The Cult of Early Retirement Meets (Or Strangely, Doesn’t Meet) The Cult of Entrepreneurship

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By: Dan Andrews

The Cult of Early Retirement Meets (Or Strangely, Doesn’t Meet) The Cult of Entrepreneurship post image

Very few words seize my attention like “retire early.”

So it’s no wonder that, over the years, I’ve found myself consuming a wide range of ideas from ‘early retirement’ bloggers and financial gurus. Most emphasize the fundamentals: being frugal and saving money. They talk about making purchases mindfully, putting off short-term consumer highs for long-term financial freedom.

Most of all, these writers warn against going into debt. Debt, we all can agree, is the antithesis of financial freedom.

Although I read many of these writers – some favorites include Early Retirement Extreme, Dave Ramsey, and Mr. Money Mustache, who we’ve interviewed here – I’ve never felt part of their tribe. Some of their specific suggestions make sense, but their worldview never fully clicked with me.

And here’s where it gets a little, well, religious. We’ve all been in a conversation with people who have different beliefs.

Awkwardness and irritation can flood in as both sides catch themselves wondering, “why are they kidding themselves?”

After all, we agree on the facts, right? So how did we leap to such radically different conclusions?

This is how I feel about the early retirement crowd. We both want financial freedom. But how can they believe that saving money for decades is the optimum way to achieve it?

Let’s start with some of the ‘facts’ that we all agree on.

The path to early retirement begins something like this:

1. Radically reduce your spending.

2. Become debt-free. Aggressively pay off your loans. Ideally, no mortgage.

3. Save as much as you can, and invest those savings safely.

4. ???

Can you guess what number four is?

I know my answer. I believe it religiously.

So when I read these ideas part of me is always waiting, nodding my head in anticipation of the big payoff. The argument has been clearly laid out. The facts are on the table. I expect that we’ll arrive together at step four with resounding confidence.

After all, it’s right after number three.

***

For the ‘retire early’ crowd, though, step four is is generally a muddled affair.

Early Retirement Extreme, for example, is awfully vague:

“I am reluctant to give specific investment advice on this blog. The reason is that unlike frugality and personal finance, which anyone can learn in a couple of months… investing properly takes at least a couple of years…”

Mr. Money Mustache (MMM) is more resolute. In a popular article about attaining financial freedom, he declares that:

“if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37.”

Retiring at 37 sounds pretty good!

But earning a good salary, paying taxes, living life, all while saving half of your income– that sounds daunting. And doing it for 17 straight years seems? Even more so.

But I think it’s fair to distill both their strategies as something like this: save, and then wisely invest those savings.

And for me, that’s pretty good. But it’s not the answer.

It’s a nice rule of thumb. But I could never see it as the path to salvation.

***

Occasionally, on a long walk, I’ll imagine myself in conversation readers of these early retirement blogs (or Dave Ramsey podcast listeners).

“Okay you want financial freedom, right?”

“Yeah of course! I’ve already started paying down my debt and putting aside savings.”

“So now that you’ve got your financial life in order, what are you going to do with your time?”

“What do you mean?”

“Well, according to Mr. Money Mustache, you need to save 20 to 30 times your living expenses to retire and live off of residual income. For me, that means I’d need to save well over $1,000,000. So how are you going to do that?”

“Oh. Well, I …. We’re going to live frugally … we now only have one car, and it’s all paid off.”

“No, no. I mean, how are you going to earn the money in the first place?”

“Oh…well, I’m going to continue on with my career. I make $85,000 a year from my job as an accountant, and that might go up in the coming years. If my family and I can live on 30K a year, we can save about $35,000 a year! So I only really need to do this for, let me grab my calculator…”

Screen Shot 2017-03-23 at 10.59.47 AM

Oh my.

I believe that the reason we reduce debt and change our spending habits is not to stockpile salary, but to take control of an even more precious resource — our time.

Once we do that, we can put it to good use sorting out the complexities of step number four.

Our time is so powerful, in fact, that we might even risk some of our savings to get more of it.

But in the early retirement world, step number four is focused on saving, investing, long periods of stability, and good returns in the market.

I imagine a stoic sort of endurance. Simple living. A garden. Staying in one place. Avoiding major shakeups and medical emergencies. A “do it yourself” ethic to everyday (and often, very boring) problems. I imagine many years of so-called gainful employment, all to make sure the plan stays on track. Because without the plan, without the earnings and the savings, there is no early retirement.

But I can’t relate. I’ve lived this plan – this religion – and in my experience, it’s brutal on the mind and soul. Here’s why: if you spend your days finding clever ways around consumer purchases, you haven’t won any battle that’s worth winning.

If I had stuck with this way of doing things, I probably would have found ways around consumer purchase until year five before exploding, saying “screw it,” and getting a loan on a brand-new, big-ass truck.

Screen Shot 2017-03-23 at 11.51.16 AM

So much for the plan.

But since my experiments with the religion of early retirement, I’ve guzzled a different kind of kool-aid.

To me, getting financially fit means treating your personal finances like a business (steps one through three). They’re the natural first steps to being enterprising. The most meaningful changes happen in steps four and five.

Here’s how I’d write the steps, TMBA style:

1. Radically reduce your spending.

2. Become debt-free. Aggressively pay off your loans. Ideally, no mortgage.

3. Save as much as you can, and invest those savings safely.

4. Become an entrepreneur, start or buy a small business.

5. Retire early, often, or not at all. Up to you.

In case you’ve been skimming the article, it’s worth saying out loud:

THE ANSWER IS TO BECOME AN ENTREPRENEUR, GUYS.

If you have a job, or don’t feel ready to start your own venture, get a gig that will help you build the skills and resources you need to eventually start a small business (even if you get paid less). We call that ‘becoming an apprentice.’

