In April of 2011 a young Canadian man decided to share his philosophy on work, living life well and early retirement by publishing his first blog post. His message of fiscal responsibility and frugality landed with a thud at first. 

Prior to starting his blog and before claiming the early retirement mantel, our young hero moved to the United States. The first year of blogging was brutal. He published a massive load of very useful information without the traffic or revenue matching his efforts. 

And then it hit. The right message at the right place at the right time struck a chord and the Mr. Money Mustache blog was no longer an internet backwater blog, but on a destiny to change the world.

It is only proper at this point I provide full disclosure. I served as the tax preparer/consultant for the Mr. Money Mustache (MMM) blog and its owner, Pete Adeney, for a few years. It was in a conversation with Pete and his wife at the time that I learned the first year of blogging was not all roses for Pete.* The first post didn’t automatically attract traffic. That came later.

If you produce good material they will come, and so it was for our hero. Pete kept telling his story. It was real so it resonated. He retired at 30 by design. Of course, if you retire at 30 you do not necessarily spend the remainder of your life planted in a chair. And that caused the largest complaint Pete faced in his blogging career: that he really didn’t retire.

Once you reach a level of success there will always be a few who want to tinkle on your shoes. Pete was not exempt. Once retired, Pete entered into a partnership, starting a construction company with a friend. As so often happens with partnerships (ask any seasoned accountant), it went south. You can hear the story straight from the source. It wasn’t pretty. It also placed a real risk in Pete’s retirement plans.

Pete also bought a property to fix and rent. That went much better. Pete loves working with his hands and building stuff. Working on a property at a casual pace (to assure quality and avoid burnout), Pete manged to hone his carpentry skills. From a failed construction company, to a rental property to the MMM headquarters in Longmont, Colorado, Pete found the prefect path to engage his passion.

Then we come to the MMM blog. Pete once again filled his time with something constructive (pun intended). Retirement is not short-hand for death! Pete decided to share his accumulated wisdom. But some were not having it.

 

That is NOT Retirement!

It didn’t take long before it was pointed out Pete didn’t actually retire since he was running a business for a while, remodeling/renting out a property and kicking out a massive quantity of material on his blog. Some of his readers were calling BS. 

A certain wayward accountant from the Northwoods of Wisconsin noticed our hero about this time. When the two met Pete instantly took to this wayward accountant for about 15 minutes. As good fortune would have it, the sickness passed.

I love Pete’s work and philosophy of living the good life, financial independence and frugality. But when it comes to retirement we are about as far apart as any two people can be. The 15 minutes we connected was limited to such a short time due to my attitudes about retirement. 

Climbing to the top is worth the effort.

The good news is that neither of us are right for the entire crowd. Some want a Pete style retirement and some, like me, start a business doing what they like and refuse to stop. (What am I supposed to do? Something I like less just so I can brag I retired?) I sometimes wonder how things would have turned out differently if the partnership Pete had with his friend had actually worked out.

My argument with Pete’s philosophy was not about living a productive, meaningful life. Rather, I always felt Pete’s encouraging others to retire just like him had a timing issue. 

April 2011 was a really good time to retire. Pete actually retired a bit prior to that which made it an even better time to retire early.

You see, we had a financial crisis that smacked the economy and stock market around pretty bad in 2008-9. If you had enough money to retire at the market low I would be far more comfortable with you taking said retirement than with all the fine folks who followed in Pete’s footsteps who wanted to push the retirement envelope to the limit when the market and economy were on a sugar high. Retiring on the edge financially when the market is pulling 10 years of near straight-up gains is not the best idea.

 

The Best Time to Retire is Now

Right now, this very day, is the best time to retire since Pete took those same steps! If you have the resources to retire when things are down you have an excellent chance of staying retired. 

True, the economy is still declining from the pandemic while the market has regained much of its losses. And the market is likely to get cranky when the reality of the economic damage done sets in. Still, it is during these trying financial times when you learn if you really are ready for retirement, early or otherwise.

Pete found the sweet spot in picking his early retirement date; he just happened to be 30 at the time. Many considered it a challenge to retire younger than Pete without remembering Pete still maintained financially gainful activities. 

Retiring younger than 30 will take some luck. Skill is unlikely to get you there much faster. 

Many claim they have retired in their 20s, hoping to strip Pete of his early retirement mantel. Deep down I think they hope they will be bailed out by publishing a profitable blog before anyone notices the emperor is not wearing his skivvies. 

How would I know all this? Because people pay me a lot of money to talk to them about their personal situation. And the theme is recurring. I don’t think Pete has a full grasp of the effect he has on some people. They are not really listening to what he said. They pick what they want and forget the rest. It turns out as expected. 

If you have thought of retirement, now is the time you can practice the process. The pandemic has left many forced to deal with a retirement lifestyle whether they like it or not. It takes talent to have a meaningful day when there are no pressing demands.

Pete retired after the bottom of the economic collapse of 2008-9. It was the perfect time to make the transition. If you can do it when all your assets are at or near lows, the chances of retirement going as planned increases dramatically.

Maybe today isn’t the ideal time to take the early retirement you planned. But the day is fast approaching. The pandemic will pass, economic activity will increase and the market will travel to new highs. Beginning retirement when the economy is at the beginning stages of a bull market allows for the longest period of growth before your budget is seriously challenged with declining asset prices.

Disaster Planning

Many clients have bent my ear the last few months as the financial pressures have increased. Discussions of taking early Social Security, and the consequences thereof, are common. 

Another frequent discussion involves people who took retirement too early. Instead of following the Pete plan and building multiple sources of income, they retired as soon as they thought they could get away with it and took up traveling. That fantasy came to a screeching halt.

Retiring at 28 just to say you beat Pete to the finish line is insane! Some of these early retirees are now looking to reenter traditional employment and it isn’t by choice. 

When planning early retirement with clients I use a formula for determining if you are ready to retire, assuming you are mentally prepared. In my formula I ask clients to consider a really bad economic decline where the stock market declines by 50% and real estate is hard to sell at any price. I also assume a decline in rent, interest and dividend income. If we can map out a serious economic disruption and it is nothing more than background noise in your financial plans you are probably ready financially for retirement.

This should not be confused with what I do, which is never retire. My plan is to work at my preferred tasks (taxes, accounting, business planning and consulting) until my body can no longer cash the check. Not everyone has that luxury. I’m lucky I found what I love doing at a young age and feel compelled to keep doing it. 

Most people want a designated time in life where they don’t have the stress of a job or of running a business. Many want to travel or explore other avenues of living. Those goals are no less valid than mine.

What I am saying is that the two ends of the spectrum have Pete on one side and me on the other. There is a large amount of middle ground for you to consider. 

There is no competition! There is no prize for retiring younger than Pete! And for crying out loud, don’t try to be like me. God knows the world has a hard time dealing with one of me. 

Find your path. Pete and I have provided excellent templates for the extremes. Finding what fulfills your life is what is important. You only live once; don’t waste it.

If you have been planning, saving and investing for retirement — and getting close — now is the time for a serious look at taking that step. Today (the day I’m publishing this) might not be the exact perfect day to pull the trigger. But the sweet spot is coming soon; probably within a year to year and a half at most.

