definitely stressful, but it did not take much time to resolve. I called a lawyer (it took maybe an hour) who sent the eviction proceedings letter to the tenant. The tenant then left.

The reason I hear that people feel renting properties is too much work often goes something like this: “I don’t want to deal with calls at 3:00 am for an overflowing toilet.” I feel that is a worn out trope. For one, an overflowing toilet is almost always the renters’ fault for clogging it, so they would pay the bill for any repair or damage and clean up. My excellent renters have never called me for such things.

My tenants did call once at 11:00 pm about the heat not working in the winter, and I empowered them to call a repairman directly and that I would cover any extra fee for an emergency response (I don’t skimp on safety). Then I went to bed and slept well. Being called after 10:00 pm has happened maybe 4 times in 19 years and it took me 5 minutes to resolve each one.

I try not to confuse stress with time. Over the years, tenant issues are infrequent and rarely take much time. Even getting quotes for a new roof or windows only took a couple hours. I am responsive and get the problem fixed.

Is Stock Investing Truly Passive, but Real Estate is Not?

I often hear in FIRE podcasts and read in blogs that stock investing is truly passive – the old “set it and forget it.” While I am a “passive” index fund investor, I have found I actually need to spend some time managing my investments.

I rebalance every quarter so my funds stay within the percentages of my investment strategy. I spent time calculating my traditional IRA to Roth IRA conversions (I have some after-tax basis). It takes many hours to rollover my wife’s and my 403b, 457b, 401k, 401a accounts to our IRAs. I keep an eye on the stock market and buy when it drops 10% or more (push more bonds into stocks) and then I rebalance when the market recovers. I spend about an hour each year on my taxes related to my stock investments.

I spend nearly as much time on my stock investments as I do my real estate management and both pay me a handsome wage per hour! So technically neither is 100% passive, and neither has to be a lot of effort.

Basic real estate investing in a few houses can be fundamentally as passive as stock investing. If I ever did get too many rentals where I noticed and cared about the higher workload, then I’d switch to a good property manager and drop my level of effort back down.

Real estate investing, as with stock investing, benefits from up-front research. Setting up a good system will minimize your long-term efforts, diversify your portfolio, and save you money over renting if you decide that the renter of your house is you.

So is Real Estate Passive Income? In My Book – YES!

So, with all of this talk about how much time it takes to manage rental properties, it can’t be considered passive, right? Let’s run some numbers…

There are 2080 hours in a work year (40 hours per week x 52). I work an average of 12 hours per year on my rental properties, which is .006% of traditional work time. Even if I doubled it with 2 additional properties or quadrupled the time spent, it would still round to zero!

So, either real estate is passive income or I earn over $2800 an hour! Either way, it is worth the effort.

P.S. For further information on how being a landlord does not have to consume a lot of time, and how to set up good systems to become a “Lazy Landlord,” check out James Lowery’s presentation at the 2023 ECONOME conference.

Business Insider: Meet the millionaires next door who grew their wealth without a superstar job or get-rich-quick tricks

Article by Noah Sheidlower, Business Insider, Sep 1, 2024, 6:02 PM GMT+9

“Not all millionaires have big houses, boats, or fancy cars. In fact, six of them told BI their strategies to grow wealth — and keep it — are the exact opposite. ‘We aren’t flashy with our wealth because money isn’t our ultimate goal,’ one said.”

This Business Insider article focuses on 6 people who grew their wealth the old-fashioned way — spent less than they earned and invested the difference.

From the article: “I push back against the worn binary of either make money to have purpose or retire early and sit at the beach all day sipping fruity drinks,” Hall said. “I strongly believe that early retirees can have fulfilling lives without the paid work.”

Read full article at Business Insider here. Since there is a paywall, you can also find the article on Yahoo!Finance here.

Post photo credit: From Business Insider: Getty Images; iStock; Natalie Ammari/BI

My FI Story and Why FI Needs the RE

I was recently interviewed on the EverydayFI podcast where I shared my FI story, how I fully embraced minimalism, became a full-time nomad, and some philosophy on the FI movement and choosing contentment over happiness. Cheers!

Link to episode: https://podcasts.apple.com/us/podcast/everydayfi/id1747124575

To learn more about my story check out my About page and my Taking the Leap post about my decision to retire early.

The Pursuit of Contentment

“I want to be happy” was how I replied when asked as a youth what I wanted to be in life. Likely inspired by our country’s Declaration of Independence, I bought into the enticing desire of achieving full happiness. It doesn’t work that way.

In the pursuit of a life of bliss, I read several books and listened to numerous podcasts on happiness. I was struck by the happiness science finding that 50% of a person’s happiness is based on genes, 10% individual circumstance (environment mostly out of your control), which leaves just 40% under your control. More than half of a person’s happiness (or lack thereof) is out of one’s control.

This finding is eye-opening on why happiness is so elusive for so many people. If I was born with a 5% genetic predilection to happiness, and I somehow maxed out my environmental circumstances AND all happiness related measures under my personal control, I could achieve a maximum of a 55% state of happiness.

That is a failing grade, and I doubt I could consistently maintain a 100% achievement of the areas in my personal control, especially when my genetic disposition was fighting against me.

I’m More of a Piglet Than a Pooh Bear.

I have found that my normal state is not one of default happiness. Do I think I am an Eeyore with a 5% genetic happiness disposition? No. But I also don’t think I’m a Pooh Bear with a 45%+ genetic good humor and gentle kindness.

Unlike Pooh, happiness doesn’t come naturally to me. I am more like a Piglet. I naturally worry. I look for security and close friendships. Sure, I’ll be brave at times with my friends, but my default is not the blissful happiness of Pooh.

Happiness carries too much weight.

Happy moment sitting on a dune in the Sahara

I have learned that I don’t need to achieve the joy of happiness in all the day-to-day things I do or own. My wardrobe, meal, or wherever I’m staying the night isn’t responsible for my happiness, it just needs to fulfill its job. A car doesn’t need to spark joy, just get me where I need to go safely.

