The New Path to Financial Independence is HERE

Mindy:
Welcome to the BiggerPockets Money Podcast, where we have a solo show today to celebrate a totally made up holiday, Financial Independence Day, and talk about the history of the FIRE movement and how it has evolved over the years.
Hello, hello, hello. My name is Mindy Jensen, and with me as always is my ever-evolving co-host, Scott Trench.

Scott:
Thanks, Mindy. Great to be here with my genius co-host, Mindy Jensen.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story, because we truly believe financial freedom is attainable for everyone no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or calculate and plan for your ultimate Financial Independence Day, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Scott, I am super excited to celebrate the first annual Financial Independence Day today on July 3rd, right before regular old Independence Day. What’s better than independence? Financial independence.
Before we jump in though, we have a new segment of our show. It’s called The Money Moment, where we share a money hack, tip, or trick to help you on your financial journey. Today’s money moment is read your credit card’s terms and conditions. Many credit cards offer theft protection, rental car coverage, and other money saving benefits. This means the rental car coverage means you don’t have to get the rental company’s insurance. Your credit card has its own insurance policy.

Scott:
May have its own. That’s why you got to read it.

Mindy:
Yep, it may have its own. Yes, that’s why you have to read it. Absolutely. Do you have a money tip for us? Email [email protected]

Scott:
All right, everybody. Welcome to our Financial Independence Day episode. This show airs on July 3rd so we decided to make up a holiday to celebrate with you all. First, we want to start off, and I think this is a question for our resident historian Mindy Jensen, what is the history of the FIRE movement?

Mindy:
Well, way back in the, as my kids call it, in the 1900s, 1992, Vicki Robin and Joe Dominguez wrote a book called Your Money or Your Life. And while that book wasn’t meant to be an early retirement book, when you take that message and you add it to the October 1994 Journal of Financial Planning article by Bill Bengen, you start to see some pretty amazing ideas forming. You could take money that you have saved up and invested and watch it grow. And Bill’s article talks about the safe withdrawal rate. He looked at the history of the entire stock market and decided in what worst case scenario could I advise my clients to take out? What percentage of their portfolio could I advise them to withdraw and they would still have money?
And it turns out, 4% is the absolute bottom of the barrel that you can withdraw and still reasonably assume that you will have money for 30 years, a 30-year retirement that’s based on a 60/40 stock bond portfolio. We’ve talked about this several times. Bill was on our podcast twice to talk about his original article and to talk about a follow-up where he said it’s actually closer to 5 or 6% depending on your allocation. But that was pretty eye-opening back in the 90s and people started looking at this and thinking, “I don’t have to work until I’m 65. I could retire a lot earlier if I just saved and invested.” Scott, when did you first find out about the FIRE movement?

Scott:
I discovered financial independence and the concept of FIRE via I want to say a combination of Mad Fientist and Mr. Money Mustache. I can’t remember which one was the initial spark. We’ve luckily been able to have both of those folks on the show in the past as well. But yeah, that was probably around 2013 when I was just starting my career and a couple of months into my job. I really caught the bug there and went down the rabbit hole. And really my deep dive down the rabbit hole was with the Mr. Money Mustache blog. And then that quickly evolved to layering real estate investing on top of that in early 2014. And so that’s really when I changed and oriented my whole the way I live my life and approached my career in pursuit of this ultimate goal of financial independence.

Mindy:
Mr. Money Mustache was our introduction to financial independence. And we quickly discovered JD Roth who for some horrible reason we have never had on the show, but that’s changing. He’s coming up in a future episode. And my husband was having a very bad day at work and he just begged into his Google search, “How do I retire early? How do I quit my job early?” And Pete’s article came up, The Shockingly Simple Math Behind Early Retirement, and that started a rabbit hole that Carl dove down very, very far.

