Tag: FIPE

  • Financial Independence is Not About a Life of Deprivation

    Financial Independence is Not About a Life of Deprivation

    Stop me if you’ve heard this advice before:

    “Cancel all your subscriptions and save $1,000 a year!”

    “Cut out your morning coffee if you really want to be wealthy!”

    “Buy your Christmas presents in January when the sales start!”

    Because of advice like this, there’s a common misconception that people who want financial independence have to lead a life of deprivation.

    Nope.

    I refuse to believe that.

    Financial independence about so much more than that.

    Financial independence is not reserved for people willing to cut their spending to the bone.

    It’s for anyone willing to make intentional money decisions, including the decision to earn more money and not cut spending.

    How did financial independence become synonymous with deprivation?

    As my three-year-old asks during story time, “And, then there’s a problem?”

    Yes, son, there’s a problem.

    Too many people believe that financial independence is only about cutting spending.

    That’s a big problem that is holding people back.

    See, most of us lawyers and professionals work a ton of hours. We are already making major sacrifices.

    To throw in major reductions in spending on our way to financial independence is not a worthwhile tradeoff.

    Life is too short. None of us are guaranteed tomorrow.

    I learned this lesson a long time ago by representing clients with mesothelioma, a sudden and fatal cancer.

    That’s why I never encourage anyone to cut out spending on things and experiences that make them happy today.

    Does this mean we should all go out and spend every dollar we make?

    Of course not.

    No matter what, you’ll always need to live within your means.

    If you are spending more than you’re earning, you’ll never be financially independent.

    However, if you earn decent money and invest it the right way, you will reach financial independence.

    And, you don’t need to stop spending money on the way.

    FIRE has taken on an unintended meaning.

    One of the problems in the personal finance space is that many people first learn about financial independence in the context of FIRE (Financial Independence, Retire Early).

    Unfortunately, there’s a stereotype that FIRE is only for people willing to aggressively lower their expenses.

    In other words, the mistaken belief is that people who practice FIRE can only survive if they cut out most of life’s luxuries.

    Even though this misconception fails to capture the true spirt of FIRE, the damage has already been done.

    Too many people who I speak with get so discouraged by hearing “cut, cut, cut!” that they lose all interest in pursuing financial independence.

    It’s not that these people are financially irresponsible. They mostly live within their means and save for important goals.

    At the same time, they want to enjoy everything that life has to offer. And as mentioned above, I don’t mean enjoy life “years down the road.” They work hard and want to spend money to enjoy life today.

    For people like this, FIRE’s perceived focus on deprivation is unappealing.

    This is one of the reasons I don’t like to use the word FIRE around here. I prefer FIPE: Financial Independence, Pivot Early.

    Standing on a sheer ledge illustrating that financial independence is about having more, not spending less.
    Photo by Jason Hogan on Unsplash

    Have you noticed in the blog that we talk more about investing than cutting expenses?

    If you’ve been a consistent reader of the blog, you likely noticed that we haven’t talked much about cutting back on spending lately.

    We’ve been focused on creating wealth through investing, whether your preference is to invest in stocks or real estate.

    I certainly encourage people to generate as much fuel as possible for their investments, especially early in their careers.

    That way, you can benefit from long-term wealth generators like compound interest and appreciation.

    Generating more money to invest, of course, involves making spending choices. These types of choices are the essence of the budgeting process.

    However, instead of focusing on cutting your expenses to the bone, I recommend you create a reasonable Budget After Thinking that you can actually stick to.

    If you eliminate all the fun stuff, no budget will last very long.

    In a lot of ways, this advice is like dieting. Sure, you can lose 10 pounds in a few weeks if you eliminate every indulgence. But, how long is that diet going to work?

    I recommend that you have a budget that you can stick to long term. Then, commit yourself to fighting lifestyle creep as you start making more money.

    If you can do those two things, you don’t have to dramatically cut your expenses.

    Yes, you have to keep your spending within reason.

    No, you don’t have to cancel all your subscriptions.

    Focus on earning more, not just spending less.

    A good friend of ours just made $750 by doing one property showing. In total, she probably worked an hour to earn that money.

    Compare that to the advice of cutting out your daily coffee ritual. If you consciously deprive yourself of coffee every day for an entire year, you could save about $1,000.

    What would you rather do?

    Work just a little bit more with a side hustle of your choosing, or cut out something that you enjoy each morning?

    Do you really have to think that long about it?

    Of course, you already know which option I’m pursuing.

    woman sitting by water Bodega Bay ocean with woman standing by water illustrating that financial independence is about having more, not spending less.
    Photo by Becca Tapert on Unsplash

    I am a big fan of side hustle.

    I’ve had side hustles for just about my entire career as a lawyer.

    My first side hustle was as an adjunct professor at a local law school, teaching just one class. I eventually turned that into teaching four classes.

    In the meantime, I also launched a rental property business with my wife, now managing 11 units in Chicago and Colorado.

    We’re doing this with three young kids at home. I’m not bragging. My point is that I roll my eyes whenever anyone tells me he is too busy to make extra money.

    By the way, earning more money does not only apply to side hustles.

    There are always ways to make more money within your primary job.

    For example, can you earn a larger bonus by performing better?

    Can you ask your employer for more responsibilities and a corresponding raise?

    Or, can you earn additional money by generating business for your company?

    Lawyers, like most professionals, have the ability to earn more money if they generate business. That means bringing in clients.

    How can you find these clients?

    You can make it a priority to go to more events where you might meet potential clients.

    You could launch a blog or create other content to help people find you and know what you do.

    Either one of these pursuits could be your side hustle.

    There are endless opportunities for anyone that is motivated and is looking to earn more money.

    And when you earn that additional money, you’re on your way to financial independence without having to sacrifice the things that make your daily life enjoyable.

    OK, but I don’t even like coffee.

    I know, I’m picking on coffee. Coffee is an easy target, but it’s just one example.

    Maybe coffee is not your problem. Let’s say that you’ve cut out family vacations.

    Family vacations can be expensive. There’s no doubt about it.

    But instead of eliminating vacations, what if you could find a way to earn an extra $5,000? That could turn into a really nice family vacation.

    For some people, this is a no-brainer. They find a way to earn more money.

    Other people will simply skip the family vacation because it’s too expensive.

    At this stage in my life, I’m not willing to do that. I have three young kids. I already feel like they’re growing up too fast.

    A year ago, my daughter wouldn’t let go of my hand when I walked her to school. Now, she’s “too cool” to waive goodbye to Daddy.

    The idea of skipping out on family vacations does not appeal to me at all. I know that there will come a day when I would really regret that choice.

    Instead of eliminating family vacations, I would rather find a way to make more money.

    You can have anything you want; you just can’t have everything.

    Warren Buffett famously told his kids that they could have anything they wanted. They just couldn’t have everything.

    That sums up my approaching to spending. If there’s something I truly want that doesn’t currently fit in my budget, I would prefer to earn more instead of giving up on having that thing or experience.

    I might get there through a side hustle. I might get there through investing. If it’s something I value enough, I will get there one way or the other.

    If you focus on your income, not just cutting expenses, you can continue your journey to financial independence without giving up these things that make life special.

    Or, you can cut out the coffee and vacations, if that’s your preference.

    I’d rather challenge myself to make more money so I don’t have to make those sacrifices.

    Do you think financial independence is only for people willing to aggressively cut their spending?

    Or, do you agree that financial independence is for anybody willing to work for it?

  • Why Coast FIRE is a Powerful Money Mindset Hack

    Why Coast FIRE is a Powerful Money Mindset Hack

    Are you working a job you don’t like because you’re worried about saving enough for retirement?

    Well, what if you already have more than enough saved for retirement?

    Would that give you confidence to think about switching jobs? Maybe to a job that pays less but better fits your life goals?

    Think about it.

    If you didn’t have to save another dollar between now and retirement age, would that give you more career freedom?

    Would you start looking for that job you really want instead of the job that pays the most?

    To explore these questions, let’s look at the money mindset concept known as “Coast FIRE.”

    What is Coast FIRE?

    Coast FIRE is a subset of FIRE for people who are not necessarily trying to retire early.

    Instead, the idea is to aggressively fund your retirement accounts early on so you have more options as your career progresses.

    The reason you’ll have options is because once you hit your projected magic retirement number, you no longer need to fund your retirement accounts.

    You can sit back and let compound interest do its thing. Your retirement years are covered.