Happiness has a short lifespan and it is fundamentally based on comparison (with others and with personal expectations).

I think about the sheer joy my 14 year-old daughter expressed on her first business class flight experience. Through a series of crazy events, she unexpectedly was upgraded to business class flying home from Barcelona. She didn’t know until she was on the plane. She reveled over each item in the bag of sundries provided and in her ability to order all the pineapple juice she wanted. She was so grateful for the experience.

But conversely, I have seen people who travel business class frequently who complain about some aspect of the service and take the experience for granted. They have lost that first-time joy because business class has become routine.

The latter is an example of hedonic adaptation where humans will reset expectations as new experiences become expected. As we quickly adapt to life’s changes (e.g., new exciting car quickly becomes our regular car), we are continually chasing the next level item (oooh, look at that better and more expensive car!!!).

As a corollary, getting rid of unhappiness does not necessarily bring happiness. Happiness researchers share that negative emotions such as sadness and fear are necessary for survival, and that suffering is part of the human condition. Achieving 100% happiness would require humans to ignore these other important emotions and states of being. It is just not humanly possible to be fully happy all of the time, and yet we humans continue our endless pursuit of this holy grail.

The more I pursued happiness, the more elusive it became — always just around the corner, but never with me for long.

Instead, I pursue contentment.

Pursuing contentment addresses the hedonic adaptation treadmill problem that the pursuit of happiness tends to create. I have determined what is enough in my life–enough money, enough stuff, enough commitments.

Minimalism was a big help in this. In embracing minimalism, I lessened the emotions and value I placed on items I owned. The things I own, such as a car, watch, clothes, boat, home, etc., are no longer symbols of myself, any of my achievements, or my love of other people. I don’t need to dress nice for other people. I don’t need new things to impress others.

I also fluctuate my life’s experiences to help me maintain an appreciation for the lucky life that I live. In the past year, I have slept on an inflatable camping mattress, two bunk beds, a rock-hard bed that made my hips ache, and several gigantic and comfortable king beds, and many beds in between (62 in all).

The variation keeps my perspective in check. If the bed does its job, then I am content with that. I don’t need an incredible bed every night to appreciate my daily life. The same applies to my food, clothes, transportation, and excursions.

Instead of asking myself “Am I happy?” I ask myself “Do I have what I need?” The bar for responses to the latter question is much lower, and I achieve contentment at a far higher rate than happiness. Attaining 100% contentment feels achievable in a way attaining 100% happiness never has.

Of course, I still feel many moments of happiness as I sit on a dune in the Sahara desert in Morocco or hike along a Roman road to the Bachkovo Monastery in Bulgaria, but these highs are no longer my measure for daily success. I instead measure my daily success by my level of contentment – having enough to meet my needs and pausing to notice that.

Yesterday, I had a nice take-out meal from Seven Eleven in Japan and I enjoyed it in a park with my wife. Nothing fancy. We had lots of ants join us. There were lots of weeds around. My seat on the concrete step was hard. The sky was beautiful. The mountains in the distance were nice. The buildings around us were interesting.

Was I happy? Maybe. Was I content? Fully.

Content moment having a picnic in a park

FI Needs the RE!

The (ability to) retire early part is the primary thing that makes the Financial Independence Retire Early (FIRE) community different from all the other personal finance approaches. We CAN retire early, and we as a community should own it.

The following chart illustrates how FIRE principles compare to that of other, non-FIRE personal finance voices:

Personal Finance Principle	FIRE Community	CFPs, financial counselors, Dave Ramsey, Suze Orman, 50-30-20, et al.
Track Spending	X	X
Budget	X	X
Separate discretionary and non-discretionary spending	X	X
Make cuts from spending to enable savings	X	X
Increase income	X	X
Pay off consumer debt	X	X
Build strong emergency fund	X	X
Tax planning	X	X
Save and invest	X	X
Savings percentage target (i.e., time to retirement choice)	*40, 50, 60%+ (ability* to retire 20 plus years earlier and much earlier than age 62)**	10-20% (retire at traditional age 62-67)

As you can see, most of the principles are essentially the same. The key difference that sets the FIRE community apart is the high savings rate and the ability to retire early.

The push for a high savings rate has driven the community to devise creative ways to reduce spending and/or increase income to achieve that savings rate, while still maintaining a quality lifestyle. It is the prospect of early retirement that drives the high savings rate and the subsequent ingenuity to achieve it.

The RE part of FIRE is what attracts media attention and gets people reading the MMM blog, listening to ChooseFI, and engaging with so many other FIRE content creators. Without the RE, we would be essentially the same as all of the other voices in the personal finance space.

The RE is what drew me into the FIRE movement. I learned about FI in 2017, and I was super excited about the prospect of early retirement. (I honestly didn’t realize I could buck the norm.) I left my government job in 2020 at age 52. While the FIRE community shares lots of interesting and valuable resources on personal finance, it only hooked me because of the RE option.

Even though I later worked full time for one year in a new career field (personal finance education for the military), I didn’t HAVE to work. By achieving full FIRE (i.e., the ability to retire) I have the complete menu of life options to do whatever I want and to weather any financial storm (OK, except maybe not the zombie apocalypse).

Naysayers of RE

We often hear members of the FIRE community, including numerous FIRE content creators, complain about the RE part of the FIRE acronym. They say things such as the following:

I don’t want to have to retire and just sit around on a beach all day–I’d be bored.

Achieving FIRE means achieving Financial Independence with the ABILITY to Retire Early. But FIWTATRE is a long and crummy acronym, and FIRE is a really cool acronym.

Having the ability to retire never meant I must. It is my choice.

But even if you do retire, that doesn’t mean your only option is to sit on the beach all day or sit on the couch eating Cheetos all day. Seriously, we need to stop using these ridiculous binary stereotypes when describing early retirement.

FIRE community members think differently to include how they spend their time. I have yet to meet anyone who retired early and spent every day at the beach sipping fruity drinks. Even traditional mainstream retirees generally know to keep themselves engaged in interesting hobbies and connect with family and friends to enjoy their retirement. The list is long and fascinating of the many things financially independent, early retired people do with the time they’ve earned.