Scott:
And I’ll point out that just because I discovered it then and we had Vicki Robin and Joe Dominguez, this concept of financial independence goes back hundreds of years, maybe for as long as money has existed. There have been people probably trying to achieve financial independence, but I’ll give a couple of examples there.
The Richest Man in Babylon really teaches how to achieve financial independence. That book was published in 1926. And since this is July 4th, one of our Founding Fathers, Benjamin Franklin, I think was a good embodiment of the financial independence lifestyle and movement. This was a guy who was super frugal, notoriously so really pinched his pennies there, was very, one of his core values was industry. So he would work all day in the morning, make a show of being there early in the day, and working late at night. And he built a very successful business, turned over it for somebody else to run, and split the income from at 50/50. I believe someone might fact check me on that, but I read his autobiography every once in a while. I can’t remember who’s the author of that one, but it’s a good book. Just that was a joke, Mindy.
Anyways, but yeah. I think Ben Franklin’s a great example of the early outputs of financial independence. This guy achieved it early in life, probably in his thirties or late twenties, and then went on to conduct a number of experiments and have a lot of value to society. I think that’s this bug has been in the brains of a lot of Americans for hundreds of years to have, achieve this output. The concept of Financial Independence, Retire Early in the acronym, that’s a more modern thing that’s really been refined in particular with the internet and lots of great minds adding their twists on the most effective ways to approach it.

Mindy:
Yes, that’s absolutely right, Scott. It’s definitely not… Vicki didn’t invent it. The Richest Man in Babylon was written in 1920 and you read it and you’re like, “Wow, this is modern day thought.” But in the early 1900s, girls, they call all of the 1900s the 1900s, and it just feels weird to call a time that I was alive the 1900s. But as the FIRE movement has evolved and as it has progressed, it has changed a lot. One of my favorite things about the FIRE movement is that it isn’t just one thing. It isn’t one path that you have to go down.
In the beginning, it was just FIRE. And then people started putting their own little spin on it. There was Lean FI or Fat FI depending on how much you wanted to save up before you quit your job. Coast FI is one of my favorites. We had Jess from The Fioneers on episode 323 where she talks about Coast FI where you set up yourself to have enough money in your investment accounts that it grows so that you will have a comfortable retirement, but you’re not gathering up every dollar that you can right now so that you can quit now. It’s more that you’re planning for a comfortable retirement. And then as you continue to contribute to your retirement accounts, your retirement date gets a little closer. But it isn’t this all out frantic dash. Barista FI is one where you still plan on having a job, but it’s a really low-stress job.
The movement has really changed from less about “I have to quit my job” and more about fulfilling your passions and being able to focus on what fills up your cup. So now, it’s about taking care of your finances first and enjoying the journey to the end of your working life, your work life, not your… That sounds bad. The end of your employment, however long that takes, rather than this frantic, frantic, mad dash to get there.
And there’s even the idea that you can reach financial independence and then pivot to a new career where money doesn’t matter because you’ve taken care of that so you can pursue your dreams. We had Jill Schlesinger on episode 398 talking about FINE, Financial Independence, New Endeavor. She has a book out called The Great Money Reset where you are changing the way that you think about your finances.
Scott, do you think there will be a new acronym or change in the movement going forward even more so than what we’ve already seen?

Scott:
Absolutely. People always take what exists and add in a spin to improve it. Like Brandon, in the context of house hacking here on BiggerPockets, in our little tiny pocket of the FI world here, Brandon invented this term house hacking. I wrote Set for Life on this. Craig wrote a book on all the different permutations of house hacking. Now, people are doing all these special evolutions of it where they rent by the room to house hack or whatever with that, and they come up with all these fancy terms for it. Everyone always in perpetuity should be improving what was on, what was posited, or what’s been there before. These concepts of FI is not one size fits all in.
When you’re asking about how the movement’s changed. I think in 2013, everybody was right about the path to financial independence and what to do with your money. And what’s changed over the last 10 years is now, I think more and more people realize there is no right answer to these questions with money, and there’s a lot more nuance with it even though the goal of having freedom and flexibility continues to be the theme across all these different things.
So absolutely people are going to change, create new acronyms. The environment’s going to change. I would be betting on an environment with higher interest rates. So these formulas that we’ve gotten used to of having almost all your wealth and stocks and having very little in bonds, for example, in the accumulation phase, somebody’s going to figure out at some point there’s an inflection rate with interest rates where that allocation no longer makes sense. And somebody’s going to come up with a new spin on the approach to this. Somebody’s going to come up with a new asset class, or make something that wasn’t popular two years ago accessible. I think that absolutely that those things are going to change in dramatic fashion in ways we can’t predict. What we’ve got to do is be open-minded and receptive to those new ideas and find all these folks so we can share them here on BiggerPockets Money because we won’t have all those answers, you and I and our team here.

