Think back to the first time you found out that early retirement was possible.
The idea of walking away from your job in your 30s or 40s may have never crossed your mind but once you learn that other people have done it, you decide to investigate further.
After doing a bit of research, you realized that early financial independence (FI) is in fact possible and may not even be as difficult as it first seemed.
You simply need to save up 25 times your annual expenses and then you can live off your portfolio for the rest of your life (e.g. if you spend $40,000 a year, you can retire when you have a million bucks).
At this point, your life changes forever.
That’s what happened to me, anyway.
Once I realized that I could escape the world of bosses, commutes, and pointless hour-long meetings, I knew I had to dedicate all of my energy into achieving that goal.
Birth of the Mad Fientist
To speed up my journey to FI and help others do the same, I launched the Mad Fientist in early 2012 with the following two objectives:
- Talk to others who retired early to find out how they did it
- Research and write about innovative ways to achieve financial independence quicker
Since early retirees are so different from the standard work-until-65 employee, the normal financial advice you always hear doesn’t apply.
So rather than regurgitate the same information I was used to reading at the time, I decided to dive into the actual numbers. I ran experiments to test my strategies. I created software tools and calculators to use. And when I don’t know something or didn’t have experience with a specific topic, I asked experts who knew better.
On August 1st, 2016, at the age of 34, I walked away from my full-time job as a software developer for good.
Financial Independence, Not Early Retirement
Early retirement wasn’t actually the main goal for me though.
I enjoy working hard and I derive a lot of happiness from being productive so the idea of sitting on the beach all day didn’t appeal to me.
I just wanted full control over what I spent my time on.
So even though I left my job, I still don’t consider myself retired because I’m now working harder than ever.
The difference is, I’m working on things that are important and exciting to me, rather than what my boss tells me to work on.
Financial independence provides freedom. What you do with that freedom is up to you.
There’s no right answer but having the freedom to do whatever you want is the most valuable thing that money can buy.
What will you do? What will your days look like when you have full control over your life?
Financial Independence Podcast
As I mentioned, one of my goals when I started the Mad Fientist was to talk to people who already achieved FI to find out how they did it.
Since I didn’t know anyone in real life who retired early, I started the Financial Independence Podcast to give me an excuse to interview the people I wanted to learn from.
I launched the podcast in May of 2012 and my very first guest was Mr. Money Mustache.
I’ve since gone on to interview dozens of early retirees, including the blogger behind the first blog I ever read (JD Roth of Get Rich Slowly) and the author of the FI classic, Your Money or Your Life (Vicki Robin).
Important Lesson #1: When you want to do something, find others who have already done it and learn everything you can from them.
For my second goal of researching ways to reach financial independence faster, I first thought that I could achieve that by figuring out how to become a better investor.
I began studying financial theory to see if there were ways to optimize and here’s what I found…
When looking into the relationship between risk and returns, I discovered that you can lower your risk while potentially increasing your expected returns through diversification.
I also discovered that the best way to get the risk-reducing benefits of diversification while maintaining as high of returns as possible is to invest in a minimum-variance portfolio.
Luckily, it’s really cheap and easy to invest in a minimum-variance portfolio…you just invest in the market portfolio (i.e. all the stocks in the market) and you can do that by buying a low-cost, total-market index fund from a company like Vanguard.
Important Lesson #2: The best way to invest is to just pump as much money as possible into low-cost, total-market index funds and then leave it there.
In addition to studying investment strategy, I also studied investor psychology.
What I found was that there are hundreds of Cognitive Biases that threaten to sabotage your investment plans.
To combat this, I set up automated investing so that I invested no matter what the market valuations (or my feelings about the market) were at the time.
Important Lesson #3: Figure out your investing plan (e.g. asset allocation, etc.) then take yourself out of the equation as much as possible so that you don’t get in your own way.
Although I wanted to keep my brain out of investing as much as I could, I still wanted to keep an eye on things and track my progress to financial independence.
There wasn’t a good way to keep track of my progress to financial independence though so I used my software-developer skills to build a web application to do it!
I created an app called the FI Laboratory and now over 50,000 other people are using it to track their progress to financial independence!