Regardless of what your answer is to step number four is, we might come together to agree on this point– it’s complicated, and it’s difficult.

Pie Chart

The Steps in Terms of Difficulty

It’s so complicated that most financial gurus outsource step four to jobs and investment funds.

(They also often fail to follow their own advice, working long guru-hours instead of cutting back on personal expenses).

There are lots of reasons for not talking about step four.

So I perk up when they do talk about it.

And recently, Mr. Money Mustache talked about step number four. Which got my interest.

Here’s MMM (emphasis mine):

“For the past two years or so I’ve been keeping a secret from you, and I think today it is finally time to spill the beans.

The secret is that my wife is no longer really retired, and in fact she started a business that is now big enough to fund our entire family’s lifestyle.”

Interesting.

Mr. Money Mustache’s wife used her free time (thanks to being frugal, being out of debt, and having savings, steps 1, 2 and 3) to build a business that now covers their living expenses.

I kept reading the article. How long did it take Mrs. Money Mustache to cover her expenses with her new business?

“This was in April of 2014. That’s when I started my first [ecommerce] shop.”

It’s now almost April 2017, I thought.

That’s three years.

I started to feel some unwarranted and sanctimonious vindication.

The business started 1,000 days ago.

If Mrs. Money Mustache had sought my advice about how long it might take her, or her readers, to cover their living expenses with a small business, I would have guessed three years. I’m on the record.

Three years might sound like a long time just to cover expenses, but it’s much less than the majority of retirement strategies. And it’s just the beginning. Small business ownership and expertise, much like stock ownership, can compound. As an owner, you can also directly influence the value of your portfolio. (Doing so in the stock market, by contrast, is both illegal and unfair).

I don’t say any of this to knock Mrs. Money Mustache’s ecommerce store.

What she’s accomplished is amazing.

It really is.

I’m just, you know, arguing about religion.

***

Entrepreneurship is hard. It takes years, not months. It can feel daunting, just like paying off $100,000 in student debt or foregoing a vacation to pay down your mortgage.

But payment by payment, step by step, you can make progress. And, when you look back, the most critical moment in the process was believing you could do it in the first place. It was thinking “Ya know, I’m gonna stop saying “screw it,” I’m going to return my awesome big-ass truck and focus on financial responsibility.”

I know that’s hard.

But the hardest part is still ahead of you.

If you stop there, after setting your budgets, filling out your spreadsheets, planting your garden, and wisely investing the money you’ve set aside, you’ve missed the point.

***

How many people do you know who earned a high salary for 15+ years? Or who stayed healthy for an entire career? Or whose job didn’t move to a place they didn’t want to work?

And, even if all those factors work out, and they love their jobs, at the end of it they’re living on a fixed income.

I’ve met people like that in real life and you know what most of them have in common?

Fear.

Fear that the money will go away. That the plan will get messed up.

And perhaps the strangest one of all: fear that they will live too long.

***

I’m not saying entrepreneurs are fearless people, of course. But if we have confidence in the future and the courage to try things, it’s because we’ve spent years investing in a set of skills that can adapt and grow stronger.

***

Is starting a small business risky? Perhaps. But my religion only asks for a few years, not 17.

And you’ll be investing at the same time – in yourself, and in your own skills.

Let’s say the economy takes a hit and Mrs Money Mustache’s business goes under. That’s a huge setback, but her three years in business have helped her hone a dynamic skillset and a set of relationships that will serve her next business.

And in fact, here’s what Mrs. Money Mustache says about the second store she built:

“This second shop is so much more fun than the first. For one thing, I am making products that I love using myself and really believe in. I also had so much experience at making my first shop successful that the second one was much easier. I had a few customers that shopped at my first shop that immediately bought from my second shop. So, that first sale came much faster.”

That sounds a little bit like… compounding.

Let’s take this a step further. I believe TIME is more valuable than MONEY. So, why not prioritize making our time compound as well as our money?

***

Over the past few years, I have taken Mr. Money Mustache’s advice, (and that of many of his colleagues) investing some of my savings in an index fund. This year, that money grew a little bit. Pretty cool! But those returns, even if they remain good for a decade, would pale in comparison to what I’ve achieved in my own small business.

Those returns have been 30x in the last 8 years. I have effectively “retired” in less than a decade.

And the whole time I traveled and bought most of the things I wanted, without thinking about any of it too much (I didn’t buy that big-ass truck, though; instead, I picked up a van).

Both strategies have risk, and won’t work out for everyone.

But Ian and I both believed that if “the market” could compound our money why couldn’t we compound it with our own effort? Why not be financially responsible and cut out the middleman?

Screen Shot 2017-03-23 at 12.03.05 PM

Perhaps my conviction here derives from a very basic issue: when I had a career, I felt powerless.

I did my work according to the strange timeframes set by society. I had little control over my physical location. I took a lot of abuse from customers. I moved my apartment when my bosses moved their office. I came to work when they said I should come to work. And, when I had to go to the dentist, I worried that it would cause a problem (or worse, that it impinge on the few weeks a year I had away from it all – my so-called “holidays”).

For these and many other reasons, I’m always just a little bit suspicious of people who insist that they “actually love their jobs.” I’ve met so many people who have the best jobs I can imagine, and the reality is often something between “It’s okay” and “I’m stuck.”

Even rarer is the career person who’s built equity in their work, relationships, education, and profession over decades, only to drop it all to go do something else and live off their savings. Those who truly love what they do, and the people they do it with, find it very hard to walk away. And if you do walk away, how much did you love what you were doing in the first place?

I’ve also met a lot of self-made millionaires who have retired early. And here’s the thing about them – they are almost never people who ‘hit it big.’ Instead, they’re people who worked on their businesses year after year. That small store eventually becomes a big one.

When I ask these early retirees how they made their money, how they take Wednesdays or entire months off, the answer almost always boils down to:

“I started a small business.”

