Tag: FIPE not FIRE

  • 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?

  • How to Gain Confidence by Calculating Your Coast FIRE Number

    How to Gain Confidence by Calculating Your Coast FIRE Number

    Have you ever wondered if you really need to keep saving for retirement?

    Believe it or not, you may be closer than you think to achieving your retirement goals.

    That’s a very powerful realization.

    Think about the options you can create for yourself if you no longer need to save a hefty chunk of your paycheck for retirement.

    We recently explored some of these options while talking about the money mindset hack known as Coast FIRE.

    Today, we’ll look at some specific examples of how to calculate your Coast FIRE number so you can see how you stack up.

    By calculating your Coast FIRE number, you may just find that you have more options than you ever thought possible.

    Let’s explore.

    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.

    Your Coast FIRE number is not the same as your FI number.

    As we’ll explore below, your Coast FIRE number is different from your FI number (what I sometimes refer to as your magic retirement number).

    Your Coast FIRE number is the amount you need saved up today to stop saving anymore for a traditional retirement. You still need to earn money to fund your current lifestyle.

    Your FI number is the amount you need saved up today to retire and live completely off your investments for the rest of your life.

    You’ll see below that your Coast FIRE number is usually significantly lower than your FI number.

    This is especially true the further away you are from traditional retirement age. That’s because you have a longer time horizon for compound interest to do its thing.

    In fact, the reason Coast FIRE is such a powerful money mindset hack is because the Coast FIRE number seems much more attainable.

    This of it like this: have you ever felt that it seems impossible to save millions of dollars for retirement?

    The truth is you don’t have to come up with all that money on your own. Your job is to aggressively seed your retirement accounts early on so compound interest can do the heavy lifting.

    By funding your retirement accounts early in your career, you don’t need millions of dollars. You actually need way less.

    Calculating your Coast FIRE number will drive this point home.

    Bonfire on a coast with mountains in the background indicating the power of calculating your Coast FIRE number.
    Photo by Courtnie Tosana on Unsplash

    How do I calculate my Coast FIRE number?

    There are some great online calculators available to figure out your Coast FIRE number.

    You simply plug in a few variables, like your current age, desired retirement age, and anticipated spending in retirement. It couldn’t be easier.

    The Fioneers and WalletBurst each have easy-to-use calculators that I recommend. There are plenty of others, but these two are simple to use.

    What’s nice about each calculator is that you can play around with the inputs to explore various scenarios. You can also see how your Coast FIRE number is significantly lower than your FI number.

    The WalletBurst calculator has a helpful graph for visualizing your progress towards Coast FIRE.

    The Fioneers calculator has a nice feature where you can input other sources of passive income, like income from a rental property.

    As we know, adding just one rental property to your investment portfolio can massively shrink your magic retirement number and accelerate your journey to financial freedom.

    If you’re thinking about rental property investing to supplement your retirement income, check out my recent post:

    Shrink Your Magic Retirement Number With One Rental Property

    Note: The Fioneers’ calculator is a Google Sheet you can download, but you need to enter your email address first. You do not need to enter an email address to use the WalletBurst calculator.

    Using these calculators, let’s take a look at a few examples.

    Let’s explore three different scenarios where knowing your Coast FIRE number can be very useful:

    1. Clarke is 35-years-old and ready for a new job.
    2. David is 40-years-old and worried about paying for college.
    3. Dorothy is 28-years-old and just paid off her student loans.

    In each of these examples, we’ll assume a standard retirement age of 65 and an annual rate of return of 10% (on par with the historical results of the S&P 500).

    We’ll also factor in a 3% inflation rate (the historical average in the United States).

    Finally, we’ll assume a safe withdrawal rate of 4.7% in light of the updated “4% Rule.”

    In case you missed it, 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%.

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

    Let’s dive in.

    Coast FIRE Example 1: Clarke is 35-years-old and ready for a new job.

    Clarke is 35-years-old and is ready for a career change.