I got rid of work and other commitments that didn’t make the top of my list (such as maintaining a house and car), and I increased all of the things I wanted to do more of. I get plenty of sleep, stretch, travel full-time as a nomad, read, hike, walk, write posts for this blog, spend time with family and friends, and follow my curiosity. I easily fill my days and I am consistently happier and more content than I ever was working full time.

We as a community need to stop letting those on the outside define our terms for us.

I love my job, so I don’t need to save so much money, because the RE part of FIRE isn’t my goal. I plan to work until I’m 65 (Coast FIRE, Barista FIRE, etc.).

I am sure there are a few jobs (as well as some self employment) out there that are amazing and enjoyable. But achieving RE is still the key to this movement because things can and often do change in our work lives. Changes that may make a person really glad they are financially independent and CAN retire early if they wish include:

A new, terrible boss rolls in.
Your company lays off employees due to downsizing, a merger, going out of business, etc.
You’re injured and can no longer work.
You change your mind about how great the job is.
A pandemic strikes and closes down whole industries (to include many entrepreneurs).
You decide to travel full time instead of working.
Your parent or child needs more care than your job allows you to give.
I’m sure there are many more good reasons.

The ability to retire early provides all job, sabbatical, and retirement options if (when) any of these events occur. While Coast FI and Barista FI are really cool options, they both still require some level of continued work and therefore they do not give you all the options and safety net of achieving full FIRE–the ability to retire early.

People outside of the community call me a hypocrite when I claim to have achieved FIRE but continue to make money, so I think we should drop the RE part.

Why would we let the outside world control our narrative? RE means the ability to retire early. After achieving that, we can do anything we want, to include ignoring what naysayers are saying. If that somehow seems too hard, then just state that FIRE stands for Financial Independence Retirement Eligible.

Retiring means I can’t work any more.

Nope. Many traditional mainstream retirees work for money (gasp!). Why would FIRE retirees be any different? Again, the RE is not mandated retirement, but rather having all the choices to design a life that the ability to retire enables.

It sounds nice to retire early, but I don’t want to be deprived or unhappy to get there.

This is just not true. Being frugal and saving money actually has its own rewards, and it does not have to cause deprivation and unhappiness. A frugal life can actually be happier. As modern-day philosopher Naval Ravikant explains, “Money doesn’t buy happiness – it buys freedom.”

Conclusion

FI = 25 X expenses = passive income covers expenses = ability to not work = RE

We don’t need to rebrand FIRE to somehow get rid of the RE. We need to own and embrace the RE and control the narrative on its definition–the ability to retire early. Instead of diluting the definition of FIRE to include people who save 5-10% each year and retire at age 67 and labeling it “Career FI”, we need to embrace the higher savings rate that an early retirement goal drives. This is what sets us apart from the cacophony of all the other personal finance “experts.”

FIRE, all four letters of our acronym, are what make our movement powerful.

Frugality Increases Happiness

And as a corollary, frugality does not mean deprivation, suffering, or unhappiness.

Spending more does not equal more happiness just as spending less does not equal less happiness. While frugality is core to how we achieve FIRE, it does not have to mean a life of deprivation. The FIRE community is too creative for that.

Setting the Stage

Recently many FIRE content creators have espoused the view that the FIRE movement has recently “evolved” from deprivation, driven by extreme frugality to, now, increased spending on stuff we “value” somehow causing increased happiness along the way. (“I like expensive cars, so I should buy a new expensive car since I VALUE expensive cars and now I am happier” — at least until the shiny newness wears off.)

Definition of Deprivation: “the fact of not having something that you need, like enough food, money, or a home; the process that causes this

neglected children suffering from social deprivation
sleep deprivation
the deprivation of war (= the suffering caused by not having enough of some things)” – Oxford Learners Dictionary

That deprivation-to-value narrative should not be conflated with an unhappiness to happiness narrative.

As Mr. Money Mustache’s (aka Pete Adeney), Vicki Robin (author of Your Money or Your Life), and many others have long demonstrated that frugality while pursuing FIRE does not have to mean either deprivation or unhappiness.

Pete and Vicki advocated for finding contentment in “enough.” Pete did this while living on less (~$25K a year with a paid-off house). He didn’t (and doesn’t today) live a deprived or unhappy life. Pete and many other FIRE content creators since 2013 have demonstrated replicable, creative ways to spend time with family, stay healthy, commute, eat well, etc. without spending a lot of money.

Frugality Increases Happiness

I realize this may sound counterintuitive (especially with the marketing world trying to convince us otherwise), but I have found that spending more does not lead to increased sustained happiness, while spending less frequently does lead to increased sustained happiness. How could that be?

There are three main reasons for this surprising truth:

Main Thing #1: I can usually get or do essentially the same things for much less

Frugality is the superpower of FI. It is the core that enables us to create margin that we can use to pay off debt, save, and invest. Even a high-earner making $400K+ has to reign in spending or risk having a low net worth, as well illustrated in Thomas J Stanley’s book The Millionaire Next Door.

Cutting back on spending does not mean that we have to live a life of deprivation. My favorite cutbacks enable me to save money while still enjoying the same or close to the same goods or services. These are the “invisible” cutbacks–those that are not noticeable or barely noticeable with a little research and planning.

Some examples:

Taking great trips using home exchanges (free lodging and lower food costs) and travel reward points (super low-cost airfare)
Going camping with our family instead of paying for high-priced hotels and eating out.
Arranging free pet-sitters through an online pet sit platform, such as TrustedHousesitters.com, instead of paying for pet care.
Making high-quality coffee at home and putting it in a reusable travel mug instead of buying disposable cups of expensive coffee on the go (which is also better for the environment).
Getting free books (physical, digital, and audio) and movies (physical and digital) from the library and not buying or renting them.
Having my wife cut my hair instead of spending the time and money to go to a barbershop (as a full-time nomad, this is fantastic as I would hate finding a new barber everywhere I go). Note, Pete (aka MMM) has a video on how to cut your own hair.
Switching to a low-cost cell phone carrier
Hanging out with friends at one of our houses instead of paying high drink and food prices going out.
Repair your appliances using YouTube videos and inexpensive parts ordered online AND have a great feeling of accomplishment!
And a plethora more (useless but funny link to Three Amigos “plethora” scene)

But wait! Many of these suggestions require (1) more of my time or (2) adjusting what I get or do, or (3) both, to save some money. How could I be happier by doing that?