Click here to sign up for a free FI Laboratory account and start tracking your own progress to FI.
After the FI Laboratory was completed, I felt like I had everything in place from an investment standpoint.
The problem was, I still wanted to take action and speed up my journey to early retirement.
That’s when I started looking into new ways to optimize.
When people try to increase the amount they save, they usually focus on reducing their spending or increasing their income (preferably both).
Reducing the “Spending” slice of the pie or making the entire pie bigger (by increasing your income) will help you save more but focusing on just these two things misses the one area that has the most opportunity to be optimized…taxes!
Here’s what the pie actually looks like:
Legally reducing your taxes is a great way to save more without negatively impacting your quality of life so that’s where I decided to focus next.
Throughout my career, I always took advantage of tax-advantaged accounts because I knew they had the power to triple the value of my income.
It wasn’t until I started investigating tax-avoidance methods specifically for future early retirees though that I realized how powerful tax avoidance really is.
This is also when I realized that most financial advice doesn’t apply to early retirees.
For example, mainstream financial media usually recommends Roth IRAs but my research found that Traditional IRAs are a far better option if you plan to retire early.
In fact, choosing traditional retirement accounts over Roth accounts can allow you to retire years earlier!
To test the optimizations I was writing about, I started a real-time Guinea Pig Experiment.
The experiment follows two theoretical scenarios – one that utilizes the strategies I write about here and one that doesn’t.
Spoiler Alert: The Optimized Guinea Pig is over two years closer to financial independence than the normal Guinea Pig, despite earning and spending the same exact amount!
Access Retirement Funds Early
A big objection to utilizing tax-advantaged accounts is that they tie your money up until you’re in your 50s or 60s so they aren’t good for people who want to retire early.
I too thought this was the case but I contributed to tax-advantaged accounts anyway because it was the most efficient way to save for standard retirement.
People forget that early retirement actually contains standard retirement so you still need to save for age 59.5 and above!
Once I got to the point where my standard retirement savings were fully funded though, I began looking into ways of accessing retirement funds early so that I could keep utilizing the tax benefits of retirement accounts.
Not only did I find great strategies for accessing retirement accounts early, I realized that early retirement allows you to potentially save a ton of money and pay no tax on the money ever!
After I realized that, I made it my mission to investigate and utilize as many tax-advantaged accounts as I could.
For example, I showed that a Health Savings Account is actually the ultimate retirement account and can be used for completely tax-free saving!
Important Lesson #4: Legal tax avoidance can drastically reduce your time to FI without impacting your quality of life.
Other Tax-Reduction Strategies
Once I had maxed out all the tax-advantaged accounts I could, I explored other strategies to lower my tax burden even more.
I discovered that maxing out your retirement accounts as early in the year as possible could increase your expected returns.
I also found that you could use Tax-Loss Harvesting to further reduce your taxable income and Tax-Gain Harvesting to lock in gains without paying taxes (while making future tax-loss harvesting even more beneficial).
Note: Set up your investment accounts to use the Specific Identification of Shares accounting method to make tax-loss harvesting and tax-gain harvesting easier.
Help from Experts
I realized that real-estate investing could provide even more tax-avoidance opportunities but I didn’t have any experience investing in real estate so I asked a real-estate expert to share some of his best real estate tax-avoidance strategies.
Once I exhausted the low-hanging tax fruit, I then began exploring even more extreme strategies.
For example, there’s a trick to contribute over $50,000 to your Roth IRA every year (see Mega Backdoor Roth) and there’s a way there used to be a way to make your Roth IRA conversion ladder even more tax-efficient (see this post for how the 2017 tax reform legislation impacted some popular tax avoidance strategies).
I even started thinking about alternatives to early retirement that would be even more tax efficient but just as fun, like Semiretirement.
Reducing your taxes is great because you increase the amount you can invest without cutting back on things you enjoy spending money on.
Luckily, there are ways to reduce your normal spending that won’t negatively impact your quality of life either.
In fact, being frugal can be even more enjoyable than being a big spender, if you approach it in the right way.
Since I’ve always been a naturally frugal person, my expenses were already low so I had to get more creative to reduce my spending further.
Travel was my biggest discretionary expense so my first goal was to decrease my travel costs.