    His job at a prestigious law firm has taught him a lot and he’s made good money. But, the stress and the hours are starting to take a toll on his personal life and on his health.

    He’s ready to pivot.

    Because he was making good money, Clarke maxed out his 401(k) retirement plan for the past 8 years. He now has $400,000 saved up. He also currently adds $5,000 to his various retirement accounts each month.

    His goal is to have $200,000 annually to spend in retirement.

    Based on the above variables, Clarke’s Coast FIRE number is $559,009.

    At his current saving rate, he will reach Coast FIRE in three years. That means that at the age of 38, he will no longer need to fund his retirement.

    He could then pursue a lower paying, lower stress job without sacrificing his retirement years.

    Note: Clarke’s FI number (magic retirement number) is significantly higher: $4,255,319.

    That’s a big number and can seem intimidating. His Coast FIRE number is more encouraging to think about.

    Yes, he’ll have to keep working to fund his current lifestyle. But, he can choose to work a lot less.

    What if three years still seems too far away for Clarke?

    Using the Coast FIRE calculator, Clarke learns that if he ups his retirement contributions from $5,000 per month to $8,000 per month, he will achieve Coast FIRE in two years.

    That’s powerful information. If he boosts his saving rate even more, he can pivot even faster.

    Armed with the knowledge of his Coast FIRE number, Clarke has a newfound motivation to stick it out at his current job for just a bit longer.

    two boats near stone island indicating the power of calculating your Coast FIRE number.
    Photo by Jan Tielens on Unsplash

    Coast FIRE Example 2: David is 40-years-old and worried about paying for college.

    David had a kid about a year ago and is freaking out about paying for college. He knows that it’s important to prioritize his own retirement before prioritizing his kid’s college.

    David has $300,000 saved for retirement. His goal is to spend $150,000 annually in retirement. He currently has $6,000 available to invest each month, whether that’s for retirement or college.

    Let’s help David out by using the Coast FIRE calculator.

    Plugging in these variables, we see that David’s Coast FIRE number is $588,029.

    Notice how David’s Coast FIRE number is higher than Clarke’s, even though he plans to spend less in retirement. That’s because he has a shorter time horizon and less currently saved.

    This is another reminder to start investing early and often.

    Even so, David is in great shape for retirement. At his current pace, David is 5 years away from reaching Coast FIRE. His daughter will only be six-years-old at that point.

    That means that David will still have 12 years to prioritize saving for his daughter’s college, all while knowing that his retirement is covered.

    This knowledge makes David feel much better. He’s no longer worried about paying for his daughter’s college at the expense of saving for retirement.

    Coast FIRE Example 3: Dorothy is 28-years-old and just paid off her student loans.

    Dorothy is 28-years-old and is in the early stage of her career as a lobbyist in Washington D.C. She lives with 3 roommates outside of town and keeps her expenses very low.

    Dorothy has her whole life ahead of her so hasn’t thought too much about the specifics of retirement.

    But, she knows enough to think and talk money with her friends and family every once in a while.

    In one of these conversations, she learned about Coast FIRE and was interested in calculating what her number is. Dorothy thought about how amazing it would be to pursue a life on her own terms without worrying about retirement.

    Dorothy just finished paying off her student loans. Because she was focused on her loans, she currently has only $10,000 saved for retirement.

    She now plans to roll the $5,000 per month she had been using for loan payments into her retirement account.

    Because she was so far away from retirement, Dorothy thought it was best to error on the side of caution with her annual spending projections.

    So, Dorothy estimated that she would need $250,000 annually in retirement, much more than both Clarke and David figured.

    Based on the above, Dorothy’s Coast FIRE number is $435,153. She can achieve Coast FIRE by the age of 38!

    Dorothy’s Coast FIRE number is significantly lower than Clarke’s and David’s, even though she plans to spend way more in retirement.

    Of course, this is because she is getting started so early.

    Knowing that she can fund her entire retirement in just 10 years, Dorothy makes it a priority to do so.