As Dan Ariely and Jeff Kreisler illustrate in their book Dollars and Sense, we humans love getting a bargain (perceived or real). However, instead of being duped into buying over-priced merchandise that is “marked down” (dang marketers using this truism against us) we in the FIRE community find ways to buy the things we need for less and reap the enjoyment of a true bargain.

I have found that spending more either (1) leads to a feeling of disappointment if I feel like I spent to much for something OR (2) has provided only a fleeting amount of enjoyment. (See one of the many good articles on hedonic adaptation.)

It makes me happy to get good value for a lot less money. I can live the same typical middle-class life, but spend way less than most middle-class Americans by making some simple adjustments of what I buy or do.

It makes me happy to repair my refrigerator, microwave, dryer, vacuum cleaner, car side mirror, and lots of other things, saving thousands in repair costs–AND I have increased my skills and confidence along the way.

It makes me happy to save time. If I didn’t repair something myself, I would have to spend time researching a repair company, calling to make an appointment, taking time off to be at home during the appointment, keeping an eye on the repairperson, and paying them a lot for their service (which took me time to earn). I actually save time doing it myself, and I get to do it when I want to, not when the repairperson is available.

KEY POINT: We can do essentially the same stuff AND reap the enjoyment of saving money for our future to buy more time to do what we want!

Main Thing #2: Happiness is primarily derived from family, friends, nature, health, learning, and helping others–not from spending more money.*

*This isn’t just my opinion, check out the extensive research by Dr. Arthur Brooks, Wes Moss, et al. While visiting family and some hobbies may cost some money they can often be done for a lot less (see Main Thing #1)

I have increased my long-term happiness without spending a lot of money.

My best memories with my family involve family game nights (homemade pizzas and hours of playing games), camping and hiking together in the woods, home exchanges to great destinations with travel rewards points paying for most of the airfare, and reading great books from the library out loud together.

My best memories with my friends are from pot-luck parties and hanging out in our backyards around a fire pit enjoying a high quality beverage, or going camping and hiking together. I don’t watch a lot of movies, but when I do, I have a lot more fun watching a video at home free through Kanopy at my public library or renting it online where we can pause and chat about the movie. In contrast I find spending $16 each to go to a movie theater that is so loud I need to wear ear plugs and I can’t chat or take any breaks a lot less fun or interactive.

My wife and I love taking free extended fitness walks along the trails around our quasi-urban house on the edge of DC. We walk along the creek and see deer and birds and lots of other people walking, jogging, and biking. We enjoy the benefits of nature and increase our happiness without spending a penny. As we travel the world, it is a rare location where we can’t find some close-by place for spending time in nature.

Happiness is rarely about the stuff we buy or the amount we spend, but about the time we spend with family, friends, learning, and helping others.

I didn’t need to spend a ton of money going to a restaurant, hotel, or buying books to increase my happiness. I have found that when I spend a lot of money on a meal out or other expensive endeavor, I am often less happy because my expectations were higher and I was underwhelmed.

While we all have felt a jolt of pleasure from buying something new, we need to recognize and separate happiness from these fleeting moments of enjoyment.

Main Thing #3: I am happier when I have less – both stuff and commitments

Separating our identity from our stuff enables us to pursue happiness in less-expensive ways.

As my wife and I sold, gave away, or otherwise disposed of 98% of our personal belongings, I became a different person. Minimalism changed who I am for the better!

By getting rid of my musical instruments, canning equipment, lawn care equipment, cars, house, tools, old files and collections, I released myself from numerous commitments and freed up enormous time and resources.

I jettisoned my lower-priority personas of musician, canner, home owner, etc. to focus on what I truly valued and made me happier and content. Now I’m more aware of the alluring promises of new personas through purchases, and I don’t buy that stuff anymore. I travel, spend more time with family and friends, read, exercise, and learn. I am a different, more content person.

My happiness increased when I bought less.

Conclusion

The FIRE community should not conflate frugality with deprivation or unhappiness. FIRE adherents can live happy and fulfilling lives while also saving a much larger percentage of their income than mainstream Americans.

As modern-day philosopher Naval Ravikant explains, “Money doesn’t buy happiness – it buys freedom.”

The FIRE community needs to proudly claim the key tenets of what makes this movement different from other personal finance philosophies: we are frugal, and we determine and then stick to how much spending is enough. These are the FIRE tenets that Pete and Vicki have long advocated for and they are as applicable today as they were back then.

Spending less does not mean less happiness–done the right way, it can mean more.

IMAGE Credit: “frugality” on keyboard obtained from CreditDebitPro.com

Is The Stock Market Becoming a Ponzi Scheme?

The convergence of the widespread use of 401k and similar retirement accounts coupled with the rise in index fund investing has created a Ponzi scheme-like dynamic with the stock market over the past 30+ years..

What is a Ponzi scheme?

From Wikipedia, a Ponzi scheme “is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.” Is the stock market truly a Ponzi scheme? No, but since 1980 it has taken on some similarities with a Ponzi scheme that investors should be aware of.

Stock Market Valuation to Scale

Most graphics of the stock market (the Dow Jones Industrial Average) that include performance data before the 1980s, use a logarithmic scale. The log scale distorts the long-term variations in market value to make it appear that the changes over time are more consistent. On the chart below which uses a logarithmic scale, it visually doesn’t look like anything unusual happened around 1980. The only sizable blip in the trend is the Great Depression.

Source: https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

A couple of years ago, I stumbled across an unusual graphic of the stock market’s historical performance that surprised me because it was to scale.