    With retirement covered, you don’t need to earn as much money. You can focus more attention on your present-day self. That might mean working less hours or working the same amount but in a different job.

    This is the essence of Coast FIRE: knock out retirement planning early on to create more career flexibility later.

    Coast FIRE does not mean complete financial independence.

    When you reach Coast FIRE, you are not financially independent because you still need money coming in to fund your current lifestyle.

    But, you need less money because you no longer need to save for the important goal of retirement. That means you have earned some financial freedom, but not complete freedom.

    That’s OK.

    Remember, the part that separates Coast FIRE from traditional FIRE is that early retirement is not the goal.

    Instead, Coast FIRE means continuing to work until normal retirement age (like age 65) but having more freedom in what you do for work.

    To put a bow on it: the main money mindset benefit of Coast FIRE is that you have options once you’ve already put away enough money for retirement.

    With retirement taken care of, you can:

    1. Switch to a lower paying job or lower stress job.
    2. Become a stay-at-home parent and live off of one spouse’s income.
    3. Start a business.
    4. Grow your side hustle.
    5. Take some time off to think about what you want to do next.

    With Coast FIRE, each of these options feels safer because you’ve already fully funded your retirement.

    That’s a powerful feeling.

    You can take a pay cut for a better job with Coast FIRE.

    Let’s say you earn $200,000 and save 20% of your salary ($40,000) for retirement.

    Once you reach your retirement goal, you no longer have that $40,000 obligation. You have achieved Coast FIRE.

    With that extra $40,000, you have options. You could:

    1. Live it up and spend the money on stuff you don’t care about.
    2. Repurpose the money towards another financial goal.
    3. Switch to a more attractive job that may only pay $160,000.

    Whatever you choose, the point is that you have options.

    If your job is slowly killing you inside, Coast FIRE provides the money mindset to explore other jobs.

    It’s no secret that lawyers typically work long, stressful hours. That’s why burnout amongst lawyers is unfortunately a common occurrence.

    For example, you may have begrudgingly taken a high-paying job out of law school to pay down your loans faster. By the way, there’s nothing at all wrong with that.

    Now, with your loans gone and your retirement savings in good shape, maybe you’d like to explore a less stressful job.

    Maybe you’re ready to pursue that less lucrative career that was the reason you went to law school in the first place.

    Maybe you’re ready to stay at home with your kids and live off of one spouse’s income.

    Of course, burnout is not limited to lawyers. Many professionals today are experiencing burnout.

    Have you been putting off that career change? Does this sound too familiar?

    Coast FIRE allows you to find a job that fits your life better knowing you don’t need to make as much money.

    aerial view of beach with mountains in the backdrop indicating the power of coast FIRE as a money mindset hack.
    Photo by Rod Long on Unsplash

    Financial Independence Pivot Early (FIPE)

    If you’ve been a follower of Think and Talk Money, you know I don’t like the term “FIRE.”

    The problem for me is that the FIRE end game is suggested right there in the name: become financially independent so you can retire.

    If you’re anything like me, you didn’t pay all that money to go to law school just to retire in your peak-earning years. There’s plenty of meaningful work still to do.

    It’s not uncommon for people to hear about financial independence and immediately think that’s only for people who want to quit their jobs and retire on a beach somewhere.

    I don’t think that’s what financial independence is about at all.

    Financial independence is all about creating options.

    When you’re financially independent, you can make decisions based on your core values instead of making decisions based on money.

    You can pivot.

    That’s why I believe in FIPE not FIRE.

    I prefer to think about pivoting, not retiring.

    Pivot means to adapt or improve through modifications and adjustments.

    That sounds appealing to me.

    Retire means to withdraw, to retreat, to recede.

    None of those things sound appealing to me at all.

    Retiring sounds like moving backwards. I’m not working so hard to achieve financial freedom so I can move backwards in life.

    With FIPE, financial independence is still the primary goal. But, the endgame is not to withdraw or retreat.

    The endgame is to adapt and improve how you spend your working hours.

    Financial independence is for people who want to be empowered to take more control of what they do with their working hours.

    It’s not about quitting work entirely.

    It’s about the freedom to pivot to other work, if you want. I’m convinced that humans are meant to be productive. We are social creatures who at our core want to be contributing.

    That doesn’t mean we have to be or want to be employees. But, it does mean that we want to do something meaningful with our working hours every week.

    That’s why I believe in the power of pivoting, not retiring.

    That’s what FIPE is all about.

    And, that’s what Coast FIRE allows you to do.

    Financial independence is about much more than retiring early.

    FIRE emphasizes saving more and spending less until you reach the point where your passive investments generate enough income to allow you to quit your job.

    I love this part of FIRE: the idea of creating enough income streams so that you have the freedom to do what you want with your time.

    I share the primary goal of saving more money and spending less to achieve more life freedom.

    By the way, I call this Parachute Money. I like to view each income stream as a separate parachute string. The more parachute strings you have, the safer it is to make a big change in life.

    The problem becomes when people are so focused on achieving FIRE that they sacrifice too much of their current lives.

    Yes, you’ll achieve FIRE faster if you save 90% of your salary.

    But, what kind of life are you left with in the meantime?

    Coast FIRE is less about the grind and more about enjoying the process.

    The goal is still to be financially independent, even with the recognition that it will take longer to get there.

    seashore during daytime showing the money mindset hack of Coast FIRE.
    Photo by britt gaiser on Unsplash

    FIPE and Coast FIRE work well together.

    FIPE and Coast FIRE are similar because they are for people who are looking for change but are not looking to retire.

    By having enough saved up for retirement before you make that change, you’re giving yourself a layer of protection.

    You’re giving yourself the freedom to explore better work situations for your personal situation.

    That’s why Coast FIRE and FIPE work well together.

    Both money mindsets actually encapsulate the entire purpose of financial independence in the first place:

    To create options.

    Read Die with Zero by Bill Perkins

    If you don’t like the idea of Coast FIRE and foregoing future retirement contributions, you need to read Die with Zero.

    No money mindset book has led to more passionate conversations with my friends and family members than Die with Zero.

    First, Perkins encourages us to think about whether we are working too many hours.

    In Perkins’ view, the problem is that we are sacrificing the best years of our lives. Instead, we could be creating lifelong memories.

    In that same vein, Perkins makes a strong case that many of us are saving too much for retirement.

    Also, Perkins questions the conventional wisdom of waiting until we die to pass money onto our kids. Instead, he suggests helping our kids earlier in life when the money will be more meaningful.

    Read Die With Zero. This money mindset book will motivate you to book that vacation you’ve been putting off.

    Also, read A Richer Retirement by Bill Bengen.

    Bill Bengen, creator of the 4% Rule, just released a new book with some fun news for all of us saving for retirement.

    Bengen’s updated research shows that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

    If you are retiring today, it gets even better. Bengen’s research shows that you can safely withdraw around 5.25%.

    Bengen’s new book is called A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.

    If you’re not sure about how much you need to save for retirement, Bengen has the answers. He’s done the research and done the math.

    His conclusions will give you the confidence to select a magic retirement number that works for you. Once you reach that number, you don’t have to worry about saving more for retirement.

    Coast FIRE will open your eyes.

    Coast FIRE is a powerful money mindset hack.

    When you reach Coast FIRE, you no longer need to save for retirement.

    That gives you a lot of options, including switching to a job that better suits your lifestyle.

    If you feel like you’re far away from retiring, Coast FIRE is the money mindset hack to start making you feel better about your progress.

    In our next post, we’ll do some math together to figure out what your Coast FIRE number is so you can measure your progress.

    Are you interested in creating options to pivot instead of retire?

    Have you thought about Coast FIRE in the past?

    What about FIPE?

  • What if You Woke up Tomorrow with $10 Million?

    What if You Woke up Tomorrow with $10 Million?

    If you woke up tomorrow with $10 million in your bank account, would you do anything differently?

    I ask a version of this question whenever I teach my personal finance course to law students. I’ve also asked this question to a lot of my friends and family members.

    Whether in class or with friends, this question is a great conversation starter. It’s not so much about the dollar amount as it is about the money mindset that goes along with that amount.

    That’s because asking what you would do with $10 million is just another way to ask what you would do with financial freedom.

    Attaching a specific dollar amount to the question helps make financial freedom seem real. That’s because it turns the aspirational concept of financial freedom into actual numbers.

    With those numbers in mind, you can more realistically think about what your life could look like if you were financially free.

