In Episode 11, I share some personal thoughts related to FIRE and 8 key takeaways from a recent study of 150 millionaire interviews.
I share why there is no guaranteed path you can simply follow like an instruction manual to lead you predictably to FI. FI must be achieved on your own terms, and we talk about lessons and mindsets that can help you get clarity on your own pathway to FI.
What you’ll learn in this episode:
- Why, despite all the blogs/podcasts, no one can give you a golden formula checklist to follow that will lead you predictably to FI
- But how you can still draw critical lessons & insights from others to achieve FI on your own terms
- Some “things that I have done” that have worked to help me achieve FI
- 8 key takeaways drawn from 150 millionaire interviews
- Questions to think about to help you get clarity on your own pathway to FI
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Links mentioned in this episode:
- List of questions to help you clarify your pathway to FIRE
- Lessons from 150 millionaires
- HYW private Facebook community
Read this episode as a post:
All right, finance friends.
Welcome back to another episode of the Hack Your Wealth podcast.
I’m excited by today’s episode, because it’s going to be a little bit different.
I’m going to be talking a lot about the mindset for fire – financial independence, retire early – and why despite all the blogs and podcasts out there, no one can give you the golden formula, some kind of secret sauce checklist that you can just follow like a soldier that will lead you predictably to FI.
But I want to share how you can still draw lessons and insights from the experiences of others, myself included, to achieve FI on your own terms in your own way.
And what my own lessons and personal practices that have helped me to achieve FI have taught me, along with key lessons and insights that interviews of 150 millionaires have revealed and some tips and questions to think about to help you figure out and get clarity on the path to FI that will actually work for you.
And so we’re going to talk about all these things, rooted in the right wealth building mindsets that will help you get clarity over your path to FI.
And so that’s why I’m excited by today’s episode.
There will be a freebie as well for this episode, which is a list of questions to think about to help you better understand yourself and get that mindset clarity on how to get to FI for yourself, in your way, on your terms.
I just put together a list of open ended thought starter questions for you to think about and answer in your own space, in the privacy of your own thoughts, but it’s worth taking a look and reflecting honestly about those questions because it will help you get that clarity on what your path to FI should probably look like.
So you can get that at the show notes for today’s episode which is at hackyourwealth.com/11.
Also, like always, I want to invite you to join the private hack your wealth Facebook group, which is at hackyourwealth.com/fb – encourage you to join that group.
It’s a good way to connect with me, we can have a two way dialogue, I am in there every day, answering questions and comments from community members every day.
There are people who ask about FIRE related questions, tax strategies, real estate investing, side business income, online income, career related questions, and just general advice about financial planning and tax planning and early retirement.
And it’s a good community where everybody’s very supportive and strategic and smart and helpful. So please check that out. Join the community. We’d love to have you there.
Okay, so let’s jump in because today’s episode is a little different from other episodes that I normally do because it’s more introspective.
Usually my episodes are very focused on strategies and tactics, often with step by step instructions, even screenshots of things and freebies that I include.
But today I want to talk in some depth about FIRE – financial independence, retire early – and specifically some mindset things that I think are critical for you to have as you think about your best path to achieve.
And the clarity you need to keep constantly and continuously in your head to be able to take action regularly.
Stick to your strategy and keep going after it one foot after another, month after month, and year after year.
So this episode in some really important ways is about how to cultivate the right mindset. And the reason why mindset is so important.
Perhaps the most important thing when it comes to FI is: there is no guaranteed path to FI.
Now I know that may not be reassuring, it may not be what you want to hear.
But the reality is, there is no magic formula, no silver bullet that is guaranteed to enable anyone to achieve FI. You can take lessons and insights from others and reflect on how to make them work for your own personal situation.
But you can’t simply learn what somebody else did and then copy it in a mechanical way and expect that you will also achieve it the way they did, at the age they did.
You have to find the set of actions and life choices that will take you to FI on your own terms, in your own way, as fast as you’re able to, because, fundamentally, at the end of the day, everybody’s different.
Maybe you work at a hedge fund, and you make a ton of money, maybe you found a way to house hack and get free housing, and so you’re saving a lot on costs. Or maybe you did some kind of geo arbitrage by working remotely.
A lot of software engineers can do this, they can earn an American salary, but live in an inexpensive country, which then in turn drives down your housing and food and transportation costs.
Or maybe you just live in a low cost city to begin with, or you live in a state where you don’t have to pay state taxes, or you got in early with some rocket ship startup and you made a ton of money that way.