There will be no bragging rights if you planned wisely and are now ready to make the transition. If the numbers still work when the markets finally move on from the current economic issues, you should be ready for a smooth entry into retirement.

There will be no excitement, but that is what you are trying to get away from in the first place with traditional work.

 

* As an insider I cannot share everything I know as it is confidential. Friends of Pete will know I have left out parts, as I should. The important parts for this story are all publicly available so I mention them. The links to the MMM blog provide greater details if you want to know more. In some cases there are multiple blog posts, but I don’t link to all of them. I leave it to you, kind reader, to take a deep casual dive into the MMM blog if you already haven’t.

 

More Wealth Building Resources

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

  • Following the 4% rule is not enough when accumulating wealth.
  • The recent market decline brought on by the pandemic requires around a third more index fund shares to be sold to maintain spending patterns if you are in retirement and are fully invested at all times.
  • How much money you should keep in cash depends on where you are in the wealth building cycle. How close you are to retirement, or if you are in retirement, determines the appropriate level of cash that should be held.
  • The 4% rule fails too often if not coupled with appropriate cash levels.

 

Rules of thumb are an easy way to quickly see where you stand financially. Once you reach 25X your spending in liquid net worth (the 4% rule presented as a multiple of spending) you are assumed to have enough to retire under the 4% rule, regardless your age.

However, as we are seeing with the current market turmoil, the simple rule of thumb has one fatal flaw. If you reached your 25X goal a few months ago and decided this was the time to step away from traditional labor, you now face a withdrawal rate from your index funds a third higher than expected. This will reduce the account value early in the distribution phase, lowering the total amount you can get from the investment over your lifetime.

Another rule of thumb is to keep 6 months of spending in cash in case you become unemployed. Under a normal job loss or economic decline this would be a reasonable policy to follow. Unemployment insurance can provide additional cushion to the 6-month cash reserve.

Black Swan events (unexpected negative economic events such as the housing crisis or pandemic) throw the whole rule of thumb out the window. Black Swan events do not happen often, but they do occur every decade or so. Looking back at U.S. history, it seems something always happens every decade to knock the markets lower and slow economic activity. The 2010s are the only decade to avoid that fate and 2020 seems to be making up for the oversight.

Black Swan events are impossible to plan for, but you can manage your investments with the understanding something unknown will shake the market’s confidence every so often.  You can prepare contingencies to deal with unexpected market breaks, or take your chances and hope you get lucky… this time.

 

Determining Your Proper Cash Level

One of the hottest topics of discussion in consulting sessions with clients involves how much liquid net worth be held in cash. Emails and even social media requests from followers press on how much cash is the right amount of cash to keep on hand as a percent of investable money.

The 4% rule doesn’t consider a cash position. It just assumes you take 4% every year from your portfolio to live. If the market declines, the 4% rule says you either need to cut back on spending or risk running out of money before death. Cutting spending enough isn’t always possible. And when markets are down many goods and services become cheaper so you should be stocking up at these times.  The 6-months cash rule also falls short in many cases. A down market can last for years and selling at a low to fund living expenses is a painful exercise.

Where you are on your journey to retirement determines the amount of cash you keep on hand. Many times readers of this blog, and those who follow me on social media, think I am timing the market when I carry a substantial cash position. But that isn’t true. I have no desire, nor skill, at timing the market and do not waste any time trying to do so. I do, however, increase my cash position when the sun is shining and decrease my cash position when it rains. This isn’t a timing issue. As I near retirement and have substantial financial resources, I have no desire to maximize my returns. I already made it. No room for heroes anymore.

You are probably at a different part of the wealth creation cycle. Maybe you are older and well into retirement, collecting a pension and Social Security. Or just starting out.

The advice I give clients is based on their specific facts and circumstances. I will give you the same advice here based on where you are on your journey to retirement, early or otherwise. I will finish with my advice to clients already in retirement. You can use these guidelines to prepare for your retirement. Knowing the appropriate way to invest at each stage of the wealth creation cycle is helpful; looking to the next step in advance can be very motivating, knowing you will have plenty of financial resources once you do retire.

Before we start I need to define some terminology. When I say cash I mean money market accounts, bank deposits and CDs. Everything else is invested, meaning broad-based index funds, most notably Vanguard’s S&P 500 Index Fund (VFINX or VOO for the ETF) or the Vanguard Total Stock Market Fund (VTSAX). 

 

Starting Out: When you start out you have the fewest resources. Time is your best friend, however. The sooner you get money invested the sooner it can start growing. And time invested determines your level of wealth. Cash reduces the level of wealth years down the road, but keeps an unexpected expense from turning into a disaster that sends you back to square one. It is a delicate balancing act between investments and cash.

The problem with too low a level of cash is twofold. First, any minor emergency (flat tire, furnace repair, medical bill) and your financial plan is in crisis. Second, job loss or disability can destroy all the work done to-date.

Starting out is the riskiest place financially. By default you will be closer to the red line; income and savings are generally lowest when you are young and starting out. Six months of spending in cash is probably impossible. And if your employer matches contributions to your retirement account you need to find a way to contribute at least to the matching level.

If you are at day 1 you want to take a page from Dave Ramsey’s book (and workbook). His Baby Step #1 is to get $1,000 into a bank account for emergencies. It’s a good plan I agree with. If you have an employer retirement plan with matching, try to invest at least to the matching level as well. A good way to start is by adding $50 every paycheck or per month to your emergency fund until it reaches $1,000. When an unexpected bill shows up you have the funds to deal with the issue. Then start adding $50 or so each pay period to restore the emergency fund to at least $1,000.

The balancing act would be reasonable if all you had to worry about is building a reserve while you are earning starting wages. Add to that the expenses of starting out (furniture, transportation, home furnishings), a mortgage or rent and it can quickly become overwhelming. 

There is one advantage you have when starting out; you are young. With youth comes resilience. Starting a family, paying down a mortgage, building a retirement fund while working many hours to achieve these goals takes the vigor of youth. It can also wear you down.

Regardless your level of energy, financial problems can wear you out. That is why even a modest emergency fund, Dave Ramsey style, can be such a powerful tool to keep you on track. The real risk is job loss, medical issues and disability before you build your finances to a level where you can withstand larger financial assaults.

That leads us to the next level.

 

Building Wealth: You will spend more time at this level than the starting out phase. A $1,000 emergency fund really isn’t enough, especially as you grow older and medical bills have a greater chance of messing up your plans. Job loss is a strong possibility at least once in your working career. The 6-months of living expenses rule now comes into play. The truth is, 6 months still isn’t adequate. An extended economic decline can put you into a bad position where you are tempted to add more debt or tap into a retirement fund to pay for day-to-day expenses.

In the wealth building phase you want to secure your finances to withstand as much as possible. Many people don’t keep an official emergency fund once they build a modest net worth. (This accountant never had any funds earmarked for unexpected expenses.) However, that doesn’t mean you don’t have a tidy stash of money tucked away to get you through an income drought.

These are the priorities in the wealth building phase:

  • Pay down and eliminate debt
  • Build a cash reserve for surprise expenses and to tide you through a reduction in income
  • Grow your retirement savings
  • Invest outside your retirement account (non-qualified accounts)

There is no fast way to accomplish these goals, but there is an easy way. Consistency wins the race. Paying a bit extra each mortgage payment will eliminate the mortgage years early; every paycheck should add to your retirement fund in good or bad stock markets automatically; merge your emergency fund into your other non-qualified investments and make investments automatic.