Mindy:
Wait, you don’t know everything, Scott?

Scott:
Absolutely not. No, we learn something new every single time we have someone on the show.

Mindy:
Scott, how has the FIRE movement and your ideas about it changed since 2013? You personally?

Scott:
I think it’s that concept of there not being a right way to achieve FIRE. I think the principles of spend less, earn more, create, and invest, those four levers that you can pull. There are only a certain number of levers, and I still think that the theme of the application of those levers does change over time. And there are general frameworks. The answer is everyone’s journey is individualized, but has to fundamentally increase cashflow, create assets, or achieve strong investment returns on a existing base of capital.
Those fundamentals never change and the circumstances that you are in do not change the ground rules of the game of financial independence. Just because you’re married and have kids does not mean that your inability to house hack isn’t going to hold you back, for example, from moving towards FIRE. Just because you feel like you’ve got a floor of expenses and nowhere to move, your income doesn’t help, then there’s no pass forward for you for FI if you can’t change those two things and you don’t have time to create an asset and you have no capital to invest. So you’ve got to be able to flex on some of those levers. But how you do that and the creativity that people bring to it is limitless within the context of those rules.

Mindy:
I really like that. The creativity you bring to it is limitless and there are very few rules that have to be followed in order to reach financial independence. And I think spend less than you make and invest the difference is the only hard and fast rule. You have to have something to be investing. And if you’re spending every dime that comes in, you don’t have anything left over to invest. Other than that, what you invest in, how long it takes you to get there is really up to you.

Scott:
Mindy, one other thing you asked about how the FIRE movement has changed and whether someone will come up with a new thing. Well, I think Gen Z is coming up with this concept of quiet quitting, which is the same thing. It’s just another take on the whole situation with this.
I also want to point out, when you think about what’s going on in the FIRE movement in a general sense, I think 10 years ago, it was about quitting your job. People wanted to retire. That word was really important. And you already emphasized this, but I think that what’s happened as an underlying shift there is power has shifted to the employee over the last 10 years in a very dramatic way. It may not have felt like it. It may not have happened overnight. It may not have happened for everyone. But the options available to us to make money in 2023 are dramatically better than the options that were available to us in 2013.
The gig economy has exploded from some 30 odd million people to almost 60 million people over the last decade. There are just tons and tons of new opportunities out there. Everyone can work remote. You can literally shop the best job for your skillset across the country in many cases. There may be a slight pullback on that, but the trend line is unquestionably one that is putting power in the pockets of the employee, the worker in this country over the last 10 years relative to 2013. And coming out of the Great Recession, I don’t think that was the case. And so I think there was a “How do I escape the job?”
But when power shifts subtly and over a prolonged period back into the worker’s hands, all of a sudden maybe your job isn’t so bad. Maybe there’s things that were really making you want to quit. You have the power to begin changing a few of those things or jump ship and get a new opportunity that isn’t so bad and you can feel a little bit better about it. So I think that the option to retire is still a strong pull and will be there forever, but the hatred of the job is lessening to a degree. Not saying there aren’t still tens of millions of people who hate their jobs and would love to quit forever and not work at all. But I think that that shift has been one that’s been underlying a lot of these changes in the way we talk about FI here on BiggerPockets money, for example.