But maybe the popularity of early retirement blogs will change all that.

And perhaps I only see cases that confirm my beliefs.

At the end of the day, the early retirement crowd and I aren’t so different. We’re like alternative sects of the same religion. The facts are the same: Be smart about your money. If you must drive, drive entrepreneurmobiles! Find financial and personal freedom.

Over the years I’ve heard hundreds, if not thousands, of early retirement stories in-person, from young and middle-aged people all around the world. I go out of my way to have these conversations.

Fifteen years ago, if I had overheard a young American couple in a cafe — on a Wednesday afternoon in Europe — talking about how much they were looking forward to spending the summer with their families, I’d have assumed they were from old money. Today I’d listen in for more clues. I probably wouldn’t be able to help myself – I’d interrupt them and ask for the story. How did they end up with so much control over their time?

I’m fascinated by the ingenious ways people make it work. You built an online store that sells what!?

So you can blame my spotty memory, or religious allegiances, or the cities I frequent, or the circles I hang out in.

But for all the early retirement stories I’ve heard, “We paid off our debt, built winning careers that we loved for just over a decade, quit, and now we’re going to live off the interest indefinitely” would count as one of the most unique yet.

Cheers,

Dan

Ps: Thank you to MMM for his truly excellent blog and for helping inspire this article. I know I’m using his ideas a bit unfairly here. For example, MMM does go into great detail often about how he uses his savings to do enterprising things, like invest in real estate, support charity initiatives, and give back to his community and society as a whole. It’s also most certainly the case that a meaningful percentage of his audience are entrepreneurs. I’m making a religious argument here, but we agree on lots of the smaller points.

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Published on 03.28.17

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Dave Williams • a year ago

eBallers

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Dan Andrews Mod Dave Williams • a year ago

.com

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Tim Conley • a year ago

Brilliant post. I started writing about personal finance for entrepreneurs over the past year because the early retirement blogs, though full of useful and interesting ideas, don't address people who have already gotten control of their time, income and mobility.

And it gets tiresome reading about "12 ways to save money on soap," but seldom a post on how to make a lot of money within 3 years.

The 20X to 30X savings math for retirement is also a terrible idea.

It's based on the 4% Withdrawal Rule, which says you can withdraw 4% of your account annually and never run out of money assuming your money earns more than 4% + rate of inflation, which today would be about 7%.

Vanguard Total Stock Market Index Fund returned 7.68% on average for the last 10 years. That's cutting it really close! But wait, it gets worse.

That same fund after all fees and taxes (in the fund, not your income taxes) had a 10 year return of...

5.72%.

Inflation would have to be less than 1.72% annually for you to not lose your standard of living.

Entrepreneurs can forego complete passivity and leverage income-producing assets to:

1) lower the total amount of money invested necessary to pay for their ideal lifestyle, and

2) not be dependent upon needing everything to work out perfectly for 30 to 40 years.

Example Assets For $100,000 Per Year "Retirement" Income

Totally Passive Index Funds or Bonds: Must save a minimum of $2,500,000.

Multi-family Apartment Building: Approx value of $1,500,000. Amount to save to invest: $375,000 for downpayment.

Ecommerce or Niche Site: May require as much as 20 hours a week, but likely to find sites requiring less than 10 hours a week of work. Approx value: $180,000 to $300,000. Must save full amount unless owner will carry a loan.

Starting an online business from scratch: About $100 to get going and 1000 days or less to cover your living expenses.

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David Tim Conley • a year ago

Agree 100% with the $2.5m figure. That's my number. I don't need $100k a year to live a good life (4% passive return) but that's a pretty safe bet.

Ideally will get to that via an exit event + past savings.

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Dan Andrews Mod Tim Conley • a year ago

A mic drop comment.

And WHO KNOWS!!! what's going to happen to those 'safe' vehicles, it's Taleb 101:

https://www.sovereignman.co...

https://www.amazon.com/Anti...

Reading your post gets me jazzed up. There's a massive technical component to this debate our our decisions as folks who could do a lot of things but chose entrepreneurship. I could read on and on about this stuff.

Math aside: the perspective of entrepreneurship allows you to 1) do you work you enjoy now, grow meaningful skills and 2) build systems that can benefit from future disruption and stability.

And then there's just the results. Math and mindset aside, I'd have a very hard time believing that their community is achieving the types of results we see on a day to day basis over on this 'side of the fence.' The good news is, for anyone reading, that the fence really is so low you can step over it, and start with 100 bucks like Tim said. And we are very friendly folks! :D

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Trenton Thompson Tim Conley • a year ago

Although, in all fairness, we're forgetting a few factors.

• 7.68% for 10 years but one should factor in compounding interest. The quarterly 4% withdrawals would be slightly higher each quarter over 10 years.

• This also assumes the person isn't doing anything to earn income on the side. If they were the least bit entrepreneurial it could help a bunch - although they'd have to be careful not to make too much since it could affect tax rate and health insurance stuff.

• On the contrary, one has to hope they don't suffer some catastrophic loss that affects them financially, but also, they could incur a windfall just as randomly.

I personally hope to combine the best of both worlds - work towards early retirement via 9 to 5 while building and selling an online business, creating a solid buffer where I only need 2% of my withdrawal to be comfy. Then once retired, move somewhere cheap and and do a fun side hustle to bring in side income even when retired. I have always wanted to try being a barista!

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Russ Perry • a year ago

Hooray! I was just sharing a story with a friend who was completing Dave Ramsey's financial course. The Ramsey model was something I tried to follow for years, without much success. My personal key to financial freedom was MAKING MORE MONEY. Plain and simple. Granted, I spent years attempting different business models but when one finally hit, things moved faster and bigger than all the other years combined. Great post!