I use Vanguard. You can use Vanguard or any similar investment house. Retirement and non-qualified investments will grow as the years peal away. The tax advantages of retirement plans are the best deal in America for the middle class. Adding to your retirement funds with each paycheck is about the easiest and most painless way to dollar-cost-average there is.

Once you fill your retirement account it is time to build some non-retirement funds. Non-qualified investments can be an appropriate surrogate for an emergency fund. A modest $1,000 worked when you were starting out. As you build your wealth $1,000 is inadequate; you are no longer interested in borrowing money to buy a car or anything else for that matter. You need larger sums of liquid money to replace a car or repair a roof. Investing in a broad-based index fund is the perfect way to grow your non-qualified monies. 

This is where common sense comes in. As you grow your non-qualified account some money will be held in a money-market fund or bank deposit. When a planned, budgeted or surprise bill shows up you will have the resources to pay the expense immediately. To reach this financial position you need to add consistently, just like with your retirement account. You can make the investment automatic in your non-qualified account, the same as with your retirement account. Set up automatic investing with monthly contributions. Part of each payment should go into the index fund and some into the cash portion of the account. When the stock market is acting like the world is about to end again, put most of the new money into the index fund. If you are uncomfortable with the high level of the stock market, put most (not all) of the new money into the cash account. It isn’t a crime to have a lot of cash! Sleeping well is better.

If the economy sours you can always move cash into the index fund. Once you determine your income is not at risk and will remain steady or climb, you can lower the cash position. This is more art than science. There is no exact level of cash you must have. Rather, if you feel uncomfortable, there is nothing wrong with sitting on the sidelines. In fact, the more wealth you have the less likely you want to be 100% in equities all the time. Cash is always nice because it gives you the opportunity to invest when the right investment comes along. It is hard to buy a cheap income property if you can swing the purchase. And cash is always available for spending needs without worry about selling in a bear market.

My point is that you decide what is best for you. Almost everyone should have at least some portion of their portfolio in equities in the wealth building phase. The first goal should be to increase your liquid funds to around 6 months of expenses. This should provide an adequate cushion if things go south. Then get serious about growing investment accounts.

The greater your wealth the better able you are to weather a storm. As your non-qualified account grows, the 6 months of living expenses in cash are supplemented by dividends if the need become great enough. Dividends and capital gains should be reinvested into your index funds. However, rather than selling an investment when the market is down, consider diverting dividends and capital gains distributions into your cash account when the cash account begins to deplete. This will provide added cushion while you decide the best financial move if a recession hits the family income stream.

 

Nearing, Entering and in Retirement: The last phase of your financial life is when you approach, enter and are in retirement. The following advice works regardless the age you retire. Early retirement still requires a proper financial plan. My clients pay me a lot of money to tell them what you are about to read.

The 6-month rule is nowhere near acceptable once you enter retirement. Side hustle income, pension and Social Security keep cash flowing into the budget, but your maximum earning years are now part of history. And besides, even if you can go back to work, is that really the goal here? The goal now is to structure your finances to keep your financial life simple with as low a level of risk as possible.

There might be times when you still add to investments once you enter retirement. We will assume retirement is a consumption of wealth phase. This doesn’t mean your accounts lose value! Your level of consumption can, and ideally should, be lower than the rate of the investment growth. 

Outside cash, investments will fluctuate in value. Only the fluctuating investments provide a potential acceptable return. Cash provides a low, or even no, return and is earmarked for expenditures in the relatively near future. Selling index funds at or near market highs and consuming cash when index funds are not at a high is an easier strategy than you might think. 

Market timing is a sucker’s game. Dollar-cost-averaging when you were growing your wealth was not a market-timing call. The opposite behavior when consuming your wealth is also not market timing.

The stock market is always climbing with short down periods lasting from a few months, to a few years, to rarely a decade or longer. Selling at a market high does not mean the market will not be higher in the future. What I am saying is that selling at or near a current market high is easy to do. Look at the index level. Is it at or near a high? Then it is an appropriate time to sell if it meets the criteria discussed below.

Your cash position in retirement needs to be at least two years of spending! Preferably 3-4 years of spending. With 4 years of spending in your cash account you have plenty of money available to live without consideration for the economy or stock market levels. If the market declines, use the cash account to fund spending. If the market is at or near a high you can sell enough to cover your needs on a monthly or some other schedule. You can rebuild the cash position when the market returns to new highs if the cash account becomes depleted.

When the stock market has one of those wonderful moments where it predicts yet another zombie apocalypse, you have several options. Rather than reinvesting dividends and capital gains distributions, you can divert those to your cash account instead. This effectively stretches your cash account to cover more than 4 years of market decline. Only as a last resort would you be forced to sell below a market high and/or cut back on spending.

The stock market rarely goes down and stays down for more than 4 years. Anything is possible. With dividends mixed in, your cash position can extend to 6-7 years or more, depending on the amount of your investments in index funds. Virtually all situations become background noise then as you enjoy your retirement.

 

As you can see, a simple rule that works for everyone does not exist. When you are starting out it is unlikely you have the resources to have even 6 months of liquid cash available to cover a job loss or serious expense. The goal is to move from that risky early position to a more stable and secure level. Eventually you will reach that 6-months cushion. But then you need to keep pushing because your needs will change as you approach retirement. 

The more wealth you accumulate, the more comfortable you become with cash earning a meager return. Many people lose interest in remaining 100% invested all the time once they enter the 7-digit net worth arena. As the 7 figures keep climbing, cash looks better and better. Of course, virtually everyone should have some invested in an equity index fund at all ages. What I want to impress upon you is that in the early days of your wealth accumulation journey you will be nearly 100% invested all the time with a modest sum available for an emergency. As you approach and enter retirement it is not uncommon to have 20% of more of your investable funds in cash. Find your comfort level and enjoy the well-deserved retirement you worked so hard to attain.

 


 

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Is the FIRE movement too good to be true? Are dreams of financial independence and early retirement a fool's errand? Discover where FIRE is destroying your wealth for their own benefit. #FIRE #wealth #earlyretirement #financialindependence #bloggers #personalfinanceThe first time I encountered the FIRE (financial independence/retire early) community I had an uneasy feeling. Sure, the people were friendly and nice, but their message sounded familiar, like I had heard this all before and it ran a shiver down my spine.

The original goal was to start a business partnership with a popular blogger where the income would be shared on an affiliate program unavailable to most bloggers. I had access to this program. Now I needed to find a blogger willing to work with me.

I discovered what is probably the most popular blog in the demographic and found his frugality appealing. 

I attended one of the now numerous camps in the FIRE community to meet the populist blogger. He took to my message and passion quickly, but didn’t want to participate in the affiliate program, a DIY online tax preparation alternative to TurboTax. 

Instead, he wanted me to be his tax professional. In a few moments this new offer would change my life in two fundamental ways. First, my small tax practice was swamped beyond human understanding by people wanting the same tax guy this blogger had, and second, I was thrust into the center of the FIRE movement, a movement never my own.