Mindy:
Right. And there’s I think this movement has brought to the forefront the idea of the side hustle, or like you said, the gig economy where you can cobble together a bunch of different income streams so you don’t have to go and work for the man that you hate. You could have a freelance writing job and a video channel where you open up boxes and play with toys. I can’t believe that’s a thing, but there is no limit to the ways that you can make money and the amount of money you can make. There is a limit. It is your creativity.

Scott:
I think that’s going on here, Mindy, is in the FIRE world is that a lot of the folks, perhaps you and I included, we talked about this at the Mad Fientist a few weeks ago. Once you become FI and you sit there for a couple of years, maybe you keep earning money, maybe the market has done well or whatever, the number, the amount of money you thought you needed, you surpassed it. And all of a sudden it becomes you have this very good problem of “Oh, what am I doing now? How do I maximize this opportunity here?” And it changes your perspective.
So I think there’s an evolution of folks realizing like, “Hey, you’ve got to go about it with this all out intensity and approach at the beginning stages.” Or many folks find that we find that pattern repeated very often among folks that get to FI with any amount of speed in a couple of years or under a decade. And then there’s a subtle shift that what got you there isn’t what’s going to be best for you on the go forward basis.
And so I think a lot of these folks who really absorb the identity of being very frugal, perhaps you and me included, have a hard time unwinding that and realize, “Hey, if I continue to be that frugal going forward, I’m wasting this incredible opportunity to enjoy the life that I have an option to pursue now at this point.” And so that’s a really interesting about face, an identity problem I think that a lot of people get here. Because you almost need that identity at the beginning, and then you just shed it when you do if you are able to achieve the financial goals that you set for yourself.

Mindy:
Wow, Scott, feeling real seen right about now. But you’re right, you do need to have some level of frugality in the beginning in order to be able to spend less than you earn. It’s super easy to spend as much or more than you earn, but it takes a bit of discipline to spend less than you earn and put that away for the future. And the future is 5 years, 10 years, 50 years down the road. It’s difficult even for my kids right now to be saving for their retirement. They’re 16 and 13. It’s difficult for a 25-year-old to be saving for retirement at 65. “Why would I not spend all of my money now? I can save for retirement later.”
But if you can save for retirement now, little bits, little bits get in the habit right at the very beginning of your working life. If you’re not used to having that money in your bank account, you won’t miss it when it’s not there. Get used to filling out your or contributing to your 401(k). You don’t have to max it out, but if you could, that’d be awesome. Do that for a little bit. You get used to it. You don’t have that in there. All of a sudden, 5 years down the road, 10 years down the road, you are Coast FI. And then now you’re at 65, you have a very comfortable retirement. You continue to contribute. Now, you can retire at 60. You continue to contribute a little bit, and now you can retire at 55 or even 50, and you’re not pinching pennies along the way. You’re not depriving yourself of everything.
If you push the frugality in the beginning, it can be a little bit difficult to change that up as I am experiencing right now as I start to explore a little bit more of my spend-y ways. Carl and I are focusing a lot on experiences and we’re looking for ways to not just experiences on vacation. One of the things that comes up frequently in a lot of these conversations is, “Oh, when I was on vacation, I took a cooking class.” Well, why do I have to wait till vacation to take a cooking class? So I’m looking for a cooking class that I can take with my girls locally. And I don’t want to bring more things into my house. I have a tendency to be a little bit hoarder-ish. But if I can buy more experiences with my kids, I think that’ll be a really an awesome use of my money.