    That’s why I love the question. I find it very interesting to talk to people about what they would do with financial freedom.

    Why I love talking about financial freedom.

    If you hear $10 million in the bank and think of spending it on mansions, boats, and cars… this is not the blog for you.

    I want to talk about using that $10 million to buy something way more valuable than material possessions: your freedom.

    When you are financially free, you can choose to do work that is meaningful to you without worrying about how much it pays. You can also choose to spend more time with people who are meaningful to you.

    I am striving for both of those things on my journey to financial freedom.

    By the way, $10 million is just an arbitrary number. Maybe your number is $3 million or $8 million or $15 million. For this conversation, use whatever number represents financial freedom to you.

    The amount may differ based on your age, spending habits, debt level, dependents, etc.

    The idea is to pick a dollar amount that is high enough that you wouldn’t have to work anymore unless you wanted to. In its simplest form, that’s what financial freedom means.

    I’ve found that when I have this conversation, $10 million is a good, round number to get people thinking about what they would do with financial freedom.

    So, today we’re going to ask ourselves if we would do anything differently if we woke up with $10 million in the bank.

    To help get the wheels turning, let’s start with some simple math to see what having $10 million in the bank really means.

    What does $10 million in the bank really mean?

    Let’s do some simple math using the 4% Rule to help frame the question.

    The 4% Rule suggests that you can safely withdraw 4% of your investments each year and expect your money to last for 30 years. 

    Without getting too technical, the 4% Rule is based off of research looking at historical investment gains, inflation, and other variables. I view the 4% Rule as a useful tool to ballpark your magic retirement number.

    The 4% Rule is a great place for us to start thinking about what you could do with $10 million.

    Here’s what the formula looks like using $10 million as our current savings:

    Current Savings x 4% (.04) = Annual Retirement Spending

    $10,000,000 x .04 =$400,000.00

    This means that according to the 4% Rule, you could spend $400,000 annually and expect your money to last 30 years.

    This is a useful calculation that puts into perspective how much money $10 million really is. You can essentially view having $10 million in the bank as the same as having a job that pays you $400,000 per year.

    The major difference is you don’t have to get out of bed in the morning to receive this $400,000.

    Note for simplicity’s sake, we’ll set aside the tax implications of investment income v. W-2 income for this hypothetical.

    One other note: if you had $10 million in the bank, you don’t have to spend $400,000 per year. Rather, the 4% Rule suggests you could spend up to that amount and not run out of money for 30 years. If you spend less than 4% each year, your $10 million will last longer.

    How much can you spend each month with $10 million in the bank?

    To help you picture your life with $10 million in the bank, we can break down that $400,000 annual spending amount even more.

    I like to know how much I could safely spend on a monthly basis if I had $10 million in the bank. Knowing the amount I could spend monthly helps make the $10 million more digestible.

    That requires just a bit more very simple math:

    $400,000 annually / 12 months = $33,333.33

    So, if you have $10 million in the bank, you should be able to safely spend about $33,000 per month.

    The way to the cabin lady with arm out her window symbolizing what you can do with $10 million in the bank.
    Photo by averie woodard on Unsplash

    Now, you can view that number in the context of your Budget After Thinking. You might learn that you’re spending way less than $33,000 per month. Or, you may be spending way more.

    Either way, it puts that $10 million into smaller, more digestible numbers.

    To recap, we now know that $10 million in the bank means we can spend roughly $33,000 per month and not run out of money for 30 years. The important question then becomes:

    Would you make any changes to your current life if you started each month with $33,000 in the bank without having to work?

    Let’s explore what your answer may say about your current work situation.

    Would you still work your current job if you had $10 million in the bank?

    If you had $10 million in the bank, would you continue to work your current job?

    If your answer is “Yes,” that’s a great sign that you enjoy your work and the people you work with. You also most likely have motivations for working that go beyond earning money. That’s a really nice position to be in.

    By the way, I know a good amount of people in this boat. Even with $10 million, they wouldn’t change a thing about their work situation.

    If your answer is “No,” it’s worth thinking about why you wouldn’t keep working your job. Is it the people? The hours? The lack of stimulation? Overall stress?

    $10 million in the bank should be enough to leave your job for new pursuits. You can start to ask yourself what you would do for work if you didn’t have to work for money.

    I also know a lot of people in this boat. If they had $10 million, they would be out the door tomorrow.

    Why am I talking about new pursuits instead of shutting it down completely?

    With $10 million in the bank, your initial thought might be to just shut it down completely. For people of a certain age or people with health considerations, that certainly could be the right choice.

    Setting those reasons aside, I do not believe in retiring early. I’m convinced that humans are meant to be productive. We are social creatures who at our core want to be contributing.

    I think this especially holds true for high achievers who have put in the work and made sacrifices to become financially free in the first place.

    That’s why I don’t believe financial independence has to mean retiring. It’s also why I don’t like the popular acronym, FIRE: Financial Independence, Retire Early.

    The problem for me is that the FIRE end game is suggested right there in the name: become financially independent so you can retire.

    I don’t like what the word “retire” implies.

    If you look it up, you’ll see that the word “retire“means to withdraw, to retreat, to recede.

    None of those things sound appealing to me at all. 

    Each word implies moving backwards. I’m not working so hard to achieve financial freedom so I can move backwards in life.

    Instead, I like to view my financial freedom journey as FIPE:

    Financial Independence, Pivot Early.

    I believe in FIPE not FIRE.

    When you have financial independence, you have options. You can make decisions based on your core values instead of making decisions based on money. You can pivot, if you want.

    One of the ways you can pivot is by taking more control of what you do with your working hours. It’s not about quitting work entirely and wasting away on a beach. As nice as that might sound right now, it will get old fast.

    That’s why I believe in FIPE not FIRE.

    I encourage you to think about how you might use $10 million to pivot instead of to retire. Could you use that money to buy yourself the freedom to pursue more meaningful work?

    So, what would you do with $10 million in the bank?

    The point in asking about $10 million is to help you think about your current choices and whether it’s time to make some adjustments.

    Having this conversation with your friends and family will teach you a lot about your current situation. Remember, talking about money is not taboo.

    In these conversations, pay attention to what you learn about yourself and how you presently spend your time.

    Even though $10 million may seem like a distant dream, you don’t need to have that much money to start your own financial freedom journey.

    You can start making choices today to put yourself in a better position to pivot, if you so choose.

    Maybe you wouldn’t change a single thing about your career choices. Or, maybe you would be out your employer’s door tomorrow.

    In the end, thinking about what you could do with $10 million in the bank will help you lead a more intentional life.

    So, let us know in the comments below.

    What would you do with $10 million in the bank?

  • Money on My Mind: Bears, Net Worth and Exercise

    Money on My Mind: Bears, Net Worth and Exercise

    On my journey to financial freedom, I’m consistently striving to learn as much as I can from others who have done it before me.

    This week, I read a few great blog posts from some of my favorite authors and bloggers.

    Let’s take a look and see what we can learn together.

    What to do in a bear market.

    JL Collins recently posted about the big mistake that people make during bear markets. A bear market is when the stock market drops by 20%.

    Collins is one of my favorite authors on investing. He just released the new edition to his best-selling book, The Simple Path to Wealth.

    I highly recommend you pick up a copy if you are interested in learning the easy way to invest and grow your net worth.

    You can read my full review of The Simple Path to Wealth in my post here.

    Back to the question at hand:

    As an investor, what should you do during a bear market?

    Nothing!

    Easier said than done, right?

    Human instinct is to act. Our natural instinct tells us to do something when confronted with danger. We’ve all heard the saying, “fight or flight.” It’s our body’s way of protecting us from potential harm.

    For example, if you encounter a bear in the woods, despite what survival experts may tell you, I’m betting you’re running for your life in the opposite direction.

    That’s exactly what my wife and I did when we saw a black bear in Colorado a couple summers ago.

    Even though we were at least 100 yards away when we saw the bear, and the bear was walking away from us, we ran in the opposite direction as fast as we could.

    Survival experts, we are not.

    Doing nothing in a bear market is easier said than done, like not running away from a black bear when you see one on the trail up ahead.

    If you zoom in (and squint), you can see the ferocious beast in this picture.

    When it comes to investing, the saying should be modified to include a third option: “fight or flight or do nothing.”

    And as JL points out, doing nothing is usually the best decision.

    When the market drops, you have the chance to buy stocks at a discount. Whenever the market bounces back, you will benefit from all those discounted stocks you purchased.