As an insider I saw things differently than Suze Orman. I didn’t hate the FIRE community for frugality and dreams of financial independence; I hated the FIRE community for what they planned to do with their new-found freedom and power.

 

Everything Wrong with the FIRE Community

Suze Orman felt the FIRE philosophy promised the good life with too small an investment account to enter retirement, especially the early kind. 

That isn’t even a problem with FIRE. Depending on your temperament and lifestyle, you can retire on almost anything, even nothing if you so choose. Nobody has the right to tell you your preferred level of expressed affluence is wrong. If you want to live life large, do so; if you want to live a Spartan existence, you have my blessing.

The real problem of FIRE is arrogance; the all-consuming desire to let the world know you are right and everyone else is wrong. There is no room allowing people to live life on their terms if it doesn’t fit the FIRE canon.

Perhaps the most egregious sin is the desire to turn the movement into a cult. Yes, one of the leading bloggers in the demographic brags he has started a cult!

This is a serious allegation and requires proof. Without calling anyone out, it doesn’t take long to figure out who I’m speaking of. A quick Google search should assuage your curiosity.  

The term cult does not imply good things. A dictionary definition begins with the religious connotations. Since a large percentage of FIRE members claim no religious faith these explanations can not be the ones implied.

The only explanation remaining is the “misplaced or excessive admiration for a particular person.” 

Cults are never a good thing. Don't drink the Kool-Aid! Cults destroy your wealth for their own benefit. You do not need a cult to have a good life. #cult #money #wealth #finance #income #retirementCults are not pretty things. I thought it was cute or at least worth pursuing to grow this blog. The instant I crossed that line a reader explained to me what his family went through when caught up in a cult. I could never be something so evil. That was the last I desired to have a cult or cult-like following. I care about my readers more than that.

And cults tend to end badly. Think Jonestown, Heaven’s Gate and the Branch Davidians. Sane people do not want to belong to a cult.

I’m not picking on only one blogger, either. This illusion of helping people while helping yourself to an over-sized helping is not endearing, it’s sanctimonious. Another word with less than a honorable meaning. 

The fake-ness and hero worship bothered me from the beginning. Most in the community are wonderful people, yet too many acted in a manner I found disturbing.

There is a level of entitlement in the FIRE movement. There are bloggers who use their position to get as many goods and services for “free” as they possibly can, justifying the behavior as deserved due to their position. Sounds abusive to me. Sounds like a cult, all right.

Some handouts are okay. Getting free travel by working the credit card system is acceptable as long as you acknowledge you are not frugal when doing so; you are just shifting your spending to someone else. 

Many bloggers advocating frugality are far from it when you consider all the spending they do by getting other to pay their way. 

It is even worse when the attempt is to shift spending to someone who doesn’t want to make your payments. Banks trying to get your business want to issue rewards as an enticement for patronage. Individuals and small businesses are less inclines because it hurts more when forced to give in this manner. And if you act entitled to special treatment . . . 

Every expenses should be included when you review your budget. You are spending even when someone else pays! Acting self-righteous by claiming frugality when your carbon footprint is higher than the average of the highest polluting nation on the planet is not frugal; it’s vulgar. 

But all this is background noise to the greatest crime of the FIRE movement:

People in FIRE want to retire as soon as possible so they can demand others do a job they refuse to do themselves. They become the boss they would never work for. They lack humility, demanding respect because they learned to game the system better than most.

My mind is numb watching these people retire as young as possible to travel the world, sending a steady stream of photos to Instagram so friends and family — but mostly strangers — can have their faces rubbed in it. The news feeds are filled with these stories, encouraging the unhealthy hero worship.

Back in my day (I walked to school uphill both ways in snow) the equivalent was when grandpa brought out the slides and projector at a family gathering.

Slides are an old technology where pictures are imposed on a plastic slide, used in a projector to show the photos on a large screen.

Everyone dreaded the slides. Grandpa would go through a long line of pictures of their last vacation. Nobody cared and if they did it wasn’t to celebrate with grandpa, but to loath him. It was boring! 

Instagram is the modern version of the slide. The only reason people show up is because they want the opportunity to flaunt their pictures, too. It really is about bragging and jealousy. Life is too short for that.

I suggest people enjoy their round-the-world adventure. Keep the updates for close family and friends so they don’t worry about your well-being. If the rest of us wanted to go we would have. Write a nice article later, fleshing out the details (with photos), for people planning a trip to where you have been.

There is a hedonism in FIRE. I’ve enjoyed working with many people in the demographic. It amazes me the level of incredible people I’ve had the pleasure to meet and work with. I am equally amazed at the level of solipsism. No humility whatsoever. Can this really be setting a good example for the world at large?

Let us not be desirous of vain glory. Provoking one another, envying one another.

 

Phalanstery

Pointing out the emperor has no clothes is a sure way to lose your card-carrying status within a community. The alternative is to deny the truth and be part of the problem. If I’m out, I’m out. At least I was honest.

This brings us to the scariest part of the movement no one wants to talk about: phalanstery. 

At the turn of the 19th century the French utopian socialist thinker, Charles Fourier, created the term phalanstry to illustrate the arrangements for living in a future communal society. Dostoevsky alludes to this in Crime and Punishment*

Discover financial freedom where you can live your dreams. Cut your own path. Live life on your terms. #freedom #life #live #faith # discoverYou would think 200 years would lay such foolishness to rest. It hasn’t. 

There is a group within FIRE that wants to create small communities without roads, only  bike paths. The language and terminology of these plans is what finally triggered my memory. A quick search of my bookshelves verified my fears.

The FIRE community is made up of the most intelligent and educated people in our society. The same can be said by contemporaries of Fourier and Marx.

Need I remind you the utopia promised by these intellectuals gave us a 100+ million body count in Stalin’s Russia and perhaps as many as 130 million dead in Mao’s China. 

These utopian bike cities** could be the new Gulag Archipelago in the not so distant future. 

Before you protest this would never happen, remember that is exactly what was said in the 19th century. This new world order was supposed to bring in a worker’s paradise. FIRE promises a similar paradise of world travel, ecology, environmentalism and early retirement paid for by the backs of those outside the movement. It never turns out as planned when everyone wants to play and no one wants to work. Hedonism is a bad ingredient in any recipe.

FIRE saw its reflection in the water and fell in love with itself. Remember, this was a curse placed on Narcissus by Nemesis, the god of revenge. 

We must always be cognizant of Solzhenitsyn’s warning.

 

 

Hope and a Bright Spot

Everything wrong with FIRE still does not make it a deal-breaker. Spending less than you earn and investing for the future is the best financial advice you can receive. If it stopped there it would be a helluva movement. 

But it never stops where it should. Yet, in all the debauchery and self-aggrandizement there are beacons of hope.

Before J. Money sold Rockstar Finance he had a charitable arm to that blog. Even thought the funds were small they made a big difference. Best of all, they were given to people who had no chance of ever paying it back (the only real charity). 

J. Money isn’t the only one walking the talk. Several bloggers are paying-it-forward in heroic fashion without fanfare or chest thumping. It gives me hope in humanity.

Utopian bike cities will not solve the world’s ills if you hop on a plane and travel the world on someone else’s dime. The carbon footprint is still outsized. 