Scott:
I think that’s a great example of this. Hey, make a list of all the things you like doing the most and just put them in order and forget what cost is. And more often than not, the things at the top of that list are a hike here in Colorado, a cooking class. I love doing a cooking class with my wife. What we found out is that the cooking classes are a pain in the rear because there’s four other people on the call. They’re expensive. You have to have the thing on the whole time. And you know what’s way better? It’s just YouTube. You just literally get the YouTube cooking class on there. It’s completely free and you have a great evening. You can pause the thing whenever you want to go handle the…
And so we’re like, “What are our favorite things to do over the next month?” Yes, there’s some travel. That costs money. But a lot of the things that we like to do are completely free, my wife and I, or involve very low cost. Rocky Mountain National Park is $75 for the annual parks pass on an annual basis. I could see all the parks in the country. So in some ways, yes, you can spend money in some ways. You realize hey, if you go too far, you’re just going to have this huge surplus. So you might as well spend it on the things. You may not be able to spend it because your passions aren’t going to cost that much money.

Mindy:
Yes. Another way to look at it is you made a list of the things that you like to do. Make a list of the things that you hate. I hate cleaning my house, but it feels like a waste. I think Ramit’s going to call me up and yell at me for saying a waste of money. It feels like a waste of money to pay somebody to do something I could do myself. But I really hate cleaning my house to the point that it’s really not all that clean. So I am going to hire somebody to clean my house.

Scott:
That’s financial independence.

Mindy:
Yes. I have a big 4th of July party every year, and this show is airing on July 3rd. So I have somebody here at my house right now cleaning my house and I am now excited about it. But a couple of months ago, that would’ve been like, “Ooh, is that the right choice for me?” Totally the right choice for me. My friends, the Waffles on Wednesday couple, I was just having dinner with them and they said, we looked at each other and said, “How can we take things off our plate that we hate?” And this was three years ago. I should have had this conversation with them three years ago. “How can we take things off our plate that we don’t like?”
And she said, “I don’t like to clean my house.” And he said, “Great, let’s hire a cleaner.” And she said, “It’s the best decision I’ve ever made.” So I am embracing this. Even though it feels wasteful to me, I’m getting over that because I’m providing a job for somebody else and they’re going to do a better job than I could ever do. I hate cleaning and I can afford it.

Scott:
Mindy, I want to cover one last thing before we get out of here and let people celebrate their Financial Independence Day. What are the biggest complaints that people have about the path to financial independence and the people who we bring on, for example, and talk about or the… What are the complaints in the naysayer saying about FIRE?

Mindy:
“I could never do that because I don’t want to be frugal. I don’t want to give up things, I don’t want to not enjoy my life.” There’s it. There seems to be this idea from people who are on the outside looking in that this is a life of deprivation and you can’t have anything enjoyable if you are going to be on the path to financial independence. I think that’s the biggest one, the total deprivation. And it isn’t total deprivation.
Was it Frugalwoods I think has the best example of this. I think she was on episode 10, maybe episode 11. I wish I could just remember that like that. Mrs. Frugalwoods was on a very early episode and she said, “When we first discovered financial independence, we’re like, ‘Oh, okay. We’re getting rid of everything.’” And they did. And for a month she’s like, “You know what? This is not fun. I want to add some things back. I got rid of absolutely everything and most of it I don’t miss. But I miss my seltzer water, I miss my yoga class, I miss a couple of things.” So they figured out ways to keep those in their life at less expensive prices, and they actually ended up being almost free in the yoga was free and the seltzer water was practically free.
And that’s how you have success in this, is to keep the things in your life that are meaningful to you, that bring you joy. You don’t have to get rid of everything and get rid of the things that don’t add any value. I am selling a car today. It doesn’t bring me any value. It doesn’t bring me joy. So I don’t have it anymore. It was taking up mental space. Scott, what are some of the biggest complaints you think about?