Source: https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

I was shocked to see that, relative to the performance in the last three decades, the previous eight decades were basically flat to include the Great Depression (now a very minor blip on the chart) and the industrial economic growth of the 50s and 60s. I wondered what happened around 1980 that exponentially changed the dynamics for stock market valuation.

What Happened Around 1980?

Four major things: 1) invention of index funds (1971), 2) Individual Retirement Accounts or IRAs (1974), 3) the 401k plan (1978), and 4) increased institutional investment of pensions in the stock market. (Note that for this post I am using “401k” to mean all similar plans to include 401a, 403b, 457b, and the Thrift Savings Plan (TSP).)

Jack Bogle invented index funds well before 1980, but they did not take off on a mega-scale until the 401k, IRAs, and remaining pension plans began growing in number and size and therefore dramatically increased their share of the stock market.

Section 401k of the Revenue Act, which became the namesake for the retirement accounts it authorized, was passed on November 6, 1978. The first 401k plan was implemented 3 weeks later. Since then, public and private employers have gutted the traditional pension plan. Employers have either replaced pensions entirely with a 401k (sometimes with matching funds), or they (often government entities) have deeply cut the value of their pension plans and then offered a 401k option to help offset the lost value.

According to a 2021 CNBC article, “401(k) and other defined-contribution plans like it quickly replaced traditional pension plans. From 1980 through 2008, participants in pension plans fell from 38% to 20% of the U.S. workforce, while employees covered by defined-contribution plans jumped from 8% to 31%, according to the Bureau of Labor Statistics.”

Even though the number and dollar value of pensions has sharply declined since 1978, they still represented 10% of stock market value as of October 2020.

So How Does This Create Ponzi Scheme Dynamics?

According to Annie Lowrey in an April 2021 Atlantic article, “[s]ome $11 trillion is now invested in index funds, up from $2 trillion a decade ago. And as of 2019, more money is invested in passive funds than in active funds in the United States.”

The issue here is that index fund investing works differently than other types of investments. Most IRA, 401k, and pension accounts invest in index funds each month regardless of the performance of the market or any particular company in the market.

Index funds are cap-weighted, meaning that if a large company like Google represents 5% of the value of the index (e.g. S&P 500) then every month passive investors (i.e., everyone with a 401k in the stock market) will invest 5% of their monthly retirement dollars on Google whether or not Google is a good investment right then. This monthly automaticity arbitrarily drives up the price of Google stock because the index must buy the stocks in the index at their cap weight. Likewise, every other company’s stocks in an index are also purchased independent of performance.

Many stock investors, especially those investing for retirement, are not selling their shares each month when these new index investment purchases need to be made. They want to avoid stock market volatility. This dynamic creates supply and demand price pressures that help keep the valuations going up.

The growing demand for index fund investments drives up the valuation of the stock market. This helps explain, at least in part, the meteoric rise of the stock market’s valuation over the last three decades.

It doesn’t matter if the company is actually worth what its stock is valued at as long as investors keep passively buying the stock at a high price and driving it higher. And if this dynamic sounds familiar, it is: this is similar to how new investors in a Ponzi scheme keep the returns high for the older scheme participants.

The expansion of retirement account vehicles like the IRA and 401k, with their strong tax incentives coupled with the increased ease and lower costs of stock investing, have helped this trend grow. The big question is, when will the new money stop rolling in every month and the first investors start selling off more than they are investing? This turn of events could cause a partial collapse of stock valuation, create great losses, and leave the more recent investors waiting for long-term returns holding the bag – again, similar to the effects of a Ponzi scheme collapse.

It’s Not Really a Ponzi Scheme, Right?

Right. A Ponzi scheme is illegal, and there is nothing illegal about the investment vehicles I’ve just described. BUT, there are some Ponzi scheme dynamics at play in today’s market. I recognize that a large part of the amazing overall stock performance that I have enjoyed over the last three decades, particularly since 2009, is in no small part due to my fellow index fund investors who continue to invest in the stock market every month, regardless of performance.

While the stock market will continue to respond positively and negatively to economic events (e.g., COVID-19, an oil crisis, AI, interest rates, etc.), market drops are dampened and gains are propelled by the drumbeat of the monthly capital infusions from index funds.

I agree with the MorningStar MarketWatch assessment that the market is overvalued based on any measure. Much of this overvaluation can be attributed to the relentless monthly retirement stock investments (passive and active). This overvaluation should not pose a problem unless (until?) the infusions of new investments in the market become significantly less than the amounts being withdrawn by investors over a prolonged period.

To prevent this devaluation, we “older” investors need to keep encouraging new index fund investing among our fellow citizens until we have sold our shares. Then those investors will need to encourage future generations to do the same. The current structure of the stock market will continue to need new investors, investing monthly regardless of individual stocks’ performances, to keep that line on the graph moving upward.

So while I remain fully invested in the stock market, I also remain vigilant to mega trends that might indicate the tide is turning on the Ponzi-esque dynamics on the market from index fund investing.

My Top 10 Accounting Principles for Everyday Life

Accounting helps businesses track and organize financial information so business leaders can make informed decisions. Similarly in personal finance we all implement some level of accounting to help manage our finances to track, budget, spend, save, invest and file taxes. In a past life I managed multi-million dollar businesses with complex financial statements and taught basic accounting to US Air Force Officers. While individual people are not required to follow business accounting principles for their personal finance, key accounting concepts have helped me keep my personal financial path on course and helped me with many of life’s other important decisions. Here are my top 10:

Conservatism. When budgeting and forecasting (when exact numbers are not known), always estimate expenses on the higher side and estimate income on the low side. A conservative approach will build confidence in one’s financial plan. Having conservative estimates in our financial projections helped convince my wife and I that we could afford to quit our jobs and travel the world full-time.

Accounting Period. The accounting period is the timeframe (week, month, quarter, year, etc.) used for financial analysis and reporting. In my personal finance and rental business, I use a monthly period to track my expenses and an annual period for tax purposes. By tracking our spending and savings each month, my wife and I have a built-in opportunity to discuss our finances and progress towards our goals and make adjustments. I use an annual period for net worth tracking update and taxes (since that is the IRS’s cycle) and we see our progress over time (e.g., year-over-year). Establishing the accounting period(s) helps me better manage my finances and apply the revenue recognition and matching principles.