We need more J. Moneys. Giving without expectation (or possibility) of repayment is the only real giving. I wish a blogger with massive traffic would spearhead this. It would show real leadership. This blog manages an average 70,000 page views per month. If nobody wants to pick up where J. left off I will take the lead. It would be truly sad if the jet setters sending us constant Instagram updates didn’t make this a priority.

Of whom much is given, much is expected.

 

Membership Revoked

I imagine my membership in the FIRE community is revoked after this rant. I didn’t expect anything different.

My choices were to remain silent and allow the insanity to continue or to say what I think (and know) without calling anyone specifically out. 

We are all guilty of hedonism now and again. It’s natural. When it becomes your whole lifestyle and you flaunt it as “the only correct way” to live life you have crossed the line.

Believe it or not, I like most people in the FIRE community. Many are clients. My guess is I will not be welcome around the FIRE anymore. I’m okay with that. It was never my tribe anyway. I’m more of a country boy who enjoys a good card game Friday night with neighbors and family. None of them care a lick about FIRE and what it stands for, yet they are financial set. And it is a short 1 1/4 mile bike ride.

I’m not alone in pointing out issues with FIRE. No one has mysteriously disappeared for calling the FIRE community out on its cult-like behavior and utopian bike cities.

Yet.

 

Coda 

I’m serious about the benevolent fund built in a similar style J. Money used on Rockstar Finance. If we are so rich we need to show more gratitude by paying-it-forward to those who have no ability to pay back. That makes the world a better place than any self-serving bike city ever can.

If a big-name blogger doesn’t take this project I will quietly (no self-aggrandizement allowed) start the program myself. 

Jordan Peterson said the meaning of life is to end “needless suffering.” Viktor Frankl ended his book Man’s Search for Meaning with: the meaning of life is to help others find meaning in theirs. 

I could not have said it better.

 

 

* Note 7 of Part Three of the Pevear and Volokhonsky translation gives a short description of Fourier’s phalanstry in action, something that got Dostoevsky in trouble with the law.

** Of course bike friendly cities are a good idea. A city built with the environment in mind would also have retail and office space within walking/biking distance as well. If you want to see a city designed around sound environmental ideas and bike friendly go to your library and check out the April 2019 issue of National Geographic. Best of all, Nat Geo will not try to sell you something. Just good reporting.

 

Final Note: After finishing the rough draft of this post I sent out a trial balloon on Facebook to see the reaction to a post on Everything Wrong with FIRE. To my surprise the leading suggestion involved health insurance. Many felt FIRE doesn’t deal with the health insurance issue appropriately. 

I solved this problem some time ago for my family. I use health sharing. It does require faith, but shouldn’t we have faith in something?

In the Resources section below I have a link for Medi-share. It is an affiliate link.

After careful review, my family signed up with Liberty Healthshare. For $399 per month we get 100% coverage after a $1,750 deductible. That alone is enough to build faith in God. If you mention this blog I might (not certain how their referral program works) get a referral fee.

 

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Build goals that motivate you, allowing you to live your dreams. Dream big, but follow these steps to keep balance in life. #Life #work/lifebalance #success #goals #motivationWhen I was a child I wanted to be President of the United States and an astronaut. At the same time, if possible.

My uncle, Kev, wanted to be the first person to farm on the moon. 

Growing up poor in the backwoods of Wisconsin caused us to dream of a life like that on our old black and white console television. The world looked so much more exciting on the glass teat (a term from the days when the television screen was a protruding bulb) than in our settled rural lifestyle. 

Such are the dreams of youth when our imagination knew no limits.

Many children dream of growing up to be a doctor, policeman or fireman. The visible (and exciting) occupations all make the list.

Some keep the extraordinary dreams. Elon Musk, Bill Gates and Steve Jobs are modern examples of people who created a whole new world we all live in. 

A hundred years ago it was Henry Ford, Thomas Edison, George Westinghouse and Nicola Tesla creating the world people lived in. Amazing how a century can turn incredible technologies into mundane necessities of life we only acknowledge when the electricity goes out or the car refuses to start.

 

Big Dreams

Dreaming big is what made our modern world. It is hard to believe electric vehicles would be where they are currently without Elon Musk.

In the past few days Richard Branson is reported to be floating the idea of the first publicly traded space tourism company. 

A hundred years ago industrialists gave us the airplane, automobile and a host of household conveniences. In one century we went from horses and wood stoves to space travel and computers. Space launches are becoming so common few get excited anymore when a rocket lights up unless Elon Musk has something exciting for us.

But you, like me, probably don’t have dreams quite as big as Jeff Bezos (Blue Origin). And even if you did you probably don’t have the resources, or access to the resources, to have any chance of realizing the goal.

Branson, Musk and Bezos are in a unique position of possessing the resources to realize the space dream. 

For the rest of us with fewer resources, we find goals that large the equivalent to Don Quixote chasing windmills.

 

Appropriate Goals

Goals of space travel are good to have. The space cowboys in the private sector must have had these dreams long before they could reasonably undertake their projects. Their dream of space travel, and more to the point, people living in space and permanent colonies on the moon and Mars, evolved from dream to goal. And once a dream reaches goal status it takes on a life of its own.

Most of us understand large goals are a step-by-step process. In other words, smaller goals are needed to attain the significant. 

You might not get a star if you reach for one, but you sure will not come up with a fistful of dirt. Dream big! Create goals that motivate. Create goals that make your life better. Create goals you will use to better your life. #life #goals #stars #goalsettingStarting a business and planning for retirement are large goals. The business doesn’t have to be a S&P 500 company to be significant. A local company is just as important as the big guys. Communities are more vibrant if there are more local businesses. A one-company town lives only as long as the board of directors thousands of miles away don’t decide to downsize or outsource. Small business does provide stability.

Retirement planning is something we can all understand. If your ultimate goal is to build a $1 million nest egg you don’t start by investing $100,000 per week until it’s done 2 1/2 months later! No, you plan. Each paycheck half goes to the retirement account. This allows tax advantages over several years so you can save even more.

A decade of investing in low-cost index funds leads to serious sized retirement accounts. Each pay period is a goal. Increasing contributions annually is a goal. 

Big goals require consistent smaller goals. Early retirement is a process you start at an early age. If you decide to retire at 45 you better have taken steps before you turned 44. Unless you are already loaded or a trust baby, one year is not enough for that large a goal.

We see the same practices in massive firms attempting the near impossible. Elon Musk has a goal of putting humans on Mars. But first he needs a reliable rocket! Musk has pushed the envelope with interesting reusable rockets that land themselves. It is a sight to behold. Then he needs to figure out. . . 

Ultimate endgame goals often require more time than anticipated. Musk may not get humans to Mars as soon as he wants. (He has a hard time keeping to his delivery promises at Tesla.) He will get a lot closer if he focuses on the task (goal) at hand.

 

Shooting for the Stars

We used to call lofty goals “shooting for the stars”. Today we are actually shooting for the stars. For real!

The advantages to society will be even greater than those provided by the Apollo program. In the 1960s the government (NASA) ran the program for the U.S. The only competition was the Soviet Union. Today many private firms are vying for a piece of the space market. More enter every year.