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Dan Andrews Mod Russ Perry • a year ago

yep... the course should include a course on how to make a course :P but yeah, provided you're good with your money the next steps is to actually be like Dave, not to simply follow his advice. In your case it seems to have worked out!

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Ted Pitts • a year ago

I agree with a lot of what MMM has to say about spending foolishly, but I feel like I have taken a very different path after achieving financial freedom than he did. And that's because he was an employee and I have a business.

When my wife and I got married 20 years ago, we decided to live on one salary. We thought that meant one of us could get fired and we'd still be OK. What it actually meant was we had the freedom for me to start a business because I didn't need to bring in a salary. Year 3 of the business saw my wife join my company and we were paying our living expenses solely from the business. (Not far off from 1000 days.)

But it took far longer to achieve financial freedom. It was 12 years in business before my wife "retired early". But I'm not retiring. I work with my best friends and would be much less happy if I lost those relationships because I wasn't working with them anymore.

It seems like a lot of the early retirement crowd focuses on the power of compounding returns on your savings while your income remains fixed. But my experience is it's much more lucrative to have your income compound as well because it's tied to a growing business rather than a static market salary.

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Dan Andrews Mod Ted Pitts • a year ago

chapeau Ted! Sounds like you guys had a strong financial vision from day one, no bloggers required! :P

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SouthOfTheBorder • a year ago

Question 4. ??? is similar to the Tim Ferris 4HWW question of what do you do with your time once you have a business that can run with only four hours of your time per week. His answer was other passions and mini retirements. Though now it seems to be "write another book" :-)

The number one way to increase your savings rate by 50% is to legal cut out taxes by moving to a country that only taxes locally earned income and earning from either an online business you start or remote working. If you pick a place with a cost of living that is 25-50% of your home country you have a double win on savings.

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Dan Andrews Mod SouthOfTheBorder • a year ago

ha yeah i basically skipped that chapter when I first read it like "um, not all that relevant sir but thanks." :P 100% agree on taxes/arbitrage

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Jeff Pecaro Dan Andrews • a year ago

10 years later, it seems like the most important question

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Dan Andrews Mod Jeff Pecaro • a year ago

Aristotle and Confucius readily agree :D

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Matthew Newton • a year ago

Religious posts always get the most responses!

I'm at 790 days with TT and the 1000 day rule is beginning to look pretttty spot on! Nice one Dan.

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Dan Andrews Mod Matthew Newton • a year ago

i like responses!!!! been nice to hear everyone's thoughts. Come back on the show at day 1000!

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Christopher Sutton • a year ago

Fantastic post, Dan.

Like you, I've admired the people who blog from that perspective but it never quite felt right to me. Unless, that is, you're someone who is 100% fixated on the career ladder you're on and can't imagine having success in something else.

In that case, if you're going to slog away in a job for the next 20 years, then sure - save enough money that you can stop early.

But to me it was always Ramit Sethi's perspective that stuck in my head: instead of trying to scrape a few dollars by saving, why not use the same effort and willpower to *earn* a few dollars? [ http://www.iwillteachyoutob... ]

I think Tim Conley hit on the crux of it in his comment below. For the average person it's a lot easier to believe they can scrimp and save money than it is to believe they could make money outside of employment. At least, until they make their first dollar...

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Dan Andrews Mod Christopher Sutton • a year ago

yep I think that's a point I touched on above but it's such a powerful emotion and cultural force that a few sentences won't even start to chip away, but since i finished writing this i've been thinking a lot about that 'moment' and lost of faith in the career script that many of us share. how could one induce it through writing? so far Tim Ferriss and Rich Dad Poor Dad seem like top examples.

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Taylor Pearson • a year ago

Loved this one.

I think MMM and the whole early retirement community resonated with me because they grok the idea of opportunity cost and tradeoffs better than most.

This line has always stuck in my head from his shockingly simple math post (http://www.mrmoneymustache.... "But simply cutting cable TV and a few lattes would instantly boost their savings to 15%, allowing them to retire 8 years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for???"

We make these sorts of decisions everyday and there is always a tradeoff.

I suppose the difficult leap to make is going from simply minimizing downside risk "avoid debt and useless consumer purchases" to making expected value based decisions - "avoid debt and useless consumer purchases and invest that capital in high-EV opportunities like your skill set and a small business."

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Tim Conley Taylor Pearson • a year ago

MMM is always pushing for skill set growth, but in things like welding or handyman activities, but seldom pushes the entrepreneur path that doesn't have an income ceiling. My guess is that most can believe they can be a handyman, but few believe they could have a successful online business.

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Brendan Tully Tim Conley • a year ago

1000% this, I suck at manual labour activities and have no intention of ever fixing that - why would I mow my lawn (well my hypothetical lawn because I don't want one) when in the very worst case scenario (my life, business and everything else disappear overnight) I could make $20-30/hour on odesk doing web/IT stuff that I know back to front

Definitely a big ego component here, "I'm a man therefore I should be able to fix everything in my house" but to me I have 100 other things I'd prefer doing than things around the house - I'd rather pay someone else to do it, keep the difference and go to the beach

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Dan Andrews Mod Brendan Tully • a year ago

yep you guys are onto something interesting here, solving for your long grass by mowing it is the same as skipping the coffee for limited upside 8 years down the line. All the action is around EV and I suspect that somebody with math/probability chops might come down on the 'high ceilings' Tim is referring to, but so far few theorists care about FIRE vs. ENTREPRENEUR debate :P Strangely enough, it seems from browsing the early retirement webz, that those folks feel math is on their side. Don't think so.