I planned to use Geographic Arbitrage to further lower my expenses after FI so the first thing I did was talk to perpetual travelers like Retire Early Lifestyle and Go Curry Cracker to see how they were doing it and I chatted with others who were utilizing geographic arbitrage while still working.
Realizing how valuable miles and points were, I focused on building up the Other Portfolio You Need to Focus On.
Over the years, I accumulated hundreds of thousands of miles/points for free and was able to take some incredible trips for very little money.
For example, we traveled all the way around the world for less than $1,000 each and also spent 3 months living in Southeast Asia!
After travel hacking for a while, I became frustrated that there was no good way to find the best credit cards for a particular airline or hotel program so I built a credit-card search tool to do just that.
The software keeps track of which points transfer to which airlines/hotels (and at what ratios) and it automatically displays the most valuable signup bonuses for the program(s) you want to earn points in.
Minimizing your expenses will help you reach financial independence sooner but increasing your income can do the same thing while being even more fun.
Real estate is a popular income-increasing pursuit and I’ve talked to many people over the years who have done it successfully.
It can be a lot of work though and it’s definitely not for everyone so do your research before diving in.
Besides real estate, entrepreneurship seems to be the next most popular income-increasing pursuit.
Starting your own side hustle can be a great way to speed up your journey to early retirement (but only if you start and build your business the right way) and it can provide you with something enjoyable to spend your time on after you retire.
If you don’t want to create your own business from scratch, there are now ways to buy online businesses. While internet-business investing can be profitable, it can also be very risky so make sure you learn how to mitigate the risks of website investing before you get started.
So by this point in my story, I had sorted out my investments, minimized my taxes, reduced my expenses, and started building up additional sources of income.
I was on the fast-track to FI but there was one big problem…I was miserable.
My obsession with reaching financial independence as quickly as possible caused my healthy frugality to morph into harmful deprivation.
I was aware that I wasn’t happy but I figured it wasn’t a big deal because I would be happy eventually once I reached FI.
What I didn’t realize though is that this seemingly-harmless unhappiness was actually turning into depression.
My wife and I were living in the woods of Vermont at the time and I was busy pursuing a Free Ivy League Degree so in addition to my full-time software-developer job and all the Mad Fientist research/writing I was doing, I was enrolled in a demanding academic program.
Although I was learning cool things, I was very busy and always had something I needed to do so that busyness gave me the perfect excuse to stay in the house all the time.
I would stress about spending money when I was out anyway so I figured staying in and getting stuff done was better.
That self-imposed isolation, however, made the depression worse and eventually it got to the point where I was never happy.
The shift from happy to depressed was gradual though so I didn’t realize what had been happening. It wasn’t until my wife got fed up and decided to sit me down and explain exactly what had been going on that I realized how big the problem had become.
From that point on, I started focusing on increasing my present happiness again instead of putting happiness off for some time in the future.
Important Lesson #5: Don’t put off happiness until FI.
Lessons Learned on Happiness
To get out of the funk I got myself into, I began focusing more on the emotions of financial independence, I started researching the science behind happiness, and I talked to people who successfully increased their own happiness.
It turns out humans are terrible at predicting what will make us happier, which is why people who spend a lot of money to be happy are rarely successful.
We are good at realizing what makes us unhappy though so it’s possible to increase your happiness by removing the things that make you unhappy.
Luckily, having a lot of savings in the bank makes it much easier to easily remove things from your life that you don’t like!
We realized that being isolated in the woods of Vermont wasn’t good for us so we decided to remove that negative from our lives by moving back to Scotland (where my wife is from).
It was at this time that I discovered the Power of Quitting, which I believe is one of the most underutilized but most incredible powers that saving for FI gives you.
I had crossed my 4% FI finish line by this point (see this interview for more on the 4% rule) so I planned to just quit my job when we moved back to Scotland.
When I told my bosses I was moving though, they immediately asked me if I’d be interested in working remotely. I agreed, and in one 10-minute conversation, I successfully removed most of the things I hated about my job – the commute, being stuck in the office all day, attending pointless meetings, etc.
It was fantastic!