One of these new space ventures will succeed. Probably more than one. More competition will keep coming assuring humans will call more than Earth home. 

If you share the space dream it can be disheartening. Most people reading this will not lead a company blazing a trail into space. Most will not even be lucky enough to work for such a company.

But there are lessons we can all learn from these modern pioneers. Life on earth has never been so grand. Steven Pinker has done the research. We live longer and better than at any time in history. There is even less war. Check the data. Fewer of us die of violence than ever in history! And by all accounts it looks to be getting even better!

Small goals can motivate for a short time. A goal to visit Spain next spring is a good goal. If you had to plan for 30 years for that one trip and everything else was sacrificed, you might not hold interest in said goal for long.

Large goals hold our imagination. Financial freedom and retirement occupies the majority of adult thinking. It never gets old dreaming of retirement, or planning accordingly once retired, so we can continue enjoying the life of luxury. 

 

Goals that Motivate

Like my uncle, Kev, you might have extreme goals like farming on the moon. These massive goals will change mankind forever (when achieved) and have the ability to motivate, especially if you can take steps (smaller goals) toward achieving the large goal today.

However, life is a series of smaller goals. We want to pay off the mortgage, building a plan (goal) to do so. Starting a business is a serious undertaking many want to explore. And retirement is always looming (time keeps counting). 

Yet, before we can pay off the mortgage we must save a down payment and buy the house! 

This illustrates today’s message. People waste time thinking about paying off the mortgage when they should be thinking about saving as large a down payment as possible. You need a mortgage (or will have one soon) before you can plan to pay it off. Or as we say on the farm: putting the cart before the horse.

Retirement is the same. Too many spend time thinking of all the awesome things they will do in retirement and forget to actually plan to have a retirement. (Saving and investing.)

As an accountant I have several examples of clients who died shortly after retiring. In the last year a business-owner client died three days after retiring. He wasn’t that much older than your dearly, not yet departed, friendly accountant. My staff has reminded me of this with my recent personal health scare (not yet resolved). 

Goals should help you live better. Yes, grand goals of jet-setting around the galaxy with Captain Kirk is fine as long as you don’t forget to live while still walking God’s green earth. 

Musk and all the others are working to make space quotidian. They are also making the world a better place now in our everyday life with electric cars and with new ways to buy and sell goods and services.

 

Goal is a Four-Letter Word

The word goal has taken on dreaded status. Over the decades I’ve attended several informational and motivational seminars. Whenever the topic of goals comes up, heads duck. It shouldn’t be that way.

I think people dread goals because they feel obligated once they are on paper. There is also some fear of stating your goals because they entail your deepest desires. 

Sometimes the best thing that can happen is for someone to throe sand into the gears. Learn how to properly set goals for business, financial independence and retirement. #retirement #goals #financial goalsThe thing is, goals should change. Not every goal deserves consideration. It would be nice to skydive. Sure it would. But after careful consideration other goals might interest you more. More family time might be the goal you wish to pursue instead and the rewards (in your mind) might be better than falling from 10,000 feet.

Goals can take on a life of their own, taking you where you don’t want to go. A wise person will notice the subtle course change and review their direction to ascertain they are heading where they want to go.

For a decade now I’ve worked hard on a course change for my tax practice. I dived head first into the DIY tax preparation opportunity. The first foray was a disaster costing me nearly $80,000 in loses. (Tax deductible, I should add.)

My second attempt was rebuffed and fundamentally changed the normal part of my practice. What was a quiet tax office turning a reasonable profit erupted into a madhouse ending with burnout and health issues. 

My goal took a different direction and I felt obligated to more people than I really was.  The goal turned into a four-letter word. And a goal should never be treated as such.

Goals are guidelines you set up so you stay focused. When the telescope is moved you need to reevaluate. 

Sometimes the best thing that can happen is for someone to throw sand in the gears. You can get comfortable (I got comfortable). Then things can go really wrong which causes bitterness and loss of direction.

Yeah, you might have fewer clients and less income, but you will have a more satisfying life; you might have to work one year longer before retirement , but you can slow to a reasonable pace instead of trying to beat the record earliest retirement among your friends. Always, quality over quantity.

When used properly, goals are the most powerful force on earth. They can take us to the moon and make electric cars mainstream. 

Goals should help you manage dreams and help you live a better life. Maybe all the way to the stars.

And sometimes a quality goal is to quietly read a good book (or blog). To slowly absorb the story.

Take the time to live, kind readers. We only get one go at this. May as well enjoy the journey.

Remember, I’m pulling for you. We’re all in this together. (Red Green)

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

End burnout. Review the symptoms and remedies to work related stress. #burnout #work #job #retirement #life #happinessIt can happen to anyone: burnout. 

Long hours conducting a repetitive task increases the risk. Not enjoying the work also increases the risk (though it could be more to do with drudgery than burnout). Not controlling your environment on any level is sure to increase stress and the likelihood of burnout.

Burnout is not about working a lot of hours. Rather, it involves stresses on the nervous system similar to PTSD. While a soldier in the field can suffer massive stresses to his nervous system, the same can happen to anyone who feels trapped in a dangerous (even perceived) situation. 

Elon Musk is a perfect example of a person who can handle significant stress without feeling burnout or worse, Musk loves his work and believes he is making a difference that will outlive him. He handles stress differently as a result.

However, when stress built in areas he could not control he showed classical signs of burnout. Shareholders demanded profits and more production or they would sell the stock, adding stress to an already full plate for Musk. 

Normally Musk is a pretty happy guy living his dream. But when market conditions outside his control pressured him hard he started to crack as everyone does when they struggle with a situation they are in. Tweets and other outbursts were counter-productive. Smoking weed on a podcast didn’t help either. (We may have assumed he smoked weed, but doing so publicly in his position put his business at risk.)

Musk survived in large part because he retained a massive amount of control. He made changes to Tesla and worked relentlessly until a resolution presented itself. 

Not everyone is as lucky as Musk. Stuck in a job you hate will sap the life out of you. If the job has high demands and stress it will start you down a path that doesn’t end pretty.

 

Symptoms of Burnout

Burnout is only one step on a road to hell. Left unchecked it can cause serious damage to your health. 

If you experience burnout and take no remedial actions you can start to exhibit symptoms of something much worse. 

The first step toward a nervous breakdown is burnout. Fatigue lowers your mental defenses. When the situation continues to pound, feelings of desperation can set in. Helplessness is a large factor of burnout.

When you really love what you are doing fatigue and stress are handled in a manageable way as long as you have some control over the situation. (You can take a break when needed.)

Exhaustion is natural when you work hard at a task. A short break, a nap, a good night’s sleep, are all rejuvenating. When time off doesn’t reinvigorate you something is wrong.

End stress and burnout. No more feelings of hopelessness and helplessness. Get your life back #stress #burnout #nervousbreakdown #problems #helpBusiness owners can experience burnout from long hours coupled with the demands of running a business. Even if you love the work you can feel trapped inside the demands you don’t care to handle inside your business. It is this trapped feeling that stresses the nervous system without a release.

In a world where financial independence is possible at a young age for many and dreams of early retirement coat the internet it is easy to think burnout should be a thing of the past.