    Of course, nobody knows when the market will bounce back. For that matter, nobody knows when it’s going to drop, either. However, history has shown us that the market has always recovered.

    What if the market doesn’t recover?

    Then, we all have bigger problems to worry about than our money.

    It may take a long time for the market to recover. That’s OK. When you invest early and often, time is on your side.

    By combining time and the courage to do nothing, you will benefit immensely in the long run.

    The Rise of Middle Class Multi-Millionaires

    Another one of my favorite authors and bloggers, Financial Samurai, recently posted about the rise of middle class, multi-millionaires.

    If you haven’t picked up a copy of his new book, Millionaire Milestones, I highly recommend it. I recently ranked it as one of my favorite money mindset books.

    You can read my full review of Millionaire Milestones here.

    In his post on middle class multi-millionaires, Financial Samurai raises a great point:

    How come people are so enthralled by high incomes instead of high net worths?

    Like me, have you wondered why people tend to be more interested in someone’s salary rather than his net worth?

    I have one theory for why society continues to value income more than net worth: income can be more easily measured and more easily used for marketing purposes.

    To put it another way: income is sexier than net worth.

    One example I thought of: remember when you applied to college, grad school, law school, etc.?

    Did you notice how schools commonly advertise the average or median income of their graduates. Schools love to show off that if you go to their school, you’ll make a certain amount of money upon graduating. 

    However, you’ll never see data on the net worth of its graduates.

    Why is that?

    Because an impressive net worths can take decades of discipline to manifest. That type of slow progress doesn’t make for sexy marketing for schools.

    Plus, a top flight education may help you earn a high income but doesn’t guarantee a high net worth. Many high earners are also high spenders. You’d be surprised how many people are good at making money but not keeping it.

    It’s up to each of us to turn that income into a high net worth. Again, that’s harder for schools to market.

    If you are a personal finance enthusiast, you know to value net worth more than income. In fact, the most impressive feat of all is when you have a high net worth on just a standard income.

    For my kids, I’d be way more impressed to see what schools crank out students with high net worths 20-30 years after graduation instead of the median income upon graduation.

    To learn how and why to track your net worth, you can read my post here.

    Does early retirement negatively impact your life expectancy?

    I read a fascinating post on Early Retirement Now that looked at the potential consequences of someone’s life expectancy based on when that person retires.

    There has been a lot of academic research done on the topic. Somewhat surprisingly, there are studies that indicate retiring early may negatively impact your life expectancy.

    Check out the post on Early Retirement Now for a closer look at some of these studies.

    I’m not too worried about the conclusions about life expectancy based on when someone retires. At best, there are conflicting studies on that question.

    Rather, what I found most interesting about the post was that I’ve rarely thought about the potential health consequences about retiring early.

    I regularly think about the mental side of retiring early. Specifically, how does someone keep his mind sharp in early retirement?

    This is one of the main reasons I believe in FIPE not FIRE.

    However, I’ve never really thought about the physical effects of retiring early.

    Does retiring early negatively impact your physical health?

    I may have mistakenly assumed that someone’s physical health would automatically peak in early retirement. I’ve based that assumption on the idea that you’ll have so much time to exercise and eat right when you don’t have to worry about a job.

    In other words, if you’re not spending 50+ hours per week sitting at a desk, there would be no excuse to skip out on exercising regularly and preparing healthy meals at home.

    This post has me thinking about other factors I’ve failed to consider.

    For one, your body may trend towards lethargy if you’re not forced to wake up, get dressed and work 50+ hours per week. Plus, as much as people may not like commuting, at least it gets you out of the house and moving around.

    My takeaway is that if you’re considering retiring early, be sure to plan ahead for physical activity as much as mental activity.

    Your body may not want to exercise every day. You may need a motivational boost from group exercise classes or clubs. Maybe you’ll need a personal trainer or coach.

    If you don’t currently have any hobbies tied to physical activity, I would suggest exploring different options before you leave full-time employment. It may take some time to find your groove with an activity or two that interests you.

    Let us know what you think about these posts.

    What do you think about these posts from popular personal finance writers?

    • Are you brave enough to do nothing in the face of a bear?
    • Have you been tricked into thinking a high income is more impressive than a high net worth?
    • What are your thoughts about the physical side of retiring early?

    Let us know in the comments below.

  • What is Your Magic Retirement Number?

    What is Your Magic Retirement Number?

    Have you thought about your number recently?

    According to a recent study by Northwestern Mutual, Americans expect they will need $1.26 million to retire comfortably.

    When you first hear that retirement number of $1.26M, does that sound impossibly high? Does it sound way too low?

    Or, maybe your reaction was like what my five-year-old says when questioned about who made the mess:

    “No clue.”

    I think it’s safe to say that, at some point, most professionals accept that they need to save for retirement. Hopefully, you are in that group and have been investing early and often.

    However, I suspect most people have never thought about how much they’ll actually need to retire comfortably. That’s understandable since retirement can seem like such a far-off goal.

    Still, it’s a good idea to start thinking about how much you’ll need to retire comfortably. We’ll refer to that amount as your magic retirement number.

    That way, you can start taking the necessary steps today to reach that magic retirement number.

    Today, we’ll learn how to calculate your magic retirement number.

    So, how do I figure out my magic retirement number?

    To answer that question, let’s turn to the “4% Rule.”

    The 4% Rule is one of the most popular ways in the personal finance community to ballpark how much money you’ll need in retirement.

    Of course, your personal answer depends on a variety of factors, like when you want to retire and how much you expect to spend in retirement.

    You can imagine how someone hoping to achieve FIPE (Financial Independence Pivot Early) may require a different amount than some retiring in his 70s.

    Your answer may also change after reading a book like Die with Zero, where author Bill Perkins brilliantly argues that most of us are actually saving too much for retirement.

    In any event, the 4% Rule can give you a good idea of where you currently are. Then, you can decide what changes you may want to make to ensure you hit your magic number.

    Let’s dive in.

    What is the 4% Rule?

    The 4% Rule suggests that you can safely withdraw 4% of your investments each year, adjusted for inflation, and expect your money to last for 30 years.

    Without getting too technical, the 4% Rule is based off of research looking at historical investment gains, inflation, and other variables.

    For simplicity, let’s say you have $1 million in your portfolio. According to the 4% Rule, you can safely withdraw $40,000 per year (4% of your portfolio) and not run out of money for 30 years.

    Using the magic retirement number of $1.26 million, you could safely withdraw $50,400 and not run out of money for 30 years.

    These simple examples show how you can take your current retirement savings and project how much you can safely spend so your money lasts 30 years.

    The 4% Rule also works in reverse.

    By that, I mean you can use the 4% Rule to ballpark how much money you’ll need in retirement to maintain your current lifestyle. We’ll look at exactly how to do that below.

    In either case, the 4% Rule is an effective and easy way to start thinking about a magic retirement number.

    Use the 4% Rule as an easy projection tool, not an actual withdrawal rate.

    I view the 4% Rule as a tool to ballpark your magic number, as opposed to a strict withdrawal rate once you actually retire.

    I point that out because there’s some debate in the personal finance community as to whether 4% is still a safe withdrawal rate in today’s economic environment.

    For our purposes, I’m not too concerned about that debate.

    Once you get to retirement, your actual withdrawal rate may be higher or lower than 4% depending on a variety of factors.

    Regardless, the 4% Rule is a great way to start thinking about how much you’ll need in retirement.

    So, let’s practice using the 4% Rule.

    Our goal is to help you project a magic retirement number based on your current spending habits.

    How to use the 4% Rule based on your current savings.

    We mentioned above that the 4% Rule works two ways.

    First, you can take your current retirement savings and calculate how much you can safely spend so your money lasts 30 years.

    If you have $1 million invested, the 4% Rule says you can safely spend $40,000 annually and expect your money to last 30 years.

    Current Savings x 4% (.04) = Annual Retirement Spending

    $1,000,000 x .04 =$40,000.00

    That’s a useful calculation, especially if you’re nearing retirement age and just want to know how much you can spend each year.

    The 4% Rule works two ways, meaning you can calculate how much you can spend in retirement based off of your current savings or you can reverse it and calculate how much you need to maintain your current spending levels.
    Photo by Hugo Delauney on Unsplash

    But, what if you don’t exactly know when you want to retire?

    Your main priority may not be to retire by a certain age. Instead, your aim may be to retire with enough money to maintain your current lifestyle. You’re determined to continue working for as long as it takes.