Scott:
Well, I see folks saying, “Oh, this person earns too high of a salary. Get somebody normal. Tell me about a normal person who achieved this in this period of time.” I think that’s a big one. Because there are a lot of “This is more accessible in a lot of ways to folks with those higher salaries.” I also see some things saying, “Oh, this person didn’t actually start from scratch with a completely clean slate with no advantages.” And I have two comments about that. First up is understanding that this is a journey and that folks that we talk to that are achieving financial independence or have a positive trajectory to showcase.
F you go from zero to a million dollars in net worth over 10 years, you’re probably not earning $40,000 the whole time. You may start there, and a lot of our folks do start in those types of situations. But if you’re able to amass a million dollar portfolio and manage it, your skillset’s probably going to advance over that period of time. At BiggerPockets, if someone was managing a million dollar budget here at BiggerPockets on an annual basis, they’d earn more than 50 grand to manage that budget. Or I to get somebody competent to do that, we’d have to pay them more than 50 grand in order to do that.
So this is a function of the journey itself. I think that as you’re going on there, if you’re the kind of person who can amass from very little or from a close to scratch position or pay off debt and move towards that, you’re naturally going to get the skills along the way that will showcase a growth in income across that journey. So that’s I think, one part of that story.
And the second thing is it’s very hard to find examples of people who truly start out with absolutely nothing and no advantages whatsoever and truly standing start from scratch and then go on to build wealth. We’ve talked to a few of those folks on the show. We’ve had a story about a gentleman, Tony Gayden, who was weighed himself on the Walmart scale and saw a 400 was $26,000 in credit card debt and then went on to build a $500,000 portfolio after shedding 200 pounds, while simultaneously shedding 200 pounds. We’ve had Jasmine Gray here in Denver come in who struggled with addiction and went to prison for a while, and now as a homeowner house hacker and on her way to building wealth.
But those stories are going to be rare and they’re going to take a lot more time. What’s much more common is people do have some advantage on the journey to FI. They’ve got something, a friend or a family member that can help them out with things. Someone to give them a loan or a helping hand in that first little bit, an inheritance from a grandparent or great-grandparent of 10 to $50,000. Honestly, those situations are just way more common than the person who truly starts from a standing position from scratch, with no friends or families to support them, and no helping hand and builds it completely from the ground up. Again, it does happen. It’s just not the norm.
And really think about it if that’s you and you’re one of those naysayers, are you really in the position where you have absolutely no advantages, you’re truly on your own, you just have you and your salary and you have no ability to ask for helping hands from friends, family, community, or anybody else? If that’s you, look, it’s going to be hard and it’s going to be much more different experience than most other folks. I think that’s what I’d say to those two common points. This person are at a high income. Well, don’t reflect on where they are now. Reflect on where they started from with that high income. And then where is… Because over 10 years, your income should grow if you give it your all at a career that it has a scalable potential and as your wealth builds.
And then two, reflect. Are you really in a position where you have absolutely no advantages and no ability and you’re truly completely on your own and have no support and advantages? Your parents can’t watch your baby, for example, because you live near them. Even those types of small things on your journey, because I think you might be surprised if you really go looking for those advantages. You’ll have a couple of secret ones that you can unleash on your journey.

Mindy:
That’s a really good point, Scott. I think that everybody has an advantage somewhere. It’s just not all of the advantages. It’s not all the advantages that somebody else has. It’s not even some of the similar advantages that other people have. But you have advantages. You have a high income. You have flexibility. You have family to help out. You have the ability to house hack. Everybody has some advantage that they can take advantage of.
All right, Scott, this was a lot of fun. Happy Financial Independence Day.

Scott:
Happy Financial Independence Day. I hope you have a wonderful Independence Day for the USA tomorrow. Enjoy everything with friends and family. And thank you to everyone who’s listening. I hope you are able to take this as some motivation and keep rolling towards your Financial Independence Day.

Mindy:
Yes. And if you have a story that you would like to share with us, if you would like to apply to be a guest on the BiggerPockets Money Podcast, go to biggerpockets.com/guest and fill out the form. Let us know what your story is. We would love to hear from you. All right, that wraps up this episode, this Financial Independence Day episode of the BiggerPockets Money Podcast. He is Scot Trench, and I am Mindy Jensen saying toodaloo, kangaroo.

Scott:
If you enjoyed today’s episode, please give us a 5-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kailyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.