[Note: This is my first attempt at a series and FIRE Hacking is a topic there’s a lot I want to cover. I’m also trying to keep the posts shorter, but still working on that.]
If you’ve thought (or dreamt) of early retirement, but been discouraged because the examples in the media don’t look anything like you then this is for you.
A HIGH INCOME is NOT a requirement.
What’s needed is a dash of creativity, a shift in perspective and you’ll be using less common ways to achieve financial freedom that are accessible to you like a boss!
I used to be a high earner, had frugal tendencies and saved more of my income than average.
But things change…
After my son was born we went from two incomes to one, but we were still doing well. Six months after my son was born we moved from NYC to Florida and I negotiated a remote working deal to bring my job with me—which was nice.
But eventually, I got laid off…
So there went the high income and above-average savings rate.
The frugalness remained (which I’ve come to learn is more important for FIRE, especially when combined with flexibility and resourcefulness).
Instead of going back to a corporate job I started freelancing, which was mostly to keep my sanity and have time for family and myself.
Fast forward to stumbling upon FIRE
I learned about FIRE a few years later (late 2017) and it immediately clicked so I got busy optimizing my life (starting with expenses, mindset, habits and then my health).
After some soul-searching, I realized the part I wanted most from FIRE was the FREEDOM—and started optimizing for that.
Note: Based on my plan and ideas outlined below I’m targeting the end of May 2023 to achieve financial independence by age 43!!!
Since I’m impatient, stubborn and (occasionally) impractical I didn’t accept the status quo. Instead, I hacked together my own unique plan to achieve financial independence.
Financial Independence alternative: Phased approach
The big ideas behind the plan are to progressively achieve FI while enjoying some of the benefits earlier on (think semi-retired and being insanely focused on lifestyle), challenging yourself to reduce expenses while optimizing for happiness, explore less common sources of income with high returns on time/effort and using a phased approach to FI:
- Phase 0: Present situation that’s your personal starting point (and will vary widely from others)
- Phase 1: Some freedom within the first 2 years, bare minimum expenses while working fewer hours (if you can swing it while staying on target) and exploring alternative income sources
- Phase 2: A bunch of freedom within 3-5 years and can adjust expenses and income as needed to hit your target date
- Phase 3: Even more freedom in 5+ years, considered retired (or very close) and have some extra income to spend (or reinvest)
The phased approach to FIRE is where you’re choosing a much simpler—and cheaper—lifestyle now to lower the bar (and pressure) for how much income and assets you need for progressively more financial freedom.
As you navigate through the phases you can adjust your income and/or lifestyle up or down as needed to deliver the happiness and freedom you want, it’s iterative and flexible.
In the first two phases, it’s not full financial freedom, but in my mind it’s better to enjoy more of your younger and healthier years while living “semi-retired”, doing work that’s fulfilling and progressing towards FI (Financial Independence). The alternative is working like mad now and getting burnt out, but then being fully FI 5 years sooner (but that’s my choice, you should decide what works for you and take whatever’s useful).
You’re not alone if you don’t like your job
A common problem is that more than half the people working don’t like what they do (depends on the study, but 50% seems close enough).
To help make your present—and phases 1 and 2—happier times you should explore work that you might enjoy more, even if it pays less (this is what I did and turned my previous full-time work that pays better into my side hustle, and I’m doing more rewarding work with my hands as my flexible full-time work, while building other income sources).
It helps if:
- You’re aggressively working to reduce your expenses (biggest focus to start should be on the big 3… Housing, Transporation & Food costs)
- You have some savings (which helps with confidence, feeling like you have options and are in control). A good target is 4 to 12 months of expenses in savings (since you’re working on the bullet point above this number should start looking smaller and less intimidating than before), that way you have a buffer if things don’t go as planned and you need to make adjustments
The ultimate is creating a lifestyle business that delivers your phase 1 income with a surplus to hit your target savings rate (or with enough time left over in your week to pursue other ways to earn additional income). An added benefit of going this route is that you might enjoy it so much that you continue to run the lifestyle business after you’re FI, this gives your passive investments more time to compound and Snowball.
If you’ve solved job satisfaction and your time at work is less stressful (and even pleasant), then working a few additional years to be fully-retired and financially independent isn’t all that bad (especially with fewer stress-related gray hairs and wrinkles, and less indigestion).
Other ideas to hack financial independence & get you thinking differently:
- Bypass the typical index-fund-heavy investment route, since 7% is quite a low return, not as safe as we’ve been led to believe and you can do better by broadening your options for investments.
- Try being more efficient with your resources and investments, since needing fewer assets to generate your target FI income makes more sense than needing more assets. Excessive investments (and consumption) is wasteful and unnecessarily adds years to your FI target date.