    To calculate that magic retirement number, you can once again use the 4% Rule.

    How to use the 4% Rule based on your current spending habits.

    The second way to use the 4% Rule is to start with your current spending habits to project how much money you’ll need to maintain that level of spending in retirement.

    This may seem obvious, but to do so, you’ll first need to know your current spending habits.

    If you don’t know how much you’re currently spending on a monthly basis, take a look at our budgeting series here.

    The good news is that once you’ve created a Budget After Thinking, this next part is easy.

    To calculate your magic retirement number based on current spending, simply follow these steps:

    1. Add up the amount your’re spending each month in Now Money and Life Money.
    2. Take that number and multiply it by 12 to see how much your lifestyle costs per year.
    3. Divide that yearly spending by .04

    That’s your magic retirement number.

    Current Spending / 4% (.04) = Magic Retirement Number

    One note related to your Budget After Thinking: for this exercise, ignore your Later Money (with one caveat). Only use your Now Money and Life Money totals.

    The reason is that since you’re retiring, you likely won’t be focused on saving for future goals anymore. Presumably, you’ve already reached your goals. If you include your Later Money in your monthly spending, you’re magic retirement number will be artificially inflated.

    The caveat is for those people pursuing FIPE. In that case, you should include your Later Money in your calculations. That way, you have a buffer in place to cover you over a longer retirement period.

    Now, let’s use some real numbers to help illustrate how to use the 4% Rule to project your magic retirement number.

    Here’s how to use the 4% Rule to forecast your magic retirement number.

    Let’s look at an example using the 4% Rule to forecast your magic retirement number.

    Let’s say that you reviewed your Budget After Thinking and learned that you spend $6,000 per month in Now Money and $4,000 per month in Life Money.

    Combined, that means your lifestyle costs you $10,000 per month, or $120,000 per year.

    To figure out how much you would need in investments to cover your current lifestyle for 30 years, divide $120,000 by .04.

    Current Spending / 4% (.04) = Magic Retirement Number

    $120,000 / .04 =$3,000,000.00.

    That means to maintain your current lifestyle of spending $120,000 per year for 30 years, you would need $3 million in investments.

    In other words, your magic retirement number is $3 million.

    If that number seems impossibly high to you, you now know to make some adjustments to your current spending.

    Let’s look at how your magic number changes with some tweaks to your spending habits.

    Assume you’re open to cutting some expenses in retirement to reduce your magic number. That might mean spending less money on transportation, meals out, your wardrobe, and whatever else.

    Let’s assume that by making those cuts, you shaved $1,000 off your Now Money expenses.

    As a result, you only need $9,000 to cover your retirement lifestyle each month. That’s $108,000 per year.

    Using the 4% Rule, your magic retirement number has now shrunk to $2.7 million.

    $108,000 / .04 =$2,700,000.00.

    That means that by reducing your spending by $1,000 per month, you have reduced your magic retirement number by $300,000.

    It also means you have just sped up your timeline to retirement by reducing your lifestyle expenses.

    A surprising note about people’s magic retirement number in 2025.

    At the beginning of this post, we learned that according to a recent study by Northwestern Mutual, Americans expect they will need $1.26 million to retire comfortably.

    What’s most interesting to me is that this year’s magic retirement number dropped from $1.46 million reported in the same study just last year.

    Think about that for a minute.

    Because of inflation (and now tariffs), things are only getting more expensive year over year. If anything, you would think that people would say they need more money to retire comfortably in today’s enviornment.

    Except, the study found the opposite happened. Instead of wanting more money to pay for all these more expensive things, people think they can retire comfortably on nearly 14% less money.

    How does that make any sense?

    For starters, I doubt many of these respondents used the 4% Rule to project their magic retirement number based on their current spending habits.

    If they had, they would have seen that their spending has likely gone up this year, unless they’ve made big cutbacks. Then, they would have seen that their magic retirement number also went up to account for those higher expenses.

    Besides ignoring the 4% Rule, my other takeaway relates to one of our major themes at Think and Talk Money:

    Money is emotional.

    If our money thoughts were strictly rational, there would be no way that someone could say he needs less money to survive when everything is more expensive.

    The reality is that our decisions don’t always make rational sense.

    And, that’s OK.

    Recognizing that our money decisions are not always rational, what can we do about it?

    We can think and talk about money.

    Talking to our people about our money decisions, like we would anything else, is the best way to find a balance between our emotional side and our rational side.

    So, what is your magic retirement number?

    Now you know how to use the 4% Rule to calculate your magic retirement number.

    Be sure to use the 4% Rule as a tool to help you think about making adjustments to your current spending or savings habits.

    Knowing how to use the 4% Rule, does a magic number of $1.26 million seem too high, too low, or maybe just right?

    Let us know in the comments.

  • Invest Early and Often for the Magic of Compound Interest

    Invest Early and Often for the Magic of Compound Interest

    There’s an infamous slogan in Chicago politics, “Vote early and often.” My professional advice: don’t do that. Instead, I prefer: “Invest early and often.”

    We’ll call it the new Chicago way.

    When you invest early and often, you can take advantage of the power of compound interest.

    There’s very little we can control when it comes to investing. One of the main things we can control is how early we prioritize investing.

    In today’s post, we’ll learn what compound interest is and why it’s so powerful in generating long-term wealth.

    Invest early and often to benefit from the magic of compound interest.

    Compound interest is the interest you earn on interest.

    How’s that for a confusing definition?

    Fortunately, the idea of compound interest makes a lot more sense with a simple example.

    Let’s say you make an initial investment contribution of $1,000. Let’s assume that you earn 10% interest each year on that investment. We will also assume that you re-invest your investment gains.

    After the first year, your initial contribution of $1,000 earns $100 in interest (10% of $1,000). That means after one year, you have $1,100 in your investment account.

    Because we are re-investing our gains, that means that at the start of year two, yo have $1,100 to invest: $1,000 from your initial contribution plus the $100 earned in interest.

    If you earn the same 10% interest on that $1,100 investment, you will have $1,210 at the end of year two.

    Notice that in year two, you earned $110 in interest, whereas in year one you earned $100 in interest. That’s because in year 2, you earned interest on the interest your previously earned.

    This is the key point about compound interest: you earned more money in year two, even though the interest rate remained the same and you did not contribute any additional money.

    That’s how compound interest works. Compound interest is earning interest on interest you’ve previously earned.

    So, why is compound interest so powerful?

    Earning an additional $10 in interest year two may not seem like a lot.

    Over the long run, those additional earnings add up.

    Let’s look at an illustration from investor.gov of what happens to that initial $1,000 contribution over a 30-year period:

    A chart showing the power of compound interest and why you should invest early and often.

    In 30 years, you will have a total of $17,449.40. That’s a pretty good result from total contributions of only $1,000.

    However, for this example, that total is not the important part. The important part is to visualize how compound interest worked its magic to get that result.

    Look closely as the two lines on the graph. The blue line that doesn’t change represents your initial $1,000 contribution.

    The red line represents the amount of money you have over time.

    Notice how in the first 10 years or so, the red line and blue line mirror each other pretty closely. Around year 12, you start to see some separation between the two lines.

    While the blue line stays flat, the red line begins to arc upwards. That’s because all that interest you earned during the previous decade has been earning interest. Your investment begins to accelerate upwards without any additional contributions from you.

    By the end of year 30, look at how steep the red line is jetting upwards.

    We can look at the specific amount of money you’d earn each year in this hypothetical to really drive this point home.

    As we mentioned earlier, you earned $100 in interest during year 1. Then, you earned $110 in interest during year 2. That’s a good, but modest, increase.

    During year 12, you earned $285.31 in interest. That’s significantly more than you earned in the early years, all without any additional contributions on your part.

    During year 30, you earned $1,586.31 in interest!

    The more time that you stay invested, the more money you’ll earn as compound interest works its magic.

    That’s the power of compound interest.

    Invest early and often to be a millionaire with very little effort on your part.

    Compound interest is so powerful that it can make you a millionaire with very little effort on your part. All it takes is time and consistency.

    In other words, invest early and often.

    Let’s look at another example to see how you can easily become a millionaire if you invest early and often.

    Let’s say you begin your career after going to law school or grad school at age 25. During your first year working, you saved up $3,000 and decided to invest in a low cost index fund.

    You also make a plan to contribute an additional $300 per month to your investment account for the next 40 years, setting yourself up to retire at age 65.