Revenue Recognition. The revenue recognition principle requires that revenue should be reported when it is earned, rather than when the cash is received. So for example, a catering business who receives a deposit in December on a wedding for the following June, should not recognize that revenue until the accounting period of June occurs, which leads me to the…

Matching Principle*. The matching principle states that an expense should be reported (“matched”) in the same accounting period as the revenue generated by the expense. This allows for a better understanding of profit and loss in the accounting period (month or year). For example, when I book airfare or a month-long AirBnB in one year for future use in another year, I keep a separate spreadsheet to track these major expenses so I can account for the expenses in the month I actually used them and I have a better understanding of how much my nomadic traveling life is costing me. Note, I only do this for “major” expenses which leads me to the principle of…

Materiality. Something is considered material if omitting or misstating it would impact a reasonable user’s decision-making. The principle of materiality requires businesses to properly account for all material items. For example, the purchase of a single $30 alarm clock for a large hotel would not require depreciating (more on depreciation later) the asset even though it would last for many years. However, purchase of 500 $30 alarm clocks for the same hotel would likely be material as the $15,000 total expense could significantly impact the current month’s financial statements. In an FI example, closely tracking and managing small expenses (e.g. daily lattes) is material for someone in credit card debt, and/or little savings, and getting started in turning their financial situation around. For those at FI or well on their way, tracking every minuscule expense is likely immaterial for that person. While my expense tracking is automated with ~~Mint~~** Quicken Simplifi, I don’t track small cash expenses like tips and small street food and drink purchases – it is not worth my time and immaterial to my FI success now that I am FI. (**Update Aug 5, 2024: Intuit lost my business when they sunk Mint and tried to move users to Credit Karma. I switched to Simplifi and it works pretty good. Although I pay an annual fee now, not having the ads is really nice).

Depreciation. Depreciation is a reduction in the value of an asset with the passage of time, due to use, wear and tear, or obsolescence. Keeping depreciation in mind helps me understand how much the stuff I own (cars, furniture, outdoor gear, etc) loses value over time (often immediately after I buy it). Depreciation also makes me think about the amount of money I need to set aside in my emergency fund to replace major items that break or wear out over time. I also use depreciation to think about the value of what I buy over time. For example, if I decided to buy a $50K RV to live in full-time, I would not treat it in my tracking as a single housing expense in one month, but I would calculate the monthly depreciation expense of the RV over its useful life and consider only that portion to be my monthly housing expense in my tracking. If I didn’t take out a loan, I would deduct an amount each month from my checking to my savings (where I pulled the money to buy the RV) so that I would show a monthly house payment in my tracking system.

Consistency. The consistency principle states that businesses must use the same accounting methods across accounting periods and financial statements or well-document any changes. Applied to your FIRE journey, maintaining consistency of how you track your finances will help you better identify areas for improvement as well as progress over time. For example, consistently tracking my alcohol expenditures separate from eating out and groceries, enabled me to see how much I was spending in this category and the significant cost reductions when my wife and I focused on having a drink at home on our deck instead of at a restaurant or bar.

Opportunity Cost. Possibly the most powerful financial concept on this list, opportunity cost is simply the loss of potential gain from other alternatives when one alternative is chosen. So my choice to maintain higher cash balances in my checking and savings accounts has an opportunity cost in terms of lost interest or growth. For example, spending $200 at a fancy restaurant has the opportunity cost of lost long-term interest and dividends from investing the $190 (the other $10 spent eating at home instead). But likewise, investing all of my money in long-term stocks has an opportunity cost of lost flexibility (or potential financial loss). This concept also applies to my finite time on this planet and what I decide to do or not do and who I want to be. The challenging part about opportunity cost is that it is often hard for me to see and value what I didn’t buy or do. For major decisions, I am in the habit of first asking myself what else could I do with this time and money before committing the resources. The answers frequently change my mind.

Cash Flow. Cash flow refers to the net balance of cash moving into and out of a business (or your personal finances) at a specific point in time. Cash flow enables a business (or a person) to settle debts, reinvest in its business, return money to shareholders, pay expenses, and provide a buffer against future financial challenges. For example, having cash on hand enables a business to take advantage of bulk-purchase discounts even though the item purchased may not bring in income for several months or years. For FIRE, I like to keep a good amount of cash available to handle my cash flow needs. For example, I use a large emergency fund to self-insure for auto comprehensive and collision, travel insurance, and extended warranty protections. To meet my cash flow needs, I keep a healthy balance in my checking and savings accounts to ensure I never have to worry about covering several credit card payments at once or making large advance purchase. Before starting my nomadic traveling, I was able to fund about 8 months of advance airline and AirBnB purchases so I could take advantage of discounts and lock-in preferred choices. If too much of my money was locked up in stocks or other long-term assets, I wouldn’t be able to cash flow my spending as easily.

Sunk Cost Fallacy. While not an accounting principle, no list of financial or business concepts should exclude the sunk cost fallacy. Simply, the sunk cost fallacy is our tendency to continue with an endeavor we’ve invested money, effort, or time into—even if the current costs outweigh the benefits. For example, the weight of spending well over $1,000 on my electric guitar, amp, and hours of lessons was keeping me from moving on even though I knew I no longer prioritized learning to play and wanted to travel and learn a language instead. This concept often applies to non-refundable purchases. If I had to miss a non-refundable show at the last minute the cost of that ticket is a sunk cost. This sunk cost should not impact my decision whether I should buy another ticket to the same show. I have to remind myself that purchases I made in the past should not prevent me from doing something different now or in the future, even if I can’t get my money (or time) back.

Accounting gets a bad rap for being complex and boring, but it is really an important part of our financial lives and provides valuable tools to better understand and manage our finances. Like knowing how to calculate fractions and percents, everyone should have a basic foundation in accounting principles.