    By the age of 38, she will be free to pursue any line of work she chooses without needing another dollar to fund her seemingly extravagant retirement.

    That makes Dorothy very happy.

    Use a Coast FIRE calculator to figure out your own number.

    The above examples show how knowing your Coast FIRE number can be so liberating.

    When you calculate how much you’ll need to retire, you may be surprised at how close you actually are.

    If you’ve been avoiding making big life decisions because of anxiety about retirement, knowing your Coast FIRE number can be a huge help.

    Clarke, David and Dorothy calculated their Coast FIRE numbers and were able to come up with manageable plans.

    Each person is on track for a desirable retirement, all while creating options for themselves earlier in life.

    Having options is a great thing.

    Have you calculated your Coast FIRE number?

    Were you surprised how close you actually are to achieving your retirement goals?

    Let us know in the comments below.

  • 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?

  • Shrink Your Magic Retirement Number With One Rental Property

    Shrink Your Magic Retirement Number With One Rental Property

    “Wait- how much do I need to save for retirement!?”

    Have you ever felt that way after learning how much money you think you need to retire?

    I’ve certainly felt that way in the past.

    The prospect of saving millions of dollars in order to retire can seem impossible, especially when you’re just starting out.

    You may have even wondered, “How do people even come up with these retirement numbers?”

    The most common answer to that question is the “4% Rule.”

    Using the 4% Rule, you can calculate your magic retirement number and determine how much money you need to save for retirement to maintain your current lifestyle.

    The 4% Rule suggests that you can safely withdraw 4% of your investments in year one of retirement. Then, you can safely withdraw 4% plus an adjustment for inflation in subsequent years. 

    If you do so, you can expect your money to last for 30 years.

    Today, we’ll take it one step further.

    Let’s explore how owning even a single rental property can further reduce the amount you need to save for retirement.

    The results may shock you- in a good way.

    How to use the 4% Rule to forecast your magic retirement number.

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

    In some fun news, Bill Bengen, creator of the 4% Rule, just released a new book showing that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

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

    If you’re at all interested in FIPE (Financial Independence Pivot Early), Bengen’s book is a must read.

    Bengen’s research is significant because it means you can safely retire with even less money. That’s because the higher your safe withdrawal rate, the less you need squirreled away to maintain your lifestyle.

    In light of Bengen’s updated research, we’ll use 4.7% as our safe withdrawal rate.

    Let’s say that 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 .047.

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $120,000 / .047 =$2,553,191.49 

    Based on the updated 4.7% Rule, you need $2.55 million to maintain your current lifestyle in retirement.

    By the way, under the original 4% Rule, you would need $3 million in investments ($120,000 / .04 = $3,000,000.00).

    See why people are excited about the updated 4.7% Rule?

    Does saving $2.55 million for retirement seem like an impossible task?

    Saving $2.55 million for retirement may seem like an impossible task.

    If that’s your initial reaction, be sure to check out my ongoing series on investing. We cover everything you need to know to start investing with confidence.

    You may be surprised to learn that If you start investing early and often, reaching $2.55 million is actually not that hard.

    Even so, there’s another way to massively shrink your magic retirement number: owning rental properties.

    Why would anyone want to own rental properties?

    There are four main reasons why I invest in rental properties: 

    1. Monthly cash flow
    2. Appreciation
    3. Debt pay-down
    4. Massive tax benefits

    When these benefits combine, real estate investors can generate significant wealth over the long run.

    decorative lights under a tree at night showing how one rental property can shrink your magic retirement number.
    Photo by Jay on Unsplash

    Before we look at an example of how owning rental properties shrinks your magic retirement number, here’s a quick breakdown of each of the four main benefits. 

    For a more detailed description of each benefit, you can read my series on investing in real estate here.

    1. Rental property cash flow is king.

    With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses. 

    For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

    If your present day expenses are already covered, you can use your cash flow to fund additional investments. 

    That might mean buying another rental property or investing in another asset class, like stocks.

    2. Long-term wealth through appreciation.

    Appreciation simply refers to the gradual increase in a property’s value over time. 