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Taylor Pearson Dan Andrews • a year ago

hmmm... let's see if I have probability chops ;)

Things I think everyone can agree on:

10% success rate for starting a small business - 9/10 small businesses fail (I doubt this is true for internet businesses and that this number is better, but I don't think anyone will fight me on 10%)

Average $10k in startup costs for an internet business - it takes way less than that on average especially for models like agencies and productized services from what I can tell, but you can manufacture an ecommerce product in china for $10k which is probably the most capital intensive way to start, so I'll take that as a high end.

That means to start a successful business costs you $100k. (10% success rate * $10k)

If you take the Empire Flippers marketplace math here

(http://www.tropicalmba.com/... that you have an expected value of $711,152.27 in 2.5 years.

I'll pad that and let’s say it takes you 2.5 years of failed business ideas to get one that works, then you have turned $100k into $711,152.27 in 5 years

That is a compounded annual return rate of 48%.

I am also leaving out of the profits you could take out of the business while running it - this assumes you invest every cent of profit back in.

Is there anything that the FIRE folks would reject in terms of math?

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Dan Andrews Mod Taylor Pearson • a year ago

I like the path you are walking down here, to my eye it seems perhaps a bit rosey as some of the failures can lag and take longer to sift through and determine as failures. That's where this can go wrong for entrepreneurs. Perhaps an important distinction that's unclear: 9/10 small businesses fail or 9/10 small entrepreneurs fail? Not sure where the two probabilities intersect but I suspect the FIRE folks would take issue there. At least from what I've seen, the critical hang up is 'identifying' as an entrepreneur (something this article was an attempt to emotionally poke at a bit-- like paying off 100K in debt is just as daunting as identifying as 'entrepreneur') but without that fully engaged mindset shift, it's tough to do something like invest 90K in 9 failures. Mathematically speaking, however, it almost certainly makes sense to do so.

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Taylor Pearson Tim Conley • a year ago

good point

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Taylor Pearson Taylor Pearson • a year ago

I was thinking more about this, some assorted thoughts...

--- --- --- On the Time as an asset class metaphor ---- -------

"I believe that the reason we reduce debt and change our spending habits is not to stockpile salary, but to take control of an even more precious resource — our time.”

I have for years quite a few years been a lurking fan of the early retirement crowd and I think that core underlying philosophy you point is why is why: **Time is the fundamental asset class**

You trade time for all other asset classes (money, travel, relationships, etc.) at varying exchange rates.

This was the core insight from the Four Hour Work Week - You start with time and you are able to trade it for other asset classes, he lists money and location but of course there are many more.

E.g. The currency of relationships is sacrifice and time (spending time together is) is the easiest and default sacrifice.

I think there’s a lot more that can be done with that metaphor (and you do quite a lot of it here).

———An attempt at a rigorous definition of Fuck You Money—

There are quite a few gradients of owning your time, but I would contend that the ultimate form of owning your time is simply Fuck you money.

What then are the components of fuck you money? It is commonly thought to simply be a number in a bank account, but it appears to me quite a bit more intricate than that.

It has, as I see it, these major components.

1. Cash - money in the bank

2. Cashflows - money coming in replacing that money in the bank

3. The ability to make it back -

4. The Ability to Keep It

5. **Bonus but not required** The Ability to Grow it

The equation works out to something like

FU$ = (Cash + Present Value of Cash Flow) * The ability to make it back * The Ability to Keep it

This multiplication is important because if you don’t have the ability to make it back or keep it, you don’t have Fuck you money. You are fragile.

——— Indexing vs. Stair stepping ————

The whole early retirement idea is that once your income from passive investing eclipses your spending then you own your time.

This is the exact same idea behind Rob Walling’s stairstep method - once your income from “step 1 products” - single sale, single channel offers passes your spending, you own your time.

Rob’s theory makes more sense because it’s just much faster on an expected value basis. The idea behind the 1000 Day Rule - you can replace your job and own your time within three years.

To do it with index funds alone and using the 4% safe withdrawal rule that would require saving 85% of your take home income which is **brutally hard**.

If you start from the question “What is the shortest route to owning my time on an expected value basis?” then starting an internet based small business is the best answer on an expected value basis.

This is why the 7 day startup was so good. Even if you include Dan’s 8 years of running a web agency in the picture, he still got to the point of owning his time within 11 years, 5 years faster than if he had stayed at his government job and saved 50% of his pay check.

And Dan had the disadvantage of starting 12 or 13 years ago when it was way harder - there were less blogs, podcasts and communities to learn from. It’s much easier now.

Also, IT’S WAY MORE FUN. If you go back to the time as the fundamental asset which you trade for all other classes of assets then trading say 5-7 years of your life building a small business that you find interesting (and perhaps doing it from Vietnam or Barcelona, because why not?) is way better than spending 15 years of your life doing a job you don’t really like.

——— On Fragility and Real World Risk — — —

The other thing that factors in here for me is that, as the pie chart points out, making money is the scarcest resource in the FU$ equation. There is lots of cash floating around, plenty of cash flows to be seized and you can learn to live cheap in a few months.

As I get better at making money, I worry less about money even if there is the same (or less) money in the bank than a year ago. I know how to make more of it. It is a skill just like learning to play tennis or speak another language.

The indexing thing scares me because it is not a skill, it is a bet over which you exert no agency. Moreover, it is a fragile bet with concave exposure. You have limited upside (12% in a year would be a epic) and infinite downside (70% drawdowns are not unheard of and we are probably due for one).

If public market returns don’t match what they did over the second half of the 20th century (and I think it’s incredibly unlikely that they will), what do you do? You are a turkey on Thanksgiving to use Taleb’s analogy.

Making money through a small business is much more transferable. There are many stories in your community of people who had a business dry up and within a short period of time were making as much or more money from a new business.

7h years ago The Empire Flippers had their BPO business dry up, within 2-3 years they were doing just as well from their Adsense flipping. That got dinged by Google 4 years ago and within three years they had a website marketplace business on the Inc 5000 list. That’s what Anti-fragility looks like in practice.