Or you simply first started investing at a time when there was rapid market growth and ascent like in 2009. So you got a huge investing head start. Or maybe you just have a trust fund.
Whatever your situation is, because there are these real differences between everyone, everyone will have a different path to FI.
Maybe it’s only slightly different. Maybe it’s drastically different. But the point is, no two paths will be identical.
In my own case, I don’t work at a hedge fund, but I have a relatively high paying job in the tech industry. And my wife also earns a good income as a healthcare provider.
We do house hack. So we do sacrifice more ideal living conditions in return for significantly lowering the cost of our housing.
We live in California. So it’s high cost of living, we have no location arbitrage. We’re in a super expensive state and city and we pay very high state taxes.
We certainly did not get in early enough into any rocket ship startups to catapult us immediately into retirement the way some early employees at Google or Facebook or Uber or WhatsApp or Airbnb would have been able to do.
But we did participate in a couple of pre-IPO companies, at least I did, as part of my job, that subsequently went public. And that did for sure meaningfully add a little bit of boost to our net wealth.
Neither of us have a trust fund. And at least for me, my portfolio got significantly creamed during the 2008 financial crisis.
But I built it back up steadily over the years by focusing on earning, paying down my debts, like student loans, and just living far below my means.
I lived like a grad student in a studio apartment for years, when I could have afforded to rent a nice three bedroom apartment.
And after many twists and turns over the years, what’s working for me now and what I’m actively doing right now is increasing my earnings, diversifying my income away from my job, diversifying into multiple income streams, to derisk any one income stream, saving 50% or more of all my income sources, and investing in boring market matching return index funds…because I already have enough risk in my company and job stock and online business.
I want to invest in stuff that has less correlation to my day to day.
Additionally, I invest in physical real estate. And I prefer this because there are just more tax and wealth creation opportunities than investing in other things like tax inefficient REITs, or just being hard money lender or something like that.
Although investing in physical real estate, in some important ways, also has more risk too.
Additionally, I try as much as possible to put tax efficient investments in taxable accounts and high growth investments in my Roth account, because that’s tax free forever, and plain vanilla index funds just in my traditional 401k or IRA.
Although at the exact current moment, I happen to be holding a lot of cash in anticipation of a near term dip in the economy when I can go in and buy some things, hopefully at a discount.
I moderately pay attention to economic news related to interest rate movements or yield curve trends. But mostly just to get a directional feel for how macro trends are moving.
I also monitor and track my portfolio in order to take advantage of techniques like tax loss harvesting.
And lastly, when I had a family, I bought term life Insurance, I set up a living trust and pour over will – all the adult things to do to protect your portfolio.
So all the above things I described are things I’m actively doing right now that are working for me.
And, you know, I’m not going to get every single one of these things right every time. Sometimes I’ll be wrong, whether my timing is wrong or my actual thesis is wrong. But over the long haul, the long term, this is a rinse and repeat game.
And by following the roadmap and investing principles and criteria I have defined for myself, it’s helped me to take action in a more intentional and purposeful way with less emotion, less impulse.
And that approach has helped me perform much better over the last number of years that has really helped grow in a very consequential way the size of my portfolio, and has helped me cross over the point of financial independence already. And that was already a couple of years ago.
That’s just what I’m doing from my own personal perspective.
But for some time, one of the personal finance blogs I’ve been following has done this thing where they interview many different millionaires. And so far, today, they’ve interviewed ~150 millionaires in the US.
And recently the guy did a summary post, where he synthesized some key takeaways from doing all these interviews and I thought it was fascinating.
And I wanted to share some of the insights he found. Because many of the lessons overlap with things I’m already doing for my own personal situation, which I just summarized to you.
So here are the takeaways from the summary synthesis post that this blogger I follow wrote about his interviews with 150 millionaires.
Takeaway number one is that millionaires earn high incomes, usually six figures, often multiple, six figures.
That probably doesn’t come so surprising. I mean, if you’re earning less than six figures, you can still become financially independent. But just given the finite number of years you have to work, it’s going to be harder and it’ll take longer.
But one of the unexpected insights from this is that many millionaires did not start with high incomes. Most of them started with low incomes. They were not born making the big bucks. Many started with very minimal paying jobs out of college, and just through hard work and talent grew their salary significantly.
