What I Wish I Knew

This week, I’m going to talk to University of Colorado Boulder students and this post is written for them. If you’re not a CU student, please click away now. Just kidding.

Students! I know that your teacher has covered the basics of money management and investing, so I’ve gone light on those topics. And while money isn’t easy, it is simple. Index funds and 401(k)s aren’t complicated.

If you’re not a student, feel free to chip in with your advice in the Comment section.

What I Wish I Knew

I hear this or a variation of it frequently in the FIRE (financial independence, retire early) community:

If only I knew about FIRE when I was 23!

I didn’t.

I was almost 38 when I discovered FIRE. A really crappy day at work back in 2012 led me to search Google for:

How do I retire early?

On the internet, I found others who talked about retiring in their 30s. At first, I thought it was bullsh*t. Who retires before 65? What internet scam have I stumbled upon? But then I discovered that early retirement is just a simple math problem. I was hooked.

My wife and I were savers, so we had a good head start. ($586,00 in investments and $150,000 in home equity) However, we made changes to speed up our journey. We sold our fancy home (we didn’t like the neighbors anyway), bought a fixer-upper, and started saving more aggressively than we ever had.

In 2016, I accomplished my goal ($1,000,000 in savings) and in April of 2017, I left my job and haven’t looked back. Life on the other side is good:

I’m in the best shape of my life.

I have loads of time to spend with my children.

I get to build fun stuff around the home.

I help run a coworking space.

Life is good.

Retiring in your 40s with over $1,000,000 is pretty cool. However, if I would have made different choices when I was younger, I could have done it at least 5 years sooner. But regrets are stupid. You can’t change the past. However, you can learn from it and apply the lessons to future decisions.

And, you can also help others.

Money, Life, And The Two Paths

Money

Your teacher has already taught you about money and investing, so I won’t spend a lot of time discussing them. However, some topics are so important that I need to mention them again. Money, investing, and personal finance isn’t easy, but it is simple.

1. Invest Properly

Advisers who make money from selling you investments want you to believe that the game is complicated. It’s not:

• Buy low-cost index funds.
• Prioritize tax-advantaged accounts like 401(k) and IRAs.
• Have a long-term strategy and mindset.

That’s it.

2. Understand Compound Interest

Quiz time: If your money doubles every day and at the end of 10 days you have $1,000,000, on what day did you have $500,000? I ask this question frequently when giving talks and many respond with:

Day 5!

Wrong! The correct answer is day 9. It’s important for newly minted savers to understand this because early in the investing game, your efforts will feel futile. But then, you wake up one day and have 7 figure net worth.

Saving and investing is slow going at first, but keep at it. The action all happens later and this is exactly why you need to start as early as possible.

3. Money Working For You Is The Best

When you’re young, you’re working for money:

1. Go to work.
2. Pay your bills.
3. Invest the rest.

Repeat, repeat, repeat.

But, along the way, something funny and beautiful will happen. All of those dollars that you invested will start working harder than you. You’ll find that your portfolio is making more money than you do at your job.

I’m a great example of this. My net worth sits at almost $3,000,000 and I didn’t earn anything close to that in my 20-year career.

4. Know That Successful Investing Is About Temperament More Than Anything Else

Warren Buffett once said this:

The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

What does this mean? Here you go:

Don’t freak out when the markets have a correction. As long as you know that the long-term trajectory of the markets is up, short-term fluctuations don’t matter.

For the individual investor this game is more about psychology than finance.

Also, remember that you’re young. Be aggressive. During a recession, the dollars that you’ve put to work may take a hiatus, but at some point, they’ll come roaring back, working harder than ever.

Life

And now we arrive at the hard part.

1. The Pursuit Of The Object

Some wise human once said something like this:

The pursuit of the object is more fun than owning the object.

This is true and I know from experience. All of my life, I’ve been a gearhead. After I stopped working, I decided to buy my dream car, an Acura NSX:

It was fun at first, but quickly became another thing in my life that required my time and mental bandwidth. Goodbye fancy car. Never again.

2. Find Community

We are the average of the five people we spend the most time with.