— — — What’s the spot price of your time? — — —

Note: I’m not sure if this makes sense, but there is something here…..

One other extension of the time as an asset class metaphor - I went back and read some old MMM articles after this including a summary of a book called your money or your life where he does that math that a person making $50k/year actually make ~$10/hour after deducting taxes and all job related expenses (clothing, commute, etc.) So if you pay $20 for a meal eating out instead of eating at home for $5, that costs you 1.5 hours of your life.

A lot of entrepreneurs do something similar - a rough calculation of what they are willing to pay to buy back an hour of their time. If there business is making a $100,000 in profit and you assume 250 working days in a year and 5 hours a day then an hour of time is worth $80.

(You can play with the math here - if your business is making $100k in profit now, it’s likely that the future value of your work is probably higher, but I’ll do it conservatively since I’m not deducting taxes or other work related expenses).

In this scenario then $80 is the “buy price" of your productive time. You should be willing to buy back an hour of productive time at $80 - there’s a LOT you can outsource for $80/hour or less.

(You could get more complicated with it - an hour of my morning time after a good nights sleep I would value much higher than 5-6pm after a bad night’s sleep when I’m useless, but we’ll keep it simple)

I think it makes sense to combine the two and have a "productive hour buy price” and “unproductive hour buy price” - So in the $100k/year example above, you should be willing to buy a productive hour for $80 and an unproductive hour for $20 (just taking his math of $10/hour for a $50k/year earner and doubling it)

Also, taking his math, if you earn $100k/year then the math of $20/hour is a good heuristic for buying things - would you rather have those new $200 jeans or 10 hours of your time?

I started going to a BJJ gym earlier this year because I did similar math and figured I was paying $200/month and going to about 10 classes per month so it was costing me $20 or 1 hour of my time to be able to go there instead of the cheap gym I was training at. That was worth it to me, but the jeans wouldn’t be.

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Tim Conley Taylor Pearson • a year ago

Taylor Pearson said, "To do it with index funds alone and using the 4% safe withdrawal rule that would require saving 85% of your take home income which is **brutally hard**."

The biggest problem with this is the person is left living on the equivalent of 15% of their salary in perpetuity. Unless one's salary was $1,000,000 a year, this would be such a limiting future.

The only way to break that ceiling would be to continue a job, even part time, or develop entrepreneurship skills to increase income.

Maybe living on 15% for 3 years could then secure someone their time to become an entrepreneur.

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Dom Wells • a year ago

One thing I always wanted to add to the early retirement crowd argument. What's the point in retiring early if you don't know how to enjoy it.

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Dan Andrews Mod Dom Wells • a year ago

I guess there's a basic agreement that working for a living is a bad thing to be doing for a life? But that's a bummer of an idea

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Brendan Tully • a year ago

Fantastic post, one of your best by far and a great laymans argument/explanation of the 1000 day rule and why run a biz

Totally resonate on cutting out the middleman etc the stocks, got a 1 cent dividend on one of my shares yesterday - ~50 bucks for 6 months of investment in this stock, nevermind the share price dropped 50% too. A joke compared to the what even one of my completely automated sideline projects makes when in 8 hours when I'm asleep.

Personally, I'd go insane without the occasional toy purchase, nothing wrong with the high of a new toy purchase if you use the bejesus out of your toys and get that high on a daily basis/every time you use them. Having the primary goal in life as to save the most and spend the least sounds like a horrible existence, what's the point?

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Dan Andrews Mod Brendan Tully • a year ago

thanks BT! It's funny that these investments have so much pull that even though I could say the same thing about a side project I still feel the pull of more traditional investment vehicles. They exist in my cultural brain as monoliths! But there's no question that what many readers here have stumbled upon is much more powerful for the time being.

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Dominik • a year ago

Really loved how you brought these world views together in one article! :)

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Dan Andrews Mod Dominik • a year ago

thanks Dominik it was a pleasure.

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Thiago Ghisi • 4 months ago

Love this post!!! I’ve been reading about Financial Independence and Early retirement a lot in the past year or so and that is the first time I see someone actually mentioning a reasonable strategy for that: Entrepreneurship as the step 4!

Being stuck on a job that you hate for a decade is never a good alternative and a perfect plan for a big disaster (depression, family crisis..,) on your path to FIRE

One book that I recommend that goes pretty much on the same lines and it is even more agressive: The millionaire fastlane by MJ DeMarco

https://www.amazon.com/Mill...

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Dan Andrews Mod Thiago Ghisi • 4 months ago

cheers Thiago glad you dug it, I also agree that Millionaire Fastlane principle's are in line with the sentiments in this post. I enjoyed reading it very much.

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Chris Reynolds • a year ago

Loved this read! And have felt exactly the same for years!! I remember my friends getting excited about Dave Ramsey back in the early 2000's and we would watch him on TV giving advice to a couple on why they shouldn't adopt a child because it didn't make financial sense. Something about that path never made sense to me. He was teaching the poor and middle class to spend years to become more middle class. I thought to myself if I'm going to spend years learning about something, why wouldn't I learn how to become wealthy instead of middle class. So I quit listening to Mr. Ramsey.

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Dan Andrews Mod Chris Reynolds • a year ago

ha that resonates "more middle class." Still love Dave as part of the answer but perhaps because he doesn't challenge the notion of employment is why he has earned such a big audience.

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Tim Conley Dan Andrews • a year ago

As MJ DeMarco said in his book, the personal finance gurus never teach their audience how they got rich. They probably don't share their path because it has something to do with getting rich by teaching others to never get rich.

What I love about entrepreneurship is I can teach exactly how I made my money to as many people as I wish and it never diminishes me, but more importantly, it never diminishes the people I teach.

Dave Ramsey's path to wealth has been to teach people aspire to middle class and a life of labor. If he was to teach that to his audience it would diminish all involved.