    We’ll also assume you earn the same 10% interest from our prior example, and you don’t make any withdrawals from your account.

    By the time you reach retirement age, you’ll have $1,729,110.97 in your retirement account!

    That’s after contributing only $3,000 initially and $300 per month after that.

    Put another way, your total contributions of only $147,000 turns into $1,729.110.97 by the end of your career.

    Let’s look at the graph corresponding with these figures to once again visualize compound interest at work.

    A picture showing how to invest early and often with $3,000 and then monthly contributions of $300 that turns into $1.7 million by retirement age.

    You’ll notice this graph looks almost identical to our prior example, even with the additional contributions that you make over time.

    You can once again see that the blue and red lines mirror each other closely for the first 10-15 years.

    Then, the blue line stays relatively flat while the red line gradually arcs up before skyrocketing towards the end.

    Your personal investment picture should look similar in the long run.

    Now, there’s no way to predict exactly when you’ll start to notice the magic of compound interest. There are too many variables at play.

    The point is that given enough time, your personal investment trajectory should look similar because of compound interest.

    You can play with the numbers in an investment calculator like the one available at investor.gov to match your personal situation.

    If you’ve created a Budget After Thinking, you may be able to invest much more than $300 per month.

    No matter what initial contribution you make and what interest rate you assume, you should notice a similar investment picture over the long run.

    When I say investing is the easy part, this is what I mean.

    I just showed you how an early contribution of $3,000 and regular contributions of $300 can turn into more than $1.7 million.

    You don’t have to understand the math behind compound interest.

    You just have to trust that it works.

    Then, invest early and often.

    Given enough time, assuming normal, historical market conditions, your investments will gradually increase before shooting up in the later years.

    Read that sentence again. “Given enough time” is the key phrase.

    The magic behind compound interest is time.

    The earlier you can start investing, the better off you will be.

    Since we can’t control investment returns, I prefer to focus on what we can control when it comes to investing.

    We can control when we start investing and how long we invest for.

    By making regular contributions over a long period of time, compound interest ensures that your wealth will grow.

    Invest early and often.

    $3,000,000 today or a penny that doubles each day for the next 30 days?

    Let’s look at one more fun example to demonstrate the power of compound interest.

    At the start of each personal finance class I teach, I ask my students this question:

    “Would you rather have $3,000,000 today or one penny that doubles each day for the next 30 days?”

    A penny sitting on top of a table representing the power of compound interest when you invest early and often.
    Photo by Roman Manshin on Unsplash

    Maybe the fact that I’m asking the question in the first place gives away the answer. Still, some students refuse to believe that the penny could grow to more than $3,000,000 in 30 days.

    The real lesson in asking this question is not that the penny ends up being worth more. The lesson is that it’s not until the very end of the time period that the penny takes the lead.

    Check out this graphic from TraderLion:

    A chart showing a penny doubling each day for 30 days proving why you should invest early and often.

    If you chose the penny, for the first 20 days, you’d be feeling pretty foolish. Even after 29 days, the penny still hasn’t outpaced the guaranteed $3,000,000.

    Then, by day 30, you realize the full power of compound interest. The penny ends up being worth $5,368,709.12!

    Just like we saw with our prior examples, it takes time for the magic of compound interest to do its thing.

    When it comes to investing, time is the most important factor that we can control. The more time you spend in the markets, the better chance you have of significantly increasing your wealth.

    People smarter than you and me preach the power of compound interest.

    Warren Buffett, the world’s greatest investor, fully appreciates the power of compound interest. He’s famous for saying that his favorite holding period for an asset is “forever”.

    Buffet’s not literally saying that there’s never a time or reason to sell an asset, like a a stock. He’s simply making the point that compound interest benefits people who stay invested over the long term.

    My first try to take a pro picture of Albert Einstein indicating the power of compound interest and to invest early and often.
    Photo by Jorge Alejandro Rodríguez Aldana on Unsplash

    If the world’s greatest investor isn’t impressive enough for you, how about the world’s greatest thinker?

    Albert Einstein is often credited with this famous quote about compound interest:

    Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.

    You don’t have to be as smart as Buffet or Einstein to benefit from compound interest.

    You just have to invest early and often.

    The Chicago Way: Invest early and often.

    Let’s recap:

    • Voting early and often = bad idea.
    • Investing early and often = good idea.

    Whether you are new to investing or have been investing for some time, never underestimate the power of compound interest.

    It will take time before you see results. But, the only way you’re going to get those results is by staying patient and staying invested.

    When you’re tempted to pull out of the market, remind yourself that investing is a long-term game.

    Picture the graphs that show how your money can skyrocket with enough time. Remember the question about the penny doubling for 30 days. Don’t ignore the words of Buffett and Einstein.

    Let compound interest do its thing.

    Invest early and often. It’s the new Chicago way.

  • Investing is Actually the Easy Part

    Investing is Actually the Easy Part

    Investing is a major part of leading a healthy financial life.

    It also should be the easiest part.

    Despite all the attention, news, and marketing, investing doesn’t have to be complicated.

    Investing simply means committing money now to earn a financial return later. This is why I refer to money I invest as Later Money.

    To be honest, the most difficult part of investing is continuously generating money to invest in the first place.

    The actual investing part is pretty easy.

    That’s because when you invest the right way, your money should earn more money without much additional effort from you.

    This is the best part about investing. Your money can (and should) grow over time without your active participation. This is why investment gains are often referred to as “passive income.”

    If you are on a journey towards financial independence, you know how important passive income is. The best way to get your time back is to earn money passively through investments while you’re off doing something else.

    We’ll soon learn why investing does not have to be complicated. If you can drown out the noise, all you’ll really need to do is regularly fund your investment accounts and watch your net worth slowly grow.

    This is when personal finance starts to get really fun.

    Investing is when personal finance starts getting really fun.

    When you’ve invested the right way, your wealth will slowly multiply. You won’t notice it at first. Trust me, give it time.

    You’ll soon see that all the effort you put into educating yourself about money was more than worth it.

    No, you won’t be immune from market swings like the one we’re in right now.

    But, you’ll be educated enough to not panic. You’ll know that time is on your side.

    Have you noticed that we’re now 50 posts in and have hardly talked about investing?

    There’s a reason we’ve hardly talked about investing in the first 50 posts of Think and Talk Money.

    In order to get the benefits of investing, you need to have the right money mindset. That means knowing why you’re investing in the first place. Without the right motivation, you will struggle to consistently fund your accounts.

    After all, when you invest, you are sacrificing money you could spend right now for the opportunity to spend even more later on. Without the right motivation, too many people put off, or give up on, investing altogether.

    When they do that, they have a little more money to spend today. But, years from now, they will wonder why they’re still working so hard and don’t see an end it sight.

    A morning yoga session peering into the jungle in Ubud, Bali demonstrating how investing does not have to be complicated, it just takes consistency and dedication.
    Photo by Jared Rice on Unsplash

    What is your motivation to invest?

    Your motivation may be to reach financial independence so you can pivot directions in life. This is known as FIPE (Financial Independence, Pivot Early).

    Your goal may be to pay for your kids’ college. One way to do that is to take advantage of 529 college savings plans.

    You may not know exactly what you want down the road. That’s OK, too. Whatever it is, investing now will make it easier to pursue whatever that thing ends up being.

    Once your mindset is in the right place, you’ll be more determined to craft a budget that consistently creates money to invest.

    Think about it: would you rather be someone who invests $1,000 one time or someone who invests $1,000 every month?

    If you practice solid personal finance fundamentals, you can be the person consistently investing to accomplish your ultimate life goals.

    Too many people think personal finance is only about investing.

    Too many people skip over the part where we learn strong personal finance habits. These people think that personal finance is only about investing. 

    Let’s play a game. Walk down the hall at your office and ask the first person you see what they know about personal finance.

    I’m guessing you’re going to get a response like:

    “Personal finance? Oh, yes. I need to learn that. I don’t know anything about the stock market.”

    If I’m right, leave a comment below. This should be fun.

    By the way, people that assume personal finance is only about investing are not bad people. They just haven’t been properly educated. Just like me when I set $93,000 on fire.

    By now, you know that personal finance is about so much more than investing. You know that you need to develop strong habits so you constantly have money to invest in the first place.

    And, you’ll soon learn that investing is really the easy part.

    When you learn basic investing principles, like minimizing fees and playing the long game, your money can slowly grow over time.

    As that happens, you move closer and closer to financial independence without much effort at all.