But burnout can affect you in retirement, too! You might feel trapped living the dream of a significant other. A goal of world travel can turn into drudgery when travel doesn’t give you what you hoped. Eventually you can feel trapped and then the nervous system feels the accumulating stress.

It can even affect pleasant pass times. Golf might have been a great joy every weekend and holiday when you had a traditional job. You might have longed for vacation time so you could enjoy the links. 

Then you reach your financial goals and retired. Now you spend all day knocking the ball around the greens and it is no longer an escape. Golf was what you did to get away from a situation (work) you didn’t want to do at the same level as golf. Now golf drags on day after day after day after . . . 

Any task can stress the system. Work is a common stressor. Unemployment is too!

Burnout, since it is a close cousin to PTSD, doesn’t require an unpleasant task to experience it. A soldier gets trapped in a situation and his nervous system begins to struggle. The same can happen sitting alone in a room. If you don’t believe it, ask a prisoner locked in solitary confinement for an extended period how much stress he feels and see if it doesn’t sound a lot like burnout, a nervous breakdown or PTSD. He is feeling burnout from being locked in a small room without any control over his environment.

Burnout symptoms can make the situation worse. Depression and anxiety increase. Irritability can cause outbursts. Sleeplessness hastens the descent. Violence, as you struggle to gain some control of your environment, directed inward or outward, is likely to get an unwanted societal response. Rarely does situation improve without professional help.

There is also a tendency to self medicate. Drugs/alcohol  might seem like a solution while struggling with burnout. Unfortunately, it only makes it worse.

A common work tendency when burnout surfaces is procrastination. You want to avoid the stressor at all costs and all costs it could be.

Left unchecked, burnout can leave lasting wounds even after the stress is released.  Damage to those around you may never heal. You may never heal as burnout can progress to a nervous breakdown which can take years to recover from. Post traumatic stress is common at this point. Your nervous system eventually starts to rewire as a coping mechanism. And when the rewiring is no longer needed the nervous system is permanently damaged.

 

Recovering from Burnout

A soldier in the trenches easily can feel trapped with bullets flying and bombs exploding. There is very limited control over the situation which is why so many military personnel suffer from PTSD.

Thankfully most people reading this will ever experience such a situation. We might get trapped in a job we hate or find ourselves in an uncomfortable situation. In most cases the walls, feelings of being trapped, are more self-imposed than real.

Recovering from burnout requires removal from the stressor. A vacation (extended, if necessary) frequently does the trick. 

Burnout finds roots in helplessness which means it is loss of control over the situation you find yourself in causing the problems. The first step to recovery, therefore, requires you to gain some semblance on control over the outcome.

Bring joy back to your life. End stress and burnout; embrace happiness. Learn to do the things that make you strong. #stress #burnout #fatigue #helplessness #hope #happiness #joyBusiness owners can find business overwhelming. Reduced hours, fewer client or more staffing can bring life back into balance. Just knowing, acknowledging,  you have these controls over the situation can alleviate symptoms of burnout. 

A job is worse than owning your own business. In business you can adjust the size of the company and still put bread on the table. A job is an all-or-none financial situation. If you lose your job you take a serious income hit. This lack of control could be a leading reason people hate their jobs so much. It’s not that they hate the work or the people they are working with, but that their life can be turned inside out at the snap of the fingers and you may never see it coming.

The FIRE (financial independence, retire early) movement focuses on this very issue. The goal is to get out of the traditional work environment as soon as possible.

However, it isn’t about hedonism. The happiest people in the FIRE community continue doing meaningful activities. Some write blogs, others take up side hustles, others start a business. It wasn’t work that was the problem, it was “meaningful” work and control over your destiny that was the issue. 

Burnout has serious long-term consequences if left unchecked. You can change your job, pay down debt (another area where it is easy to feel loss of control), design the life you enjoy most. Refusing to acknowledge you can change your situation can cost you your health, family, happiness or worse.

Regain control. A side hustle can be started while working in a traditional employment environment. Traditional work can also be rewarding. Many enjoy the traditional framework. If you are one of these people and feel the stress, you want to be more, not less, involved. Your involvement is a level of control that helps you engage while lowering stress and the risks of burnout.

And if you are retired and feeling burnout you need to take a long, hard look. It is likely you are living some else’s dream of retirement. Don’t emulate a blogger just because it looks like they have a cool lifestyle. (It is for them, probably not for you.) Travel if you want; don’t is you don’t want.

Live your life on your terms. It is hard to experience burnout, regardless the workload, in these situations.

Diet and exercise play a large role in avoiding burnout. Take time to exercise and make good food a priority.

Once anxiety, depression or suicidal thoughts start it is time for professional intervention. Seeking help is not a weakness; it is a strength.

 

Dealing with Burnout

I had a different post planned for this week. However, I was feeling the pressure from tax returns on extension and blog traffic.

A tax return in my office was causing me no end of grief. Every time I made progress another problem arose. I was feeling the loss of control bad. Six interconnected tax returns were occupying my life for months and I couldn’t break through. I spent long hours at the office doing avoidance work. Procrastination was killing my productivity. 

Add to that the  normal summer traffic slowdown on this blog and burnout started running wild. Why bother writing if nobody is going to read it, I surmised. Except people are reading it and interacting. It was a pity party doing me no good. 

Finally I decided I had enough. I came in on weekends and evenings to find a way to break the problem. I was taking control! 

This post is slightly delayed because I just couldn’t get the energy to write Sunday night. The good news is I made massive progress on the problem tax return Saturday. Yes, another wall showed up, but this time I have a head of steam. I’m taking control. I should finish Monday. (Whew!)

No matter how dire the situation you have some level of control. And since loss of control is the first step to burnout and worse afflictions, control is where you need to focus.

The soldier in the field can focus on what he can control. Elon Musk took control like a boss and broke through the problems and ended many of his burnout symptoms. Musk never eased up a step on his workload. He loves what he does and made sure it stayed that way. 

You can also take control. There is always some aspect of your work or business situation you can manipulate to your advantage. (Don’t think of this as bad manipulation. Manipulation of a situation for the good of all is more than acceptable.) 

In the end you might choose early retirement or a different job or a side hustle. I’m here to tell you, it’s okay.

Keeping yourself locked in mental solitary confinement is not good for you, your family, friends or community. If you need professional help, seek it. Or, you might find you just need to acknowledge what you can control and then use that to move forward. 

Nothing is worse than the helplessness of burnout; the feeling of quitting and running away. You can do better than that.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Traditional retirement plan contributions come with a loan attached to it with a variable rate of interest, to be determined at a later date by the tax code and your income level. #interestrate #interest #loan #IRS #taxesEver since the FIRE (financial independence/early retirement) movement hit the scene I started to question conventional financial wisdom. 

Most of the advice preached was re-purposed from generations past. A penny saved is a penny earned turned into a variety of frugal anecdotes. You can’t read Proverbs (from the Bible) and not recognize the many similarities in advice. Sound money principles have ancient roots.

For a time the FIRE community welcomed me as one of their own before I stepped back a bit to cut my own path. (No sense in another voice calling out the same message.) I’m still part of the community, but gave myself permission to question the dictums of said community. The hope was to build a bridge from where we are to a higher level.