    While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

    Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

    To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

    3. With rental properties, other people pay off my debt.

    When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

    However, I do not pay that debt back with my own money. 

    Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

    I then use those rent payments to pay back the loan.

    As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

    When my equity in a property increases, my net worth increases. 

    4. Real estate investors earn massive taxes benefits.

    When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

    However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

    Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

    With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

    Yes, you read that right.

    I’ll say it again, just to be clear:

    Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

    With these benefits in mind, let’s see what happens when we add a single rental property to your portfolio.

    How owning a single rental property lowers your magic retirement number.

    Let’s continue our example from above where your current lifestyle costs $120,000 per year. We learned that means your magic retirement number is $2.55 million based on the 4.7% Rule.

    Now, let’s add a single rental property into the mix.

    Let’s assume that you own a rental property that cash flows $2,000 per month. That’s a total of $24,000 per year.

    Remember, your cash flow is the profit remaining after paying your mortgage, taxes, insurance, and any other costs.

    To learn how to properly run the numbers on a potential rental property, click here.

    With $24,000 per year generated by your rental property, you don’t need your investment portfolio to fund your entire $120,000 lifestyle.

    Instead, your investments only need to generate $96,000 per year ($120,000 – $24,000 =$96,000).

    So, let’s plug $96,000 into our magic retirement number formula:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $96,000 / (.047)=$2,042,553.19

    By adding a single rental property to your portfolio, you’ve lowered your magic retirement number by half a million dollars!

    You now only need $2.04 million to maintain your current lifestyle in retirement.

    Macro X-ray of some mushrooms with false coloring showing how to shrink your magic retirement number with one rental property.
    Photo by Mathew Schwartz on Unsplash

    What happens to your magic retirement number if you pay off your mortgage?

    This example shows how your magic retirement number drastically shrinks with the addition of just a single rental property.

    Keep in mind that in this example, we assumed that you have a mortgage on your rental property. That mortgage obviously reduces your cash flow.

    But, what if you paid off that mortgage before you retired?

    Let’s finish our example by assuming that you have a 30-year fixed rate mortgage and your payment is $3,500 per month. And, you make it a goal to pay off that mortgage before you retire.

    Once the mortgage is paid off, you can add that $3,500 to your monthly cash flow.

    That increases your monthly cash flow on this property from $2,000 to $5,500. Annually, that’s $66,000 in cash flow.

    Continuing our example, you now only need your investment portfolio to generate $54,000 per year ($120,000 – $66,000 =$54,000).

    Look what happens when we plug $54,000 into our magic retirement number formula:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $54,000 / .047 =$1,148,936.17

    By paying off the mortgage on this single property, you’ve now reduced your magic retirement number by $1.4 million dollars!

    You now only need $1.15 million to fund your current lifestyle in retirement.

    Have you considered adding a rental property to your overall investment portfolio?

    The point of this post is to show you how owning even a single rental property can reduce your magic retirement number.

    Think about what would happen if you owned two rental properties. Or, what about three rental properties?

    If you can handle the job of being a landlord- which I’m betting is easier than your job as a lawyer or consultant or doctor- owning rental properties is a great way to accelerate your journey to financial freedom.

    After seeing the math, you may want to consider adding a rental property (or two) to your overall investment portfolio.

    Are you intimidated by the thought of saving enough for retirement?

    Have you done the math with the 4.7% Rule to see how much you really need?

    Have you considered adding a rental property to your portfolio to shrink you magic retirement number?

    Let us know in the comments below.

  • Is the 4% Rule Actually More Like the 4.7% Rule?

    Is the 4% Rule Actually More Like the 4.7% Rule?

    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 at all interested in FIPE (Financial Independence Pivot Early), Bengen’s book is a must read.

    What is the significance of raising the safe withdrawal rate from 4% to 4.7%?

    If you are years away from retirement, you may be wondering, “Why does it matter if you withdraw 4% or 4.7% in retirement?”