Second takeaway is that millionaires save a good amount of their incomes. And that probably also is not super surprising, but they’re actually saving generally more than 30% and really more like 50% or more of their incomes. And that is a big engine for what turbo charges their wealth building.
Third takeaway is that millionaires focus on simple investments: index funds, passive investing and real estate are the dominant ones.
And here the lesson really is that boring really is best. Millionaires don’t spend too much time on exotic or sophisticated investments that could skyrocket in value one day and plummet in value the next day. They are not speculators. They’re buy and hold investors for the long term.
Fourth takeaway: millionaires became wealthy by earning, saving and investing over many, many years and avoiding huge blow up mistakes.
None of the millionaires this blogger interviewed got rich from a single sudden event like winning a lottery, or getting an inheritance or getting a big startup equity payout, nothing like that.
They grew their net worth the old fashioned way: by earning, saving, investing and rinsing repeating that over many years. That is what made them wealthy. It’s almost downright boring stuff. But the point is, it works. It’s slow and steady.
Sometimes there might be little growth spurts like a little stock market rally here or a surge in real estate prices or getting a nice bonus from work here or there.
But generally those things are not life changing. It really Is diligence in saving and investing over the long haul that eventually leads to that millionaire outcome.
But one of the unexpected insights is that while millionaires, almost by definition, didn’t make fatal mistakes, most of them have made common dumb investing mistakes.
And you might think that someone who had the talent and discipline to become a millionaire doesn’t make dumb investing mistakes. But as it turns out, they make many of the same dumb mistakes everyone else makes.
That’s actually the number one millionaire money mistake, which is in the area of investing their portfolio.
And specifically, many millionaires were too smart for their own good. And that led them to do stupid things like to try to pick individual stocks thinking they could beat the market and beat it consistently.
I have been guilty of that myself.
I’ve told the story several times: I got a third of my portfolio wiped out during the financial crisis, because of that.
Not saying I wouldn’t have taken a beating had I just plain Jane index invested.
But it would have been a lot less heart wrenching at least because I would have had more confidence knowing that sooner or later the market is going to come roaring back, as it always has done, given enough time.
Whereas it’s a lot harder to retain that same level of confidence when you’re doing individual stock picking, because companies do fail all the time.
And so when you do individual stock picking, how much of that decline is due to macro secular forces, like the financial crisis vs. problems that are intrinsic to the company itself?
It’s very hard to tell, you know, it’s often very difficult to tell when the economy also happens to be in a crisis point.
And so at some point, you realize, look, it’s futile to try to be one of those top roughly hundred or so investors who are actually able to consistently beat the market.
You just don’t have the insight, the access, the time, the computing power, the PhD math whizzes, the ferocious dedication that only a handful of select elite money managers in the world have, to consistently beat the market.
And so your goal is just to get market matching returns as tax efficiently and as cheaply as possible, with as little risk as possible.
And so eventually I came to my senses and just went with plain Jane index investing and real estate investing and building side business income.
Okay, fifth takeaway: work life balance is often really challenging.
And so millionaires find that getting to a point where you can actually earn multiple six figures isn’t a nine to five job.
Many millionaires work long hours and have since from the very beginning of their careers, so their family life often does suffer.
Now that said, one of the things they do once they hit basic FI threshold is to start dialing back the hours and have more family time. And many of the millionaires reported that even though when they were younger, work life balance is really challenging, once they got older and more financially secure, their work life balance drastically improved.
Sixth takeaway: millionaires have multiple income sources. Not just their job income, but other income streams too.
And the most common ones seem to be real estate income, dividends, and side hustle businesses.
Seventh takeaway: healthcare is their largest retirement concern.
This is, again, something more unique to America because American healthcare is linked to your employer. Other countries with universal health care or single payer don’t really have to deal with this, but it is a real problem for Americans.
And what happens for early retirees is that they have to figure out healthcare on their own and there really aren’t great solutions. And so millionaires are as concerned about retirement healthcare as everybody else.
Eighth takeaway: travel is a favorite splurge of theirs. And they can actually make travel their top splurge, because by the time they’re financially independent, they have both the money and more time to actually take advantage of extra travel. And they do that.
Now, one of the unexpected insights from the 150 millionaire interviews is that very few millionaires actually keep budgets.
The vast majority don’t have a budget, many track spending and saving a little bit, but they don’t estimate, they don’t predetermine a budget.
And that’s largely because they don’t need to. They make good incomes, they’re already saving 50% plus of their income. They have good self control. They don’t let their spending get out of control. So, why do they need a budget?