Important Lesson #6: Use the power that your increasing net worth gives you to make positive changes in your life so that the journey to FI is more enjoyable.
Spouse and Money
By this point in the story, my wife had also come around to the idea of financial independence.
When I first started on this journey, she wasn’t interested in saving the majority of her paycheck because she loved her job and also enjoyed spending more than I did so she had no reason to save so much.
Thankfully, we both earned roughly the same amount of money and just kept our accounts separate so it never caused any arguments but we weren’t exactly working towards the same goals.
After years of writing and talking about financial independence though, she surprised me one night with a letter she wrote.
Turns out that a conversation on our honeymoon about figuring out what our perfect life would look like caused her to see the real value of financial independence.
FI wouldn’t force her to quit a job she enjoyed but it would give her the freedom to do other things that are also really important to her, like traveling and spending time with family and friends.
Once it clicked for her, she did a complete 180 and is now even more hardcore than I am (as she shared when I interviewed her for an episode of the podcast).
Important Lesson #7: Don’t try to force FI on anyone. If you want to convince someone of the benefits of saving towards financial independence, frame the benefits in a way that will motivate the person you are trying to convince (and realize that their motivations may be much different than your own).
Financial Independence is for Everyone
Just as people’s motivations for FI are different, their paths to FI are different as well.
I’ve talked to a military man who retired early after leaving the Navy, an engineer who amassed a million dollars in a decade by saving consistently, and a person who started pursuing financial independence after experiencing a personal tragedy.
Whether it’s an early retiree who has been retired for over a decade or a couple of millennials just starting on their FI journies, there’s a lot to learn from everyone on this path.
Interesting Post-FI Lifestyles
What people decide to do after they retire is just as varied as the paths they take to get there.
Whether it’s retiring to an outdoor life in the mountains or selling everything and living/traveling full-time in an RV, the important thing to realize is that after FI, anything is possible.
And if that new life happens to be in outer space, maybe I’ll see you there :)
Finally Pulling the Plug on Work
After leaving Vermont and moving back to Scotland, I continued working remotely for another two years. Since I didn’t mind the job as much after leaving the office, I was in less of a hurry to quit.
It actually would have been difficult to quit such an easy and well-paying gig but thankfully the decision was made for me in 2016.
My HR department found out I was working from Scotland, and not the US like they had incorrectly assumed, so I was told I’d either need to move back to the States or resign.
Since I had enough money saved up and didn’t want to move back to the States, I told them I would be leaving and in August of 2016, I finally walked away from my full-time job for good.
Since “retiring” from my career as a software developer, my life has completely changed.
My first year of freedom was an incredible ride and the second year is shaping up to be even better.
Although the experience has been overwhelmingly positive, there have been some challenges.
When you have the freedom to do anything, you have to decide how to best spend your time. This leads to being confronted by heavy topics like your purpose and the meaning of life.
Even though these thoughts can be intimidating at first, it’s a privilege to be able to tackle some of these tough questions when you’re still young enough to change course and it’s incredibly exciting to have the money and time to fully pursue your passions.
When Will You Reach Financial Independence?
So that’s my story up until this point.
Hopefully it’s shown you what’s possible and has provided you some new strategies to help you reach your own financial goals quicker.
If you’re just getting started on the path to FI, the first thing you should do is calculate your net worth. You need to know where you are before you can know where you’re going.
Once that’s done, start tracking your progress to FI for free in the FI Laboratory. You only need to enter a single month’s worth of information to learn when you can expect to achieve financial independence so find out today!
When you get a little bit more hardcore, download a copy of the spreadsheet I used on my journey to financial independence and start figuring out which expenses are delaying your progress the most and try to reduce or eliminate them.
To stay motivated along the way, subscribe to the Financial Indepenendence Podcast and hear tips from others who have already crossed the finish line.
As for my future plans, I feel like the most interesting part of this story is just beginning.
I have a lot of great Mad Fientist stuff lined up so the best way to stay up to date with what’s going on around here is to sign up to the email list:
I only send out one or two emails a month and over 73,000 people are currently subscribed so it must not be too bad :)
Thanks for joining me on this incredible journey and I look forward to helping you make your path to FI as quick and enjoyable as possible!