    There are two ways to answer that question.

    Number 1: the higher the safe withdrawal rate, the more you can safely spend in retirement without running out of money.

    That sounds fun.

    You know what’s even more fun?

    Number 2: the higher the safe withdrawal rate, the less money you need to save before you can retire.

    That means you may be even closer to retirement than you previously thought.

    That sounds like even more fun, right?

    We’ll take a look at the math in a moment.

    The title of Bengen’s book says it all: “spend more and enjoy more.”

    Here at Think and Talk Money, enjoying our money is one of our primary objectives.

    We are not interested in building the biggest bank accounts just so we look good on a spreadsheet. We are interested in building a life where we are in control.

    That means spending money on what is important to us. It means spending more time with the people who are important to us.

    So, how does a higher safe withdrawal rate help us?

    Let’s explore that by first reviewing the 4% Rule

    What is the 4% Rule?

    The 4% Rule suggests that you can safely withdraw 4% of your investments in year one of retirement. Then, you can safely withdraw 4% plus an adjustment for inflation in subsequent years.

    If you do so, you can 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.

    As an example, let’s say you have $1 million in your portfolio.

    According to the 4% Rule, you can safely withdraw $40,000 in year one (4% of your portfolio), then 4% adjusted for inflation in each subsequent year, and not run out of money for 30 years.

    Using the updated “4.7% Rule”, you can safely withdraw $47,000 in year one.

    This simple example shows how you can take your current retirement savings and project the amount you can safely spend so your money lasts 30 years.

    El portero de San Juan FC, Tienes que crear tu propia suerte.-Fabien Barthez, illustrating the importance of having a target like the 4.7% Rule.
    Photo by ÁLVARO MENDOZA on Unsplash

    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.

    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.

    Here’s how the math works:

    Current Savings x 4% (.04) = Annual Retirement Spending
    $1,000,000 x .04 =$40,000.00

    Using the 4.7% Rule, the math looks like this:

    $1,000,000 x .047 =$47,000.00

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

    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. This time, in reverse.

    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

    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

    Under the original 4% Rule, 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.

    a chalkboard with the word possible written on it showing what's possible with the 4.7% Rule.
    Photo by Towfiqu barbhuiya on Unsplash

    If that number seems impossibly high to you, the updated 4.7% Rule should make you feel a little better:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $120,000 / .047 =$2,553,191.49

    Based on the updated 4.7% Rule, you now only need $2.5 million instead of $3 million to maintain your current lifestyle in retirement.

    That’s fun news.

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

    Whether you want to use the 4% Rule or the updated 4.7% Rule, keep in mind that these are projection tools.

    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. Put another way, you will need to adjust how much you withdraw each year based on factors outside your control.

    Regardless, the 4% Rule is a great way to start thinking about how much you’ll need to save for retirement. Attaching an actual number to your retirement goals is extremely helpful.

    Like Bengen argues in A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, the point of saving money now is to spend it and enjoy it later.

    For people who are used to saving aggressively during their working years, it can be hard to switch to a spending mindset.

    Whether you’re nearing retirement or still have years to go, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More will help you find that balance.

    Have you read A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More? What did you think?

    Will you update your retirement planning based on the new 4.7% Rule?

    Let us know in the comments below.

  • Money on My Mind: Read The Simple Path to Wealth

    Money on My Mind: Read The Simple Path to Wealth

    The Simple Path to Wealth by JL Collins is the best book on investing I’ve ever read.

    It is a must-read for anyone trying to figure out why and how to invest in the stock market.

    If you’re a new investor and don’t understand how to invest in the stock market, Collins will set you on your way.

    If you’re a seasoned investor unsure what to do in times of economic uncertainty, Collins is here to help.

    Maybe you just need a bit of motivation or a reminder of how simple it is to build long-term wealth. There’s no one better than Collins to provide that pep talk.

    Who is JL Collins?

    JL Collins is sometimes described as “the Godfather of Financial Independence” in the personal finance community. He has a popular blog where you can read more about his story.