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Cristina C. Ansbjerg • a year ago

I absolutely love this post! This is the kind of article that made sign up to the DC 5 years ago.

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Dan Andrews Mod Cristina C. Ansbjerg • a year ago

thank you thank you

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ryannagy • a year ago

Hmm. I am having a hard time getting riled up about this one. I have informal talks with my expat friends here in Mexico about Mr Money Moustache and we have all ramped up our savings rate and have much clearer goals about what we need to have even more free time and flexibility. His ideas have been liberating. BUT - we all have our own businesses. And we live pretty damn well on "poco dinero," so perhaps we are getting the best of both worlds

I think Tropical MBA and MMM is an unbeatable combination. Put Dan Andrews and Mr. Money Moustache on my team and I will kick anyone's ass. hahaahaha.

Peace!

Ryan

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Dan Andrews Mod ryannagy • a year ago

I agree on this combination! :D

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Tim Conley Dan Andrews • a year ago

Dan is the man who introduced me to MMM almost 5 years ago. I still read MMM today even though I've never been the target audience. There are some concepts by MMM that are sorely missing from entrepreneurial circles.

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Chris Mitchell • a year ago

+1 for more posts like this. Given the interwebs are awash with endlessly recycled advice that rarely goes beyond the first 3 steps, posts like this that think through getting to Step 4 and beyond are gold. It lets the reader quickly get the summary of the arguments and move on into the next levels of the debate which rarely get any airtime (maybe because they're so difficult to address). I also like how it sets the post comments on fire with interesting responses.

I'd like to see you take this "Step 4 approach" to other topics - it's the classic thesis / antithesis / synthesis approach but with Star Trek memes. Perhaps a starting point for your next post in this style would be how you identified you could 30x your income through your business. Both Ian and you have mentioned this several times but I'm not sure how you came to that realisation and then how much you had to risk to do it - and how long it took you to realise it was going to work rather than lose your shirts. I get the idea, but personally, I would feel super wary about dumping my savings into my business and watching them spiral down the non-purchasing clickfunnel of doom.

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Dan Andrews Mod Chris Mitchell • a year ago

thank you Chris, and noted on the article request. I just tossed it into my ideas sheet. Short answer is 'tinkering' I'm not sure it came from a grand vision, that only exists in retrospect. We knew business could be profitable, so when we saw an opportunity we jumped on it and worked hard at it. In retrospect the returns were 30x but I'm not sure that number existed in a spreadsheet in advance. I quasi existed in dreams of a nice card though! :)

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Marcia Yudkin • a year ago

The point about fear is a really important one. And I think there's a particular use of entrepreneurship that helps reduce, if not eliminate, that fear. It involves turning entrepreneurship into streams of passive income. I believe this is much more secure than merely investing money.

Passive income could consist of rental real estate, book royalties, multi-year payments from having sold off a business, etc. One person who writes about this is Todd at FinancialMentor.com - though I have to say that I was living it, myself, before I started reading him.

Thanks for your thoughtful post!

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Dan Andrews Mod Marcia Yudkin • a year ago

you got it Marcia, I like finding vehicles for low-touch investments through entrepreneurship as well, although I haven't done much with that concept in real life yet.

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Jase Rodley • a year ago

I can definitely resonate with this post. It's a rare situation to be in (cash first, entrepreneurship later) but after working a decade in a fairly successful career before becoming enlightened on the business path.

I certainly don't have F you money, but I do have a safety net. If every one of my businesses failed at the same time, I can sleep easy knowing I have a safety net.

I call it the freedom fund ( https://jaserodley.com/why-... ) and my goal is for it to cover our basic cost of living. With rent paid and food on the table, I can take more risks in business rather than stressing about the next invoice.

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Dan Andrews Mod Jase Rodley • a year ago

i like the idea of a freedom fund, reminds me of the first steps of Dave Ramsey's system.

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Anthony • a year ago

Yep, good post Dan. Just read the Millionaire Fastlane by MJ Demarco and he echos your philosophy of digging in hard for a couple of year's (important: when you have found the correct road) and once in that fastlane - like you guys were - making 7 figures/years or a 7 figure valuation quickly.

The other way to more freedom now - without having a 7 figure nest egg is to create the semi automated small biz (or more than one) that pays above expenses.

MJ gives principles or commandments to use (checklist) to boost your income massiveley and win your freedon, here:

NECST

N is for need/want/desire for you to fulfill in the market (not your passion, a market need)

E is Entry, barrier should be high (unless you super bad ass or a big company). EG: a blog or an ebay store has a low barrier to entry, fail.

C is Control. The vendor (franchisor, licensor or google of facebook have control). They can make great money. A hichhiker or affiliate or employee doesn't have control therfore income is limited.

S is for scale. Market size plus net profit on units sold (magnitude) (so you can scale in a small area if your sales a big - like selling real estate or life saving operations)

Local, state, country, global. And throw in the systems needed to run the biz, humans, licencing, automation through software and the Internet)

T is for Time. MJ is just like you in this regards, the thought of 20 or 30 years working in job and sacrificing his life for a nest egg when he is old compelled him to try and fail many times then finally he learned and tjat knowledge got him on the right road (which had all commandments satisfied) at a high speed for 7 and 8 figure wealth quickly. He also notes that working 10 hours a week for 60k/year would be far more agreeable to him than 140k for 40+ hours of work.

And he notes that the conservative investments a good and needed to preserve wealth - not make the initial 7 or 8 figure pot. Michael Masterson says the same thing about getting to finacial freedom withon a few years, that is, growing your income substantially through high valued skills can make your 7 figures quickly not regular conservative investing.

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Dan Andrews Mod Anthony • a year ago

Thanks for sharing MJ's ideas here Anothony, for others looking at the comments I agree that MJ's book is way better than it's cover imagery suggests and it is an excellent counterpoint to early retirement style thinking.