    It’s actually pretty easy.

    We’ll cover these basic principles in upcoming posts.

    One thing we won’t discuss at Think and Talk Money is the latest hot stock tip.

    If you want to study P/E ratios and company balance sheets in a quest for the best individual stocks, I won’t stop you.

    I just won’t be joining you.

    That’s because it’s very hard to pick winning stocks. Even the “experts” have a very hard time doing it consistently.

    You don’t believe me, do you?

    What if I told you that the vast majority of investment pros underperform the S&P 500?

    Check this out from Yahoo! Finance:

    Making matters worse is that the professionals, who the average investor might turn to for guidance, have poor track records. In the past decade, an alarming 85% of U.S.-based active fund managers underperformed the broader S&P 500. Those who invest in these funds are essentially paying for unsatisfactory results.

    If the “pros” can’t beat typical market returns that are available on the cheap for all of us… why even play that game?

    Why overcomplicate things?

    Sure, maybe you’ll get lucky and your investment pro is one of the few who can beat the market. Odds are that if your pro beat the market one year, he probably won’t the next year.

    If that’s your game, I wish you nothing but good fortune.

    Personally, I’d rather do things the easy way. I’d rather focus on what I can control, like how much money I’m contributing to my investment accounts each month.

    And, that brings us to an interesting point.

    Even if you are working with a professional, you are not excused from participating in your investment journey. You still need to understand the basics.

    Plus, while you may not be watching your portfolio closely, your job is always to make sure there is consistent money to be invested.

    My guess (or is it hope?) is that your advisor has told you as much.

    Investing is a major component of financial independence.

    Whether you are striving for financial independence, or hoping to maintain it, investing is a major component.

    To be a successful investor, you first need to practice strong financial habits.

    Don’t worry. If your mind is in the right place, the investing part is actually pretty easy.

  • Happy that I Delayed Financial Independence

    Happy that I Delayed Financial Independence

    I’m further away from financial independence today than I was five years ago.

    You know what’s funny?

    I couldn’t be happier about where I am today.

    Let me explain.

    In 2020, my wife and I had very minimal expenses.

    At the start of 2020, my wife and I were both working as lawyers in Chicago. We lived in an apartment in a 4-flat that we had purchased in 2018. We had no kids at the start of the year, but were about to welcome our first.

    This was a good apartment in a popular part of town. It had 3 bedrooms and 2.5 bathrooms. That was plenty of space for my wife and I, and eventually the two babies we brought home there.

    We purchased this 4-flat from a real estate investor who had done a decent job on the renovation. It had in-unit washer/dryer, modern finishes, and plenty of storage.

    We had a small outdoor patio with enough room for a grill and little table. We also had a garage parking space but ended up parking our 20-year-old car on the street most days.

    When we purchased the building, it was the most expensive 4-flat that had ever been sold in that part of town. It was a bit of a risk to set the high-water mark in the area.

    In the end, the risk was more than worth it.

    Even though the building was expensive for the area, this was not a fancy apartment. This part of town was still up-and-coming. Some people probably thought it was not a nice part of town.

    I doubt many people came over and thought, “Wow, look at this amazing apartment!”

    The more likely reaction was probably something like, “What the heck are they doing?”

    To be fair, I asked myself that question plenty of times.

    So, what were we doing?

    We were paying ourselves to live there.

    Say that again?

    My wife and I paid ourselves to live in that apartment.

    We lived for free. And made a profit at the same time.

    See, the rental income from the other three units covered the entire mortgage plus all expenses for the property.

    But, that’s not all. On top of covering all the expenses, the rental units generated a profit of $1,000 per month on average.

    So, not only did we spend zero dollars each month on housing, we profited $1,000 per month.

    Looking back, getting paid to live in a decent apartment was maybe the best decision we ever made.

    Landlord working outside the office checking his balance and earnings. Getting paid concept. Internet money income. Showing the power of house hacking even if it means delaying financial independence.

    What happens to your finances when you live for free?

    Let’s take a look at how living for free can be a major advantage on your way to financial freedom.

    The common wisdom is for people to spend no more than 30% of their gross income on housing. Regardless of how much you make, that usually means thousands of dollars.

    Because our tenants were paying our living expenses for us, we did not have that expense for the five years we lived in that apartment.

    In other words, we didn’t have to worry about budgeting for housing.

    We also drove a nearly 20-year-old car and could walk to the “L” (Chicago’s subway). We lived in a neighborhood with plenty of nearby restaurants and shops. That meant our transportation costs were next to nothing.

    Because we weren’t paying for housing and had very minimal transportation costs, we could supercharge our savings.

    How much were we able to save?

    Let’s take a look.

    Between 2018 and 2023, my wife and I acquired three buildings and ten apartments in that same neighborhood. We’re very familiar with market rents in the area.

    We rent our apartments for anywhere from $2,300 to $3,600 per month. Our usual tenants are professionals like engineers, lawyers, doctors, consultants, and pilots.

    The unit we were living in from 2018 to 2022 was one of our larger units. At the time, it would have rented for $3,500 per month on average. That equals $42,000 per year to rent that apartment.

    Keep in mind, if someone was paying rent to live there, that would be $42,000 of after-tax money.

    Since we owned the building, we lived there for free. We could save that $42,000 we would have otherwise paid in rent. Instead of spending that savings on things we didn’t need, we were able to save that money for our next real estate investment.

    Plus, we earned $1,000 on average per month while we lived there. That’s an additional $12,000 per year in profit.

    We lived in that unit for almost five years.

    Add it all up and we saved $270,000 by living in that apartment for five years.

    • $42,000 saved rent x 5 years =$210,000.
    • $12,000 profits x 5 years = $60,000.
    • Total savings = $270,000

    We used that $270,000 for a downpayment on a rental condo in Colorado ski country.

    It took five years of living in a decent, but not-awesome, apartment to have a ski condo that will hopefully be in our family for decades.

    Choosing to live in our 4-flat to save $270,000 over five years was one of the best financial decisions we’ve ever made.

    Snowboarders breath on a cold day illustrating the power of financial independence earned through house hacking.
    Photo by Alain Wong on Unsplash

    I highly recommend you consider house hacking if you’d like to start investing in real estate.

    Many of you are familiar with the strategy of living in a building (or home) you own while tenants (or roommates) pay for it. Brandon Turner, of BiggerPockets fame, popularized the concept he dubbed “House Hacking”.

    You can read all about house hacking on BiggerPockets here.

    For even more information on house hacking, Craig Curelop wrote a book for BiggerPockets called The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom.

    Without a doubt, there is no better strategy for entry level real estate investors than house hacking. I gave you a glimpse of the financial upside earlier in this post.

    Besides the financial upside, it’s like landlording with training wheels. Since you live on site, you can more easily learn how to manage a rental property, including responding to tenants and handling routine maintenance.

    The naysayers will say something like, “I don’t want to live with my tenants. They’re going to stress me out. I don’t want to be bothered at 2 a.m.”

    Ignore them.

    My wife and I lived with our tenants for five years at this property and two more years at a subsequent property. We did this while working full-time jobs as lawyers and raising two kids.

    Because we didn’t listen to the naysayers, we now have four income-generating properties and our “forever home” just outside Chicago.

    Even though we’re no longer living for free, the income from our rental properties is enough to cover the expenses of our home.

    So, why am I further away from financial independence today?

    I’m further away from financial independence today because my expenses have gone up since 2020. I’ve already alluded to those increased expenses throughout the post.

    In 2020, we had our first child. Now, we have three children.

    Also, after seven years of house hacking, we decided it was time to purchase a long-term home for our growing family just outside the city in a terrific area.

    We also finally traded in our 21-year-old car for our first new car ever.

    How’s this for easy math:

    Three Children + Nice House + New Car = Further Away from Financial Independence

    While that combination means I’m further away from reaching financial independence, I now have everything that I could possibly ever want.

    That’s why I couldn’t be happier with where I’m at today.

    My end game is finally in sight. Five years ago, I didn’t know where I’d be living or what car I’d be driving or what my family situation might be.

    Now, the picture is clear.

    I can calculate with reasonable certainty how much money I need to be truly financially independent. I can use that number as a target and make every financial decision with that target in mind.

    That’s why in 2025, I’m focused on paying down HELOC debt. Each time I make a debt payment, I move closer to financial independence.

    Besides, my goal is FIPE not FIRE.

    My goal is to reach FIPE not FIRE.