    The short version is that he wrote a series of letters to his then teenage daughter about money, investing, and life. He wanted to impart the wisdom he had accumulated during his lifetime and help her avoid the mistakes he had made.

    Those letters eventually led to his blog, which then led to his bestselling book, The Simple Path to Wealth, first released in 2015.

    Since then, Collins has been a thought-leaders in the financial independence community. He has inspired thousands, if not millions, of people around the world to accumulate massive wealth by following a few simple rules.

    What makes Collins so transformative is his ability to make seemingly complex topics (like investing) into easily digestible and actionable information.

    If you have any intention of becoming financially independent and haven’t read The Simple Path to Wealth, now is the time to do so.

    I’ve read his book cover-to-cover twice and constantly refer back to his lessons.

    purple flower filed during daytime illustrating how beautiful the simple path to wealth should be.
    Photo by Jack Skinner on Unsplash

    Each time I read his book, I’m reminded how simple it is to reach financial independence if I can just follow a few simple tips.

    I’ll share those simple rules with you at the bottom of the post. Before I do, here is a bit of context about each time I read his book, first in 2019, then again in 2025.

    Seeing those dates, you may already be wondering if world events between 2019 and 2025 changed his philosophies.

    Let’s find out.

    I first read The Simple Path to Wealth in 2019 as a DINK.

    I first read The Simple Path to Wealth in 2019 and just finished the updated version. Even if you’ve read the original version, I highly recommend you read new edition released in 2025.

    Here’s why.

    When I read the original version in 2019, market conditions and the world economy were in very different places than they are in 2025.

    Back in 2019, the stock market had been closing out one of the best decades in history. As reported by US News:

    From a market’s perspective, the 2010s will forever be remembered as an era of slow but steady gains on Wall Street, and a period of sustained growth for investors and their retirement accounts.

    By the end of the 2010s, the market had been on the longest bull run in history. It was such an epic run that it was fairly common for most people to see big gains in their portfolios without much effort or knowledge.

    On a personal level, my life was also very different in 2019. My wife and I were enjoying married life before having kids. We had just purchased our first rental property in a trendy Chicago neighborhood.

    On top of that, we were DINKs (“Dual Income No Kids) and able to save aggressively for our next investment.

    We were considering another rental property, but I first wanted to learn more about the power of investing in the stock market.

    This is what led me to read The Simple Path to Wealth the first time.

    Side note: If you are currently a DINK, or will soon be a DINK, please pay extra attention here.

    Don’t waste this powerful opportunity to supercharge your investments.

    When you’re in a relationship where you have two incomes coming in and are sharing financial responsibilities, you have the opportunity to supercharge your Later Money goals.

    This is what my wife and I were able to do, even if we didn’t know what a DINK was. We each had good incomes coming in and our monthly expenses were low.

    Also, we didn’t have to worry about childcare. We were young so the odds of unexpected medical care were lower. All things considered, it was pretty easy to keep our Now Money to a minimum with plenty to spare for Life Money.

    This allowed us to fuel our Later Money goals. We had money in the bank and seemingly endless choices.

    And, I didn’t want to screw it up.

    Reading The Simple Path to Wealth was a way to educate myself in hopes of not screwing it up.

    I read the new version of The Simple Path to Wealth in 2025.

    Fast forward to 2025. I read the new version o The Simple Path to Wealth because I was curious if Collins’ viewpoint had changed due to major world events, like the Covid-19 pandemic.

    I was also curious to see whether his advice would still resonate with me now that I’m a seasoned real-estate investor and have a personal finance blog.

    Well, I’m happy to report that Collins’ message hit me stronger today than it did in 2019.

    If anything, Collins’ lessons are even more applicable today than they were in the 2010s when markets were soaring.

    In the new edition, Collins discusses how recent world-changing events, like the Covid-19 pandemic and international wars, actually strengthen his long-time recommendations.

    This was very refreshing to learn because I have been following his advice and recommending his book for years.