Another somewhat unexpected insight is that relatively few millionaires have wills.
Again, you would think that millionaires would be on top of it, and would have better estate plans given their level of wealth, but they’re right alongside the average person, something like two thirds of Americans don’t have wills. And similarly, most millionaires also don’t have wills.
Another unexpected insight: charitable giving tends to be low. A little odd given that millionaires obviously have financial means, but even though they’re better equipped to make charitable donations, the fact is, most of them don’t.
Lastly, most millionaires strangely, check their portfolios daily.
This is one I personally don’t get. I definitely don’t do this.
Most of the personal finance investing advice out there tells you not to watch the markets too closely. Otherwise, it tends to lead to emotional moves that can hurt you financially.
But it seems like based on the 150 millionaire interviews that many of them check their portfolios daily or at least weekly.
And somehow, they’re still able to keep on track and not do emotional things with their money.
So, it was a really interesting interview series, I definitely encourage you to check it out. I’ll put a link to the summary post that I just summarized in the show notes for this episode hackyourwealth.com/11.
And also you can read over there, different Q&A interviews of each of the millionaires one by one.
I would say that the takeaways across the 150 interviews are, first, it’s important, obviously, to work hard to increase your earnings as much as possible and that does take time and effort to make a lot of money.
So the sooner you get started, the sooner you can get to that level and reap the benefits of that. That’s obviously also true for earning compound interest and compound returns. The longer runway, the earlier headstart you have, the better.
And related to that, maximize your earnings means working hard getting promoted during your day job, of course, but also working to diversify your income and multiply your income streams, whether that’s through real estate or a side business or portfolio investing.
Second learning from all the interviews is that it’s really important to control your spending.
Developing self control for your spending is vital to becoming wealthy, even if it’s just for the first few years as you’re getting settled in and you’re used to getting a paycheck.
Motivating yourself to live on a budget and control your spending isn’t simply about staying within a certain number each month.
It’s actually about learning how to manage your spending impulses, to develop disciplined restraint when it comes to spending and focusing on what are the things you need rather than things you want.
Lastly, is just the plain Jane advice of investing early and often. If you do the first and second things I just described, which is maximizing your earning and controlling your spending, you’re going to find yourself with plenty of cash to invest.
And you should invest as much as you can early and often, so that the magic of compounding can work for you as long as possible.
If you’re a doctor, learn to live like a resident so you can maximize the amount that you can plow back into investing.
If you’re a lawyer, learn to live like a law student. If you’re a tech worker, learn to live like a college student.
Ultimately, building a multimillion dollar portfolio is definitely a function of time and compounding.
It won’t take forever if you work hard, are disciplined, and frugal and are reasonably intelligent.
And the outcome is definitely repeatable and learnable even if the specific steps you take to get there have to be your own in the end and have to be tailored to your own situation and your own needs and mindsets and goals.
So I wanted to share some of the practices and learnings that I have been personally using in my own portfolio management habits, as well as some of the summary learnings that this personal finance blogger that I follow came up with after interviewing 150 millionaire interviews.
I thought it was interesting because the insights he summarized from the interviews had a lot of overlap with the things that I’m already doing.
And so in a way that was both reassuring, but it also showed me that the parts where there were differences are okay. Because again, as I mentioned earlier, everybody is coming to the table with certain attributes and advantages and situations and disadvantages.
And so you have to find the approach to achieving financial independence that fits within the particulars of your own situation.
You have to find the advice that resonates with you, the things you are willing to do from the things you are not willing to do and figure out what exactly is that set of practices you’re going to tailor for your own situation that’s going to help you get to financial independence as quickly as possible.
And folks like myself, as well as other personal finance influencers and bloggers, including the guy I follow, who did 150 millionaire interviews, can really only at the end of the day, share their own experiences about what has worked for them, and the things that they have found effective.
And it’s on you to really think about and reflect on all the different types of advice you hear and figure out what resonates with you the most, what is most applicable to your situation, and figure out how to adapt those insights in a way that’s going to work for you on your own terms.
I’d also say that, even as I have developed my own framework and process and mindset for building wealth, and have found some modest success achieving a portfolio of stock investments and rental real estate, I have also come to understand and started to reflect very pragmatically on what does financial independence really buy you in terms of options it opens up.
And what I have internalized now is that FIRE isn’t really about not having to work. It’s about having the autonomy to spend time, how you want to spend it, even if the things you want to work on and the things you care about and find meaningful don’t pay well.