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Trevor Pirtle • a year ago

Nailed it.

These financial gurus are great for giving people with regular jobs a view of light at the end of the tunnel.

Yeah, you could potentially get out of the rat race in 17 years if everything goes according to plan (hahah yeah right!).

But the real problem is that these people are playing the wrong game...

P.S. Dan, it would be awesome if you wrote a book about this, how to "early retire" in 1,000 days.

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Dan Andrews Mod Trevor Pirtle • a year ago

thanks Trevor agree on all fronts, but I can barely finish a blog post so one step at a time! :D

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Trevor Pirtle Dan Andrews • a year ago

A book is just a long stream of structured blog posts. ;)

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Dan Andrews Mod Trevor Pirtle • a year ago

hehe, appreciate the encouragement!

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Jenna VanLeeuwen • a year ago

Love this article! I think you make a really good point about how most people are unclear on what they will do with all the money and all the freedom.

For me, step #4 has always been: figure out what you want to contribute to the world, what gives you meaning, and do that. This may or may not be profitable. In many cases, though, you can earn money and do the work you want to do. If you can actually get clear on what kind of work gives you joy to do, you might be able to skip the work of economizing for 10-20 years at a job you may or may not like and get straight to the fun stuff. (Many MMM readers value efficiency & sustainability beyond the value to their finances, but still the point remains.)

In your case, it's clear that your happy place is building businesses. I work in the financial world, so my happy place is helping people with their finances. I will do this in some form for the rest of my life.

We're still very careful with our money to give ourselves the flexibility to change our minds and not get stuck in our choices. However, I no longer feel that overwhelming drive to retire early that I did when I was unhappily working in a job I didn't like.

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Dan Andrews Mod Jenna VanLeeuwen • a year ago

makes sense that's a good point I didn't think of explicitly until I read your comment. I could imagine an alternative universe in which MrsMM started her ecommerce store without all the retirement savings and there would just be less pressure to finalize the 'plan' because, yeah, running the store and making products is fun and engaging work. I most certainly feel the same about being here in the comments and responding to everyone and working on finding investments, throwing events, etc. So that's a great point. So there's a whole other trove there, which is figuring out work that really animates you is really hard work. The same sort of dissatisfaction is everywhere in the location independent community sort of like "now-what" syndrome... I've sorted my financial life, it was a huge challenge and journey, NOW WHAT!?

haha and this is just me being a jerk but I suspect, after having browsed many of the websites and forums online, that these questions don't burn as brightly in the early retirement world because it's harder to reach that 'goal' using an early retirement type strategy.

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Chris & Susan Beesley • 2 months ago

Thank goodness ... we thought we were the only ones who disagree with the "financial planners" and their good advice. We're now in our mid 60's and we became online entrepreneurs in our mid 50's because it was too late for us to start saving for our retirement and we lost our "pension pot" in the recession You do absolutely need a million in your pot to have any kind of retirement. Thank you for sticking your neck out and saying it just as it is :-)

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Michał Stradomski • a year ago

Chasing passive income looks very inefficient. If you compare dividend stocks to hens you will see that "hands free hens" that give you 4% in "eggs" would be about 100x more expensive than regular hens that you only need to feed once a day and collect the eggs... and clean the hen house occasionally :) Do the math in your country/economy. It's as inefficient as driving a truck to the grocery shop :)

Btw:

ERE is not about not working. It's about a place in life that you don't HAVE to work for money. Business is still, by definition aimed at making money.

The only difference between businness and job is that you do not have one boss but many bosses aka customers. And you have to "serve" them to make that money.

And you don't have to wait for the ERE magic 17 years. After one year or so you have your electricity bill covered to the end of your life!, then next bill, then a beer a day...

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Oliver Oberdorf • a year ago

When I look at the entrepreneurs who share their stories from the earliest days (Johnny FD, Sharon Gourlay for instance) - it really stands out that they felt free and happy from day 1. Not 17 or even 10 years later and only by reducing their expectations to a stay at home life. Sure, they still worked their butt off - but they also got "paid" with the life they wanted immediately, and that seems like the best deal of all.

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Dan Andrews Mod Oliver Oberdorf • a year ago

Good point, there's a 'quest' element to it. I remember the early days as very challenging but perhaps most importantly as thrilling.

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Joseph Furtick • a year ago

Great article man!

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Dan Andrews Mod Joseph Furtick • a year ago

thanks Joe!

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Ian Bond • a year ago

Coming up on 60, I can tell you that many in the FIRE community suffer from a problem of perspective. Life happens and screws up your plans (recall the Mike Tyson saying about punches in the kouth).

I neither want to live in fear of my pile disappearing too soon, nor be without a challenge. Entrepreneurship affords me the opportunity to mentally stay in the game and finance my lifestyle and charitable intentions.

Religion? I think so. I believe frugality is silly, so I'm not saving my way to prosperity. Life expectancies, AI/robots, globalization are all changing traditional careers in a way that makes retirement assumptions risky. A religion should deliver you under all scenarios, so this fits the bill for me.

I didn't have a chance to weigh in before we got out our weekly Round Up ( http://www.myretirementreha... which features this post. Great stuff. Big fan!

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Dan Andrews Mod Ian Bond • a year ago

hey Ian thanks for the mention. I think you're right, I think we're in some agreement there it's why I used the term religion... they seem to find some confidence that their perspective is based on #'s but one set of numbers both communities don't have is success rate... i suspect those will be hard to dig up, but yeah Tyson quote is part of the reason I'm not willing to build a house of cards of #'s in the hopes that it stands up over the decades.

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DNter • a year ago

Best post yet

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Dan Andrews Mod DNter • a year ago

thank you! only took me eight years :D

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