- “Doing more with less” —Buckminster Fuller
- “It’s not the daily increase but daily decrease. Hack away at the unessential” —Bruce Lee
- Consider house-hacking to turn your housing expense into a source of income or dramatically reduce this major cost
- Think about your FI income target as “income gaps” to narrow using various income sources. Multiple streams of high ROI income is your friend
- Learn about actively managed mutual funds and how to use a free online fund screener to find funds that deliver higher returns, have a long history of outperformance and have modest expenses and fees
- Consider a mini-sabbatical or “gap year” where you take a break from work in between phases to refresh, decompress and test out being retired by seeing how you’d fill your days with interesting things to do. Like an FI trial run or test-drive.
- Explore ways to pursue work you feel more connected to or are curious about (i.e. passion work) and brainstorm ways to turn your current job into your side hustle to be able to earn enough for your bare-bones expenses while turning your passion into your full-time work (with fewer expectations for it to produce a high income).
- Consider moving to a different city, neighborhood or country that is more conducive to an FI-lifestyle. One where you’re living locally and not paying a crazy premium for amenities that may no longer add to your level of happiness.
- Don’t get extreme with cutting expenses to the point that you’re feeling deprived, it’s all relative and everyone’s point of “enough” is different, the main thing is you don’t want to develop a scarcity mindset. Go in the other direction and also think about ways of increasing income and being aware of the abundance and opportunities that exist. It’s a balance. The only way to find your balance is to adjust, see how you feel and keep iterating, it’s an ongoing journey, not a destination.
There’s a different path to FIRE you should be aware of available to people not earning high incomes, you just have to scratch below the surface, be willing to do things differently and find your own way.
It might take you a bit longer… And you might make some (or many) errors along the way, but that’s part of the journey and what growth feels like.
Being flexible, resourceful and creative are good traits to develop. Even if this isn’t something you’re going to pursue or if you want to try out the parts that make sense for you and discard the rest you’ll still benefit tremendously by developing these three traits.
If you’re anything like me and prioritize life balance, freedom or flexibility and willing to forego a high income, it might be worth it for you to not go down the path of a standard job, and instead being content with lower earnings, but building skills, confidence, multiple valuable assets and spending time and effort honing your investment skills to get higher returns than index funds.
This reduces the amount of capital needed, so instead of 25x annual expenses, you might only need 14x annual expenses in investments if you can find (or create) an investment that delivers 10% returns instead of the 7% that index funds deliver. It’s pretty crazy how a 3% increase in returns reduces the assets you need by almost half!
Mix of Financial Independence Income Sources with Various Rates of Return
As a lower earner, you probably have more lifestyle flexibility to reduce your expenses versus higher earners that have more expensive tastes and need to impress and compete with other high earners in the game of conspicuous consumption. This is a valuable card to have up your sleeve, focusing your efforts on your strengths and opportunities and not your weaknesses and disadvantages.
Stacking the odds in your favor and following the path that best suits your situation are good lessons to live by. It’s similar to guerrilla warfare and flipping a potential disadvantage into a strength.
Look at your FI from an income perspective (e.g. I need $x,xxx in monthly income to achieve FI), not the 25x asset perspective (e.g. I need to save up enough for $xxx,xxx in index funds), since that’s the “vanilla” way (and Rocky Road ice cream is much more fun).
Explore ways to close the FI income gap with a mix of investments, real estate, income-producing websites and lifestyle businesses that are enjoyable.
I originally went down the wrong path and was thinking:
- I needed to build a website producing $xx,xxx in monthly income
- Sell that for $xxx,xxx
- Buy $xxx,xxx of index funds
Something didn’t feel right… Then I stepped back and went from thinking about local maximums to global maximums and realized if I can develop a website or two to deliver a portion of the $x,xxx/mo income I need I can cut out some unnecessary steps and hack FIRE and the homogenous advice widely shared in the FIRE community.
The key is to build an asset (e.g. a business, website or other high ROI income source) that you want to hold onto indefinitely, and not with the idea of selling a high return asset to then reinvest the proceeds in low-return index funds.
It’s important to question widely held ideas, advice, norms, etc., and come up with solutions that fit YOU.
Don’t unquestioningly accept the limitations of others as yours. Don’t emulate someone else’s path because lots of others are doing the same. By following the herd you run the risk of getting slaughtered.
Simplify, minimize and cut out the unnecessary steps and avoid blindly following the inefficient “FIRE Recipe” that isn’t a good fit for a huge portion of people that want to achieve FI.
Using resources efficiently is important to me, and index funds don’t fit the bill for my personal scenario and you need to figure out your own path and question the status quo—even within the FIRE community of pretty amazing folks.
Make your life (and FIRE journey) YOURS!
IN THE COMMENTS: If you have alternative ideas on achieving FIRE please share them below in the comments to get more diversity.
When my retirement income exceeded my living expenses (not my take home pay) with a 20% cushion, I called it quits. It means I can still save money in retirement and be ok if my SS check takes a hit and I never made 60K a year.