If you would like to learn more about the basics of accounting, the best method is taking an introduction to managerial accounting class, but since that may not fit your time or budget, there are some simple accounting books that, based on their online reviews, may help such as Wayne Label’s Accounting for Non-Accountants or Mike Piper’s Accounting Made Simple. Less-formally, search the internet for each principle above (Investopedia.com is pretty good) to find more details and examples of each. You are also welcome to drop me a question in the comments.

*A note on the matching principle. I technically use a cash-accounting system for my small rental business (integrated with my personal finances as a sole proprietorship) instead of an accrual accounting system most businesses use. As a result, I am required to report expenses (e.g., rental furnace replacement) and income (e.g., advance payment for rent) at the time I receive it for tax purposes. I use this requirement to my advantage. I plan my rental house improvements to fall in the tax year that I am trying to minimize my income, so my rental business has a lower profit in that year. Likewise, when my renters prepay their rent 6 months in advance (yes, I have some great renters!) I am able to ask them to pay on either December 31st or January 1st to enable me to recognize the revenue in the tax year I prefer. This helps me smooth out my taxable income fluctuations over tax years or help me maximize my Traditional to Roth IRA conversions in the 12% tax bracket for a particular year. This fluctuation would not follow the strict definition of the matching principle, but it allows me to “match” the expenses and revenue to my tax advantage.

Minimalism Changed Who I Am.

I used to be a (aspiring) musician, cyclist, gardener, canner, soccer coach, coin collector, stamp collector, home owner, and DIY handyman.

I am no longer those things. I found that by selling, giving away, or otherwise disposing of my guitars, soccer gear, biking gear, coin and stamp collections, work files, house, and many, many, other possessions related to these pursuits, I was freed from the personas that took away my time and focus from the things that I wanted to be and do the most.

In his time management book Four Thousand Weeks: Time Management for Mortals, Oliver Burkman challenges us to focus on the top items that we want to accomplish. He shares a story attributed to Warren Buffet, where the Billionaire allegedly advises to prioritize your top 25 things, focus on the top 5, and then actively avoid the remaining 20 items. Those items prevent us from spending the time needed to do our highest priorities very well.

Burkman is not this prescriptive and shares that “you needn’t embrace the specific practice of listing out your goals (I don’t, personally) to appreciate the underlying point, which is that in a world of too many big rocks, it’s the moderately appealing ones—the fairly interesting job opportunity, the semi-enjoyable friendship—on which a finite life can come to grief.”

This was an eye-opening revelation for me. In order to focus on what I wanted to be and do the most—husband, father, friend, and student as well as a nomadic traveler, camper, hiker, reader, personal finance coach, and historian—I needed to eliminate my many other personas and lower priorities.

One of my top priorities was to travel the world nomadically with a carry-on and a backpack. This goal required some major downsizing–I fully embraced minimalism with some surprising results.

When I sold my (barely used) electric guitar, amp, and case back to the music store I bought it from (at a fraction of the price), I felt free! I was giving myself permission to no longer be a musician. I no longer had this physical reminder telling me “You should practice music. Remember, it is the 9th thing you want to accomplish?” It was a conversation I didn’t want to have.

The time and money I spent trying to learn to play the guitar took time away from what I really wanted to do – read, travel, learn a language, and take better care of myself.

Likewise, by getting rid of my canning equipment, lawn care equipment, cars, house, tools, old files and collections, I released myself from numerous commitments and freed up enormous time and resources.

Having newfound time and resources to focus on world traveling, my relationships, reading, sleeping, stretching, and hiking has been amazing. I have traveled more this year (2023) than any other year. I have read more books this year than any other (including college). I have spent more hours with my close family and friends than I had been. I walk and hike more than ever. I am constantly learning new things and tackling my foreign language proficiency goal.

Doing fewer things better is…better! Removing the physical possessions around these lower-priority identities made it happen. By getting rid of these possessions, I gave myself permission to be who I really wanted to be. Minimalism changed who I was.

If you want to learn more about minimalism and techniques to downsize, I highly recommend Fumio Sasaki’s book Goodbye Everything. While I did not minimize to the extent that he did, I found his minimalism philosophy and techniques to be invaluable.

Has the FIRE movement lost its way?

In a recent episode of ChooseFI podcast (a favorite of mine), a visiting host (Katie, from MoneyWithKatie.com) talked about buying “a very nice car [a pre-owned Porsche Macan with 8,000 miles].” She was quick to acknowledge that this decision was “breaking the cardinal sin of FI/RE” but the main ChooseFI host, Brad, quickly said that because it was something she “valued”, it was no problem.

Hmmm. Is this still a FI podcast? Are these hosts even interested in FI anymore? We need to talk about this.

Over on her blog, Katie justified the purchase because she could afford it (thanks to her many devoted FI-minded followers, it seems). Buying new (or nearly-new in this case) cars, let alone high-cost luxury cars, is well documented in the FI community as a financial mistake.

It should still be recognized as a financial mistake, regardless of the changes in her income.

She justified the purchase by claiming this was the least expensive car she had ever bought as a percentage of her income. No. It is still the most expensive car she’s ever bought because–and I would expect a personal finance blogger to be clear on this point–it costs tons more than any previous car she bought.

She wrote, “Sometimes I think we just want to buy nice things for ourselves. They become symbols of our hard work.” She’s not alone in using that logic, of course. That logic is why many Americans are in high credit card debt, thinking, “I work hard, so I deserve this purchase.” But she may be alone among FI-minded bloggers in trying to pass off this logic as somehow connected to FI. In the FI community, our hard work does not need a luxury status symbol to show off what we have accomplished (to ourselves or to others).

In short, I have a simple response to Katie’s position on her new Porsche:

Buy what you want, but don’t try to change the definition of FI to justify it.

Honestly, it doesn’t bother me that she bought a high-priced luxury car. She can spend her money anyway she wants. It bothers me that she used her FI platform to justify her purchase in non-FI ways.