Maybe for you, that’s working in the arts in some way or music or theater, or moviemaking or fine arts or whatever.
Maybe it’s pursuing a passion as a pastry chef or opening your own business or going into teaching or learning to design video games.
Or maybe it’s working in public service or running for office or just pursuing hobbies like learning how to sail or learning how to fly or learning a new language or picking up the guitar.
It doesn’t matter what is. The point is, it’s not necessarily about quitting your job and just going to sit on a beach. It’s really about freeing up time so you can do the things you want to do, not the things you have to do.
And very often, someone who is smart and motivated enough to become financially independent at a relatively young age, is someone who has interests and ambitions to continue working.
But they want to work simply on their own terms and pursue what really excites them and what’s meaningful to them.
And one takeaway I’ve really started to think about with all this, is that maybe you don’t really even have to wait until the FI crossover point to get started on working on the things that really light you up.
In a way, this is the eternal wrestle with career path planning, because there’s always this healthy tension between “doing what you love” on the one hand and doing what’s going to make you a lot of money on the other hand.
But to the extent you can, it really behooves you to educate yourself and explore interests that you care about, and passions that you have early and often.
So that you can make concrete moves to actually steer your career intentionally and with purpose in that direction that you think will keep you engaged and make you fulfilled.
This is really hard stuff, obviously.
Because, when you’re young, you don’t know what you don’t know, you might have a lot of interests, many of those interests may eventually fizzle out.
And you have certainly a finite amount of time and opportunities to experiment and try new things.
It’s like trying to hit a target you can’t see very clearly, it’s probably moving around, and you might not even realize it’s not even there after you’ve been trying to focus on it for a while.
And you have to hit one of those targets in the bullseye, while having only a few arrows in your quiver for your whole life.
But still, I would say that even though your interests and goals may change, and you certainly don’t know what you don’t know, if you’re constantly doing the hard work of learning and exploring and reading and thinking and having deep, meaningful conversations with people who are doing interesting things…then you’re simply increasing the chances of moving and turning the ship of your career and your life in a direction that’s going to lead you toward happiness and fulfillment.
Finally, one last thing I’ve really started to think more about is that FIRE really means different things to different people.
FI really has different levels and thresholds. And as a really personal number, you have to find the number that is realistic and achievable for you, that works for you.
And for some of you, you may never actually reach that number, either because you don’t earn enough or through choice or misfortune, your expenses are too high relative to your earnings or for whatever other reason, and that’s okay.
But you should still try to earn as much as you can, save as much as you can, invest as much as you can.
And don’t lose sleep if your life situation requires more spending, or perhaps through circumstances beyond your control, you simply can’t accumulate enough wealth to quit your job at 40 or 50.
FI isn’t about hitting retirement by a certain age, and if you didn’t hit it by that age somehow things are bad.
You can control some things, but not everything in your life.
So you have to focus on what you can control and no matter when you achieve your FI number, the good earning, saving, and investing habits you internalize by being disciplined, and following the lessons I share here on this podcast and on the hack your wealth website.
Those are going to help you retire earlier than you would otherwise have been able to and that’s going to help you be more secure in your retirement no matter the age you actually end up retiring and calling it quits.
What hack your wealth really teaches is extreme thoughtfulness and strategic thinking when it comes to managing your money.
And that is what’s going to be useful to you, even if you are dealt a bad hand and have life circumstances that slow down your wealth building.
And so that’s really why it’s about having the right mindset to help you achieve financial independence earlier than would otherwise be possible. It’s not about hitting a specific number by the time you’re 30.
Okay, so hopefully this episode has given you some food for thought in terms of why looking for some kind of secret sauce checklist to follow that can surely make you rich if you just follow the steps really isn’t the right way to think about wealth building or FIRE, but that you can still internalize valuable insights and lessons from people me or other folks to achieve financial independence on your own terms and in your own way.
I shared some of the practices that I myself have internalized and what’s actually working for me personally right now.
And that has helped me achieve and surpass my own definition of financial independence.
And I also shared a bunch of key lessons and insights that interviews with 150 millionaires have shown.
Again, as a freebie for this episode, I have drawn up a list of questions to help you figure out what does the path to financial independence actually realistically look like for you, and to help you understand yourself and your own mindset so you can get clarity on how to achieve financial independence on your terms in your way for your situation.
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All right. Thanks for tuning in to this week’s episode. We will see you next time.