    FIPE means Financial Independence, Pivot Early.

    I have no intentions of retiring any time soon. Retiring early is not, and has never been, my goal.

    My goal is to become financially independent to create as many options as possible to protect myself and my family. I want to be financially independent so I can pivot no matter what life throws at me.

    If my goal was to retire early, I may have skipped the single family home in a great neighborhood. I could have continued house hacking, minimized my expenses, and lived off of the rest of the rental income.

    But, I want more for me and my family. I don’t want to just survive.

    Have you delayed financial independence to craft the life you really want?

    My life has certainly changed in the past five years, but all that change has been for the better.

    That meant house hacking at first to keep expenses as low as possible. Now it means enjoying the wealth I created by making those earlier sacrifices.

    In order to have the life I want, I needed to temporarily move further away from financial independence.

    Still, I’m confident that I’ve taken the right steps to not just reach financial independence, but to reach it while living the life I want.

    The tradeoff is that it will take me longer to be truly financially independent. I’m perfectly happy with that.

    Financial independence has never been more clearly in sight. It’s just delayed a little bit.

    • Is your goal to reach FIPE and pivot as quickly as possible?
    • Or, are you OK with delaying FIPE temporarily for the life you truly want?

    Let us know in the comments below.

  • FIPE not FIRE: Financial Independence, Pivot Early

    FIPE not FIRE: Financial Independence, Pivot Early

    We focus a lot on financial independence here at Think and Talk Money. That’s because achieving financial independence is the ultimate goal for most of us.

    To me, financial independence does not mean retiring.

    That’s why I don’t like the popular acronym, FIRE: Financial Independence, Retire Early.

    Instead, I I like to view my financial freedom journey as FIPE: Financial Independence, Pivot Early.

    Let me explain why I believe in FIPE not FIRE.

    FIPE = Financial Independence, Pivot Early

    Whatever it is that you truly want to do in life, financial independence makes it possible.

    When you have financial independence, you have options. You can make decisions based on your core values instead of making decisions based on money. You can pivot, if necessary.

    Financial independence is for people who want to be empowered to take more control of what they do with their working hours.

    It’s not about quitting work. It’s about the freedom to pivot to other work, if you want. I’m convinced that humans are meant to be productive. We are social creatures who at our core want to be contributing.

    That doesn’t mean we have to be or want to be employees. But, it does mean that we want to do something meaningful with our working hours every week.

    That’s why I believe in the power of pivoting, not retiring.

    Why I don’t like the name FIRE.

    Part of the misconception about financial independence may stem from the name of the popular personal finance concept known as FIRE: Financial Independence, Retire Early.

    It’s not uncommon for people to hear financial independence and immediately think that’s only for people who want to quit their jobs and retire. That’s how widespread FIRE has become in the personal finance space.

    I agree with so many of the principles of FIRE. I just don’t agree with the name.

    Financial independence is about much more than retiring early.

    FIRE emphasizes saving more and spending less until you reach the point where your passive investments generate enough income to allow you to quit your job.

    I love this part of FIRE: the idea of creating enough income streams so that you have the freedom to do what you want with your time. I share the primary goal of saving more money and spending less to achieve more life freedom.

    I call this Parachute Money. I like to view each income stream as a separate parachute string. The more parachute strings you have, the safer it is to make a big change in life.

    The problem for me is that the FIRE end game is suggested right there in the name: become financially independent so you can retire.

    I don’t like that part. I don’t like what the word “retire” implies.

    If you look it up, you’ll see that the word “retire“means to withdraw, to retreat, to recede.

    None of those things sound appealing to me at all.

    Each word implies moving backwards. I’m not working so hard to achieve financial freedom so I can move backwards in life.

    Fire burning on beach, depicting the FIRE movement: Financial Independence, Retire Early instead of FIPE: Financial Independence, Pivot Early.
    Photo by Benjamin DeYoung on Unsplash

    I prefer to think of financial independence in terms of creating options. I prefer to think of financial independence as a way to move forward in life.

    I think “pivot” better reflects that mission.

    Pivot means to adapt or improve through modifications and adjustments.

    That sounds so much more appealing to me.

    With FIPE, financial independence is still the primary goal. But, the endgame is not to withdraw or retreat. The endgame is to adapt and improve how you spend your working hours.

    FIPE = Financial Independence, Pivot Early.

    Granted, the name “FIPE” is not as catchy as FIRE.

    But, I think it actually better encapsulates the entire purpose of financial independence in the first place.

    To explain, let’s look back at the modern day origin of FIRE for a minute.

    Vicki Robin and Joe Dominguez are often credited for laying the groundwork for the modern day FIRE movement. Robin and Dominguez wrote an incredible book called Your Money or Your Life.

    It’s one of my favorite personal finance books. You should definitely read it if financial independence is important to you.

    In their book, Robin and Dominguez have a lot to say about the relationship between money, work, and time. 

    Guess what?

    Most of us are doing it all wrong.

    Most of us make the mistake of chasing money at the cost of our precious time. When you read Your Money or Your Life, you will start to value your time for what it’s really worth.

    By making good choices about how to earn money- and as importantly what to do with that money- you can get the most out of your money and your life.

    That’s what FIRE is really all about. It’s about choosing to use your working hours in a way that is more meaningful to you than clocking in-and-out as an employee each day.

    It’s not about retiring from meaningful work. It’s about pivoting to work that is more meaningful to you.

    FIRE proponents would likely agree that the goal is not to withdraw or retreat.

    I think proponents of FIRE would actually agree with me that the end game is really not about withdrawing or retreating. The mission is always about moving forward, not backwards.

    My belief is that people who are disciplined and skilled enough to reach financial independence in the first place are the type of people who don’t retreat or withdraw.

    They may opt for periods of temporary retirement, as they should. But, I don’t think financially independent people are truly wired for full-time retirement.

    That’s why you see so many people who have obtained financial independence continue to pursue income streams.

    That might mean managing real estate investments, teaching others, or even starting a financial freedom blog.

    So, technically speaking, most people who have obtained financial independence have not actually retired. They haven’t withdrawn or retreated. Instead, they have pivoted.

    They are now spending their working hours doing other things. They may not be working full-time for an employer, but they’re still working.

    They’ve achieved financial independence and have earned the right to pivot.

    Financial Independence, Pivot Early.

    Even FIRE leaders would likely agree that the end game is not to completely retire.

    FIRE is not about retiring or quitting. It’s about pivoting to more meaningful life pursuits.

    I don’t want to speak for Robin, but I think this is what she was getting at.

    I also think this is what modern day FIRE leaders like Mr. Money Mustache and the Financial Samurai believe in. Not long ago, Financial Samurai actually wrote an excellent post called “Why Early Retirement / FIRE is Becoming Obsolete.”

    I just think the name FIRE doesn’t accurately portray the mission. Pivoting early seems more appropriate to me than retiring early.

    We all have the same goals in mind: financial independence. And, I believe we have the same end game in mind: pivoting to more meaningful work.

    That’s why I like FIPE instead of FIRE.

    Are you looking to retire early or simply to pivot?

    What is it that you’re aiming for by getting your personal finances in order? If you want to retire early, there’s nothing at all wrong with that. You may be at the point in your career and life where that makes sense.

    Personally, I’m not looking to retire early. That’s why I like to view financial independence as a chance to pivot.

    Pivoting doesn’t mean you have to switch jobs or change things up just for the sake of change. It just means that you have that option if you want it or need it.

    By the way, I’m not alone in viewing financial independence as a chance to pivot instead of retire.

    Scott Trench, CEO and President of BiggerPockets has been beating this drum for a while. He’s also talked about it on the BiggerPockets Money podcast.

    I’m in complete alignment with Trench. I like almost everything about FIRE, just not what the name implies. 

    With FIPE, the goal is not to retire. The goal is to give yourself the freedom to choose what to do next.

    Whether you want to retire early or just pivot to a new chapter in your life, being good with money is key.

    Do you like the name FIRE or FIPE?

    At the end of the day, whether you like to view it as FIRE or FIPE, the mission is the same. We are all looking for the freedom to choose what to do next.

    When striving for financial independence, the goal is to create options. Those options likely include pivoting to more meaningful work, rather than withdrawing or retreating.

    Personally, I think the name FIPE better encapsulates that mission.

    • Do you agree?
    • What name resonates more with you on your financial freedom journey?
    • Are you interested in retiring early or pivoting early?

    Let us know in the comments below.