She wrote about how much she enjoys her car purchase and how excited she is about it. If she were approaching this from an FI-minded perspective, she might notice that her Porsche is an example of the hedonic treadmill: We get a temporary high when we buy something, but the high soon wears off and the new thing becomes the new normal. What more will she need to buy in a couple of years to be a symbol of her hard work when the luster of the Porsche (and the warranty) wears off?

But enough about Katie and her Porsche. I am bothered even more that Brad, the main host of Choose FI, a podcast that has been a great source of FI information for many, claimed a new definition of FI: that she should buy what she “valued,” and since she could “afford” the car and wanted it, then sure, OK.

Really?

ChooseFI is an influential platform in the FI community and this justification of a luxury car purchase is going to be confusing to many who are striving toward FI.

The definition of FIRE (Financial Independence/Retire Early) or FI hasn’t changed. Controlling spending is still fundamental to FI, and buying a very expensive luxury car (or any similar item) isn’t a FI-minded decision, even if we’ve always wanted one.

True value-based decisions are, of course, an important part of FI. Getting the best quality for the best price is a very good idea. For example, buying a high quality skillet that will last longer and cost less in the long run than a cheap skillet that will need to be replaced one or more times. A Porsche Macan, however, is not. Katie described the car’s unreliable quality (it has already been into the shop for a cracked axle), high insurance costs, her concerns over knicks in the doors, paying more for garage parking because of weather concerns, etc. Does it represent a good value over time in how to move herself from one place to another? Of course not.

We should not confuse buying anything that a person desires as an inherently value-based decision or as the new definition of FI. This is a dangerous slippery slope: we could kick our self-justification machines into high gear and say, “This X (put name of your favorite high-priced consumer good here) is what I value because I deserve it as a symbol of my hard work” regardless of X’s true value and its impact on our FI progress.

And, if I can justify buying X, then I can also justify buying Y, and Z, and XX, and YY, and ZZ, and soon I’m back to square one with a closet full of rarely worn clothes, numerous subscriptions I don’t use, eating out frequently, daily lattes, etc., and I’m left to wonder where all my money goes each month. Did this redefinition work out for me? No, thank you.

Just Because I Can Afford It Doesn’t Mean I Should Buy It

FI is different for everyone. Some people don’t want to live an extremely lean life to get to retirement or while they’re in retirement. But also, we can’t undermine the importance of controlling expenses when pursuing FI. By limiting what we spend, we can more readily put aside enough money in investments to produce perpetual income to cover our expenses in retirement.

I first learned of this concept through Vicki Robin in her book Your Money or Your Life, and Mr. Money Mustache hammered it home for me in his popular blog. The core of their messages is that we need to learn what is enough and resist all of the shiny trinkets that the American marketing machine pushes on our society. The result is a good life that is also good for the wallet and good for the environment.

Don’t touch my daily latte!

The Porsche Macan isn’t the only indicator that there are leaders in the FI community who may be eroding the concept of controlling spending. I keep encountering FI blogs and podcasts that have “evolved” in their thinking, and they now embrace a buy-whatever-you-value mentality.

I first noticed the change in financial debates around the daily latte. With voices like Remit Sethi saying not to worry about the daily coffee expense (who Brad has echoed on ChooseFI). I have seen many blog commenters who ask “Why can’t I spend $5 or more a day on coffee in a disposable plastic cup? It is what I value!” Or, “$5 won’t make a difference in my retirement if I focus on earning thousands more in income instead.”

Many FI content creators appear to be persuaded by this pushback and have seemingly stopped mentioning the lattes, and softened their guidance on controlling costs for cutting subscriptions and eating out less often.

A basic tenant of FI is to spend less than you make. A person interested in pursuing FI needs to control spending somewhere and the non-essential categories like daily lattes — or any small luxury you indulge in on a regular basis, such as bottled water, fast food, beers at a bar — are a good first step.

The daily latte is simply a good example of how many Americans can quickly save some money to pay off debt and start an emergency fund. This advice may not be getting clicks or new listeners, but the original FI advice is still the solid, simple, effective advice that is going to help get a person to their FI number.

We could skip the daily latte and buy a decent coffee maker, get some quality coffee grounds and a reusable, good-for-the-environment coffee mug (with a no-spill lid), and make our own. We’ll achieve the same quality (if not better) coffee while saving money and making a better environmental decision as well. There is almost always a way to get the same or similar value for less money with a little bit of effort.

FI requires some effort to get the same or similar outcome for less.

My favorite spending cuts are ones where you don’t end up losing much if any value from the cut back in spending (e.g., brew your own fresh coffee as mentioned, drink with friends at home on the patio/deck instead of at a bar, watch free movies through your town’s public library Kanopy account, negotiate discounts for the same service for less, etc.). Fundamentally, we need to control spending to make progress toward FI. Same as it’s always been.

But what if I just make more money, right?

Well, no. If we don’t control spending, additional income can disappear just as fast. This is well explained in The Millionaire Next Door, where a person making $400K or even $800K a year can still be living paycheck-to-paycheck and not build much, if any, wealth. Authors Dr. Stanley and Dr. Danko refer to these people as Under Accumulators of Wealth. No matter how much you make, there must be some control of spending.

Even doctors married to doctors have to put a limit on the number of boats they own, and amount spent on luxury cars, eating out, high-priced luxury real estate if they want to be able to stop working at some point and enjoy a fat FIRE lifestyle. Controlling spending is a key FI tenant, and we content providers in the community should not shy away from this.

We as a community need to continue to emphasize that controlling spending is essential to FI, even if it is not sexy or popular. Cutting daily $5 lattes is still a good example–it builds a strong habit each morning to decide to live a little differently that day–and for those still digging out of consumer debt, the small extra money does add up and make a big difference! We need to help hold each other accountable on our discretionary spending so all of us can successfully make it to our FI goal.

FI content creators in particular need to keep the definition of FI focused on controlling spending and having enough. Let’s not dilute the definition of FI to justify buying whatever we want in the moment. People just finding FI for the first time deserve to hear from us what really works. Let’s keep it real.

*Photo by Kelly Sikkema on Unsplash