    In times of economic uncertainty, Collins explains, it’s even more important to have a plan for your money.

    Once you have that plan, you need to stick to it, no matter what.

    Collins provides the motivation and tools to stick to the plan.

    Why is The Simple Path to Wealth such an important book?

    When I teach my personal finance class to law students, I ask at the beginning of class what my students hope to learn.

    One of the most common responses I hear every year is, “I want to learn how to invest in the stock market.”

    OK, fair enough.

    The truth is I’ve yet to find any resource better than The Simple Path to Wealth to teach us how and why to invest in the stock market.

    What makes Collins such a good teacher?

    In The Simple Path to Wealth, Collins uses basic, every day, language that we can all understand. This is his greatest gift.

    Too many books on investing are so dense that they are useless to the average person.

    Collins is different. He successfully blends his life experiences with the historical data, in easy to understand terms, to show us that investing is not hard.

    For many people, especially people at the beginning of their careers, investing can seem intimidating.

    As Collins explains, that’s because it’s big business for investment companies and banks to make investing seem hard and scary.

    These companies spend billions of dollars marketing every year to convince us that investing is complicated. Their goal is to convince us to pay them lots of money to manage our money.

    You don’t have to believe them. You certainly don’t have to pay them tons of money to invest in the stock market.

    Collins will not only show you how invest on your own, he’ll also give you the tools to outperform the financial professionals.

    What are Collins’ simple rules to live by?

    Collins’ main message is that investing should not be complicated. When done the right way, it’s simple and effective. Hence, the title of his book.

    Collins explains that each of us can achieve long-term wealth by following a few simple rules:

    1. Spend less than you earn.
    2. Invest the surplus.
    3. Avoid debt.

    Sound advice, indeed.

    If you can live by these simple rules, the next question is what to do with your surplus money earmarked for investments.

    Collins has a simple and effective plan for you that he details in his book.

    What is Collins’ simple and effective plan for investing?

    Collins’ plan is both simple and effective. He doesn’t expect you to just take his word for it, either. He has the research and historical data to back it up.

    Make no mistake: just because something is simple does not mean it is ineffective.

    So, what is Collins’ simple and effective plan to invest for long-term wealth?

    1. Invest in low-cost, broad-based index funds. His favorite investment has always been Vanguard’s total stock market index fund, VTSAX.
    2. Ignore the noise. Be mentally tough. Stay the course.

    That’s it.

    You don’t need fancy investments. You don’t need a financial advisor. All you need to do is commit to the plan.

    If you’re thinking that this is too good to be true, you need to read The Simple Path to Wealth.

    How can it really be that simple?

    You might be thinking, how can it really be that simple? If all people had to do was invest in index funds, everyone would be rich.

    That’s exactly Collins’ point!

    Everyone could be rich if they follow these simple rules.

    The problem is most people allow their emotions to get in the way and steer them off the path.

    Collins does his best to help you deal with those emotions.

    If you don’t believe that index fund investing will make you wealthy, look at this stat about the recently announced sale of the NBA’s Los Angeles Lakers:

    That’s right. The Buss family would have an extra $3 billion today if they had invested in the S&P 500 instead of purchasing the Lakers in 1979!

    Many thanks to blog reader, DJ, for passing this one along!

    I know, I know. Owning the Lakers was probably a ton of fun. They also surely made money on the team along the way.

    The point remains: investing in an S&P 500 index fund also would have generated massive wealth. And, that wealth would have come without the effort and the headaches of running a major professional sports organization.

    I can picture Collins having a good laugh about stats like this.

    Read The Simple Path to Wealth.

    I recommend The Simple Path to Wealth to all of my students and friends who ask me about investing.

    There is not a better book out there to make the concept of investing seem approachable for all of us.

    Collins is clear and humorous. He’s also stern when he needs to be.

    If you read this book, you’ll realize that becoming wealthy through the stock market does not have to be complicated.

    It can be wonderfully simple.

    Let us know in the comments below.

  • 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.

  • 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.