Jim Rohn

If your goal is to retire early, surround yourself with other humans that have the same values. This will have a big effect on your life. You won’t feel a need to keep up with the Joneses because you won’t be hanging out with them. If you have friends who have the same value system, it will make your journey easier and you will not feel pressure

Luckily, finding community is now easier than ever. Here are some suggestions:

Free

• Find a meetup with a local Choose FI group. Here is the one for Denver and the one for Northern Colorado. Complete listing here.
• Connect on the Mr. Money Mustache forums.
• Join our local Meetup group and come to an event at MMM HQ.

$$$

• Camp FIs are a ton of fun and there are two happening in Colorado in July: https://campfi.org/
• Camp Mustache

3. Enjoy the Ride

After I discovered FIRE, I set out to accumulate money as fast as possible. Remember that crusty house I bought to fix up and sell? Here you go:

The home was a great investment financially. However, not so good for life. Spending every free moment working on a home isn’t healthy.

Early retirement will increase the quality of your life, but it won’t increase happiness. That comes mostly from you, so find happiness now. Don’t wait for an external circumstance to solve your problems.

4. The Real Goal Of Financial Independence

I hear comments like this all of the time:

I want to retire early, but I don’t want to sacrifice!

Financial independence isn’t necessarily about retiring early. Here is what it’s really about:

• Building a sturdy financial house: Life is a lot easier when you’re not living paycheck to paycheck.
• Getting your value system in order: What is important to you? What do you really want out of life?
• Contentment and happiness: How do you structure the time you have left to maximize happiness?

Regarding the last two bullet points, do this exercise. List 5 things you want out of life. They can be values too. Here are mine:

1. Keep my body in top shape so I can enjoy quality of life for as long as possible.
2. Raise successful, thoughtful, and well-adjusted children.
3. Continually challenge myself with new projects.
4. Help my fellow humans live a better life by teaching them about money.
5. Hike around some beautiful parts of the world.

Note that none of these cost much money. Staying in good health for me is as simple as eating well and getting on a bike. Raising successful kids is all about spending time with them (kids will tell you they want Micky Mouse, but they really want you). And this brings me to an important point.

When considering FIRE, if you think that it’s a big sacrifice, you’re doing something wrong.

FIRE isn’t about living in a basement with 4 roommates and eating rice and beans. It’s about getting life right.

Big houses and shiny new cars result in short term happiness. You’ll spend more time working on that big house and paying the tax bill. The joy from that shiny new car will fade fast.

Genuine happiness comes from living a life true your values; working on things that excite you, spending time with people you enjoy, and living without the constraints of money.

Your Life

There are two paths:

Path 1

1. Graduate from college.
2. Buy a new car.
3. Buy a home.
4. Save and invest the minimum.
5. Work hard and get a job in middle management.
6. Upgrade the home and car.
7. Have 2 kids.
8. Get promoted again.
9. Upgrade the home and car again.
10. Buy season tickets to the Local Team.
11. Retire at 65 when your body is in rapid decline.
12. Move to Florida and die.

Path 2

1. Graduate from college.
2. Keep the same car because it stills works.
3. Choose housing wisely. Consider renting because in many cases, homeownership doesn’t make financial sense.
4. As soon as you can, max out your tax-advantaged accounts.
5. Get promoted. Save the extra money.
6. Keep driving the same car because it still works. Keep the same home because you like the neighbors and the neighborhood.
7. Get promoted. Save the extra money.
8. Have 2 kids.
9. Don’t freak out when the stock market freaks out.
10. At 40, look at your investment account and smile because you’ve accumulated $1,000,000 dollars.
11. Do one of the following:
    • Keep working because you love your job.
    • Leave work to pursue your lifelong passion as a banana farmer in South America.
    • Buy an RV and spend a year seeing North America.
    • Go part-time at work so you can spend more time with your children.
    • Hike the Pacific Coast Trail.
    • Become a park ranger in Yosemite.
    • Build a non-profit.
    • Open a brewery.
    • Become a monk.
    • Start the business you’ve always dreamed about.
    • Sail around the world.
    • Start an organization to teach others about money.
    • ???

Path 2 is way more fun. Every day is an open book. I might go for a hike, teach my kids how to paint, build a deck, have a beer with a new friend, or learn a new skill. I love my life and I wouldn’t change a thing.

Which path will you choose?