It also became clear my net worth was near the top of the demographic. This bothered me and caused me to conclude something was wrong.  How could a backwoods farm boy with nothing more than a high school education, a few college courses and a full personal library do better than virtually all within a community so dedicated to wealth?

I don’t trust luck to carry me that far. It had to be something else.

Then I started reading what was published in the tax field and felt a great disturbance in the force. While the advice was fundamentally sound, it also lacked in effectiveness if brought to task. All too often blogs were using IRS publications as their authority. (The IRS is NOT a tax authority; they are a bill collector.) If people followed this advice and the IRS ever challenged (likely with so many people tempting fate) there was a real risk of loss. (If you go to Tax Court and say you used an IRS publication as your substantial authority you lose automatically even of you a right! IRS publications have zero authority in Tax Court.)

Sometimes the math was fuzzy. A blogger might claim a certain level of frugality when it didn’t add up. Some claimed a level of wealth that also didn’t add up. Either the rules of mathematics were suspended or someone was trying to pull the wool over their reader’s eyes.

The biggest area of concern involved retirement accounts. The mantra of filling retirement accounts to the hilt for long periods of time has some obvious issues

Some retirement account problems are less apparent. Everyone keeps saying this is the best thing since sliced bread. But is it? 

So I started running some numbers and it wasn’t as clear as most are led to believe. There was something fundamentally wrong with the advice.

 

Numbers Game

The issue is with traditional retirement accounts (IRA, 401(k), 457, 403(b), Keogh, profit-sharing and cash balance plans); Roth type retirement plans don’t have this issue.

Don't lose your retirement account to hidden taxes. Current tax savings are dwarfed by future taxes on all the gains at the highest rate allowed by law. It's your money! Don't give it to the IRS. #retirement #account #hidden #taxesRoth style retirement plans don’t get an up-front deduction, but grow tax-free. Most financial blogs consider this the best animal in the yard. I agree.

A close cousin — if you qualify for it — is the health savings account where you get a deduction and tax-free growth, to be used for qualified medical expenses. The biggest drawback of the HSA is the amount you can invest annually is relatively small. 

Roth retirement plans are limited in many cases based on income on if the employer has the option in their 401(k) . The maximum Roth IRA contribution is also relatively small. (Exact limits are excluded from this post so changes in the limit don’t distract from the evergreen content.)

The mega-backdoor Roth (a favorite of the FIRE community) allows for sizable Roth contributions with one caveat: it’s probably illegal (according to the IRS). The IRS hasn’t attacked the mega-backdoor Roth because there is no current revenue to be raised by taking such action; Roth investments are not deductible.

However, once these accounts grow in size the IRS could come back and disallow the tax-free advantage, plus interest and penalties. If the IRS has a kind heart (ahem) they could forgo the excess contribution issues which would certainly mean penalties several hundred percent of the entire investment. You decide what course you wish to take. 

The safest retirement plan route means traditional retirement plan investments after you maximized your Roth contributions. Or is it?

 

Loan Document

Traditional retirement plan contributions come with a loan attached to it with a variable rate of interest, to be determined at a later date by the tax code and your income level.

All you debt-free warriors should feel a bit nervous at this point. Just as a mortgage-free home still has loan-like obligations (property taxes, insurance, maintenance), a traditional retirement account has an unannounced interest-like expense and it is a big one.

And this is what disturbed me so much that I had to publish a post on it. 

We all know that traditional retirement accounts get a tax deduction at your ordinary tax rate up to the retirement plan contribution limits. We should also know that these accounts grow tax-deferred and that all distributions are taxed at ordinary rates.

This is a real problem if your goal is to maximize your net worth. In the early years the tax benefit makes it seem like it is the best deal on the planet. But as time passes the math tells a darker tale.

Let’s start with a simple example to get a fundamental understanding of this matter:

Joe contributes $10,000 to his t401(k). This is subtracted from his income on the W-2 and never reaches his tax return. His tax bracket is 30%.

We will disregard actual tax brackets as they change over time and we are more interested in a workable formula for determining the best course currently and for future readers as well.

The good news is Joe saved $3,000 on his taxes this year. However, in 40 years, when Joe retires, he discovers his investment in a broad-based index fund performed as index funds have over long periods in the past: around 7% per year on average. Joe is a very happy man! He now has $149,744.58. 

If Joe were to take the entire amount in one year it would be a fairly large tax. However, Joe decides to take the money out over a number of years. As a result his ordinary tax rate is only 15%. (We will disregard taxes on Social Security benefits and other similar issues to make calculations easier.)

Joe now has a tax bill of $22,462. (Numbers are rounded.) That is $19,462 more in additional tax! Call the 19 grand a tax or anything else you want, but it looks like interest on the $3,000 to this accountant.

Even though Joe saw his tax rate decline by half in retirement he still saw his tax bill increase over 700%. His interest rate would be slightly less than 5.2% annualized in this situation assuming Joe never saw his account value increase after he started taking distributions, an unlikely event.

 

Early Payments

If I approached you and said I would borrow you $20,000 at 5.2% would you take it? Unless you have bad credit that is a high interest rate, especially since it in not deductible. Worse, you can’t make early payments to get out of the deal! You can’t jump ship until you are at least 59 1/2 years old. And if you are stubborn I’ll kick you overboard at 70 1/2. 

The good news is I’m a nice guy and will not do that to you. On the other hand, Congress has passed laws the IRS carries out doing just that.

And we haven’t seen the worst part yet! Retirement plan distribution included in income can cause more of your Social Security benefits to be taxed and can also increase the premium you pay for Medicare once you reach age 65.

A small tax deduction today can do real damage in the future. This is why I say I want multiple tax benefits before I get excited about a tax deduction

All this assumes your tax bracket drops when you retire. Considering the massive government fiscal deficits during a strong economy, it seems to this accountant taxes will go up in the future. And if your income remains high in retirement your tax bracket will also be higher.

Consider this: If Joe had a 30% ordinary tax rate on his retirement plan distributions his taxes would have climbed to $44,923, a full 7% annualized rate. For people with good credit this is a massive interest rate and almost nobody is thinking about this.

 

The Cold Equations

Joe’s example is unfair. First, Joe will put a lot more into his retirement plan over his lifetime, therefore, the damage will be much larger.

Second, retirement plan distributions happen over a number of years. While this might sound like a solution to the problem, it actually makes it worse as the investments continue to grow over time.

Third, smaller account balances experience the same issue only with smaller numbers and that tax rates might be lower due to the lower income level.

Fourth, early retirement does not solve the problem. Yes, you can take a limited amount of money from a traditional retirement account before age 59 1/2 without penalty under Section 72(t). This only reduces the amount of time the money has to grow; it doesn’t resolve the issue.

No matter how you cut it, traditional retirement accounts are best viewed as loans from the government, due in retirement. If you don’t pay the piper, your beneficiaries will.

 

 

Alternatives

Your experience will differ from that of others. You can use the simple example above to determine your implied interest rate assessed as tax in the future. You may discover this isn’t an issue for you. Or, you might need a moment for reflective prayer.

We saw that greed for a current tax deduction produces a 5%+ interest rate loan from the government, payable in retirement. So, what alternatives are there?

The best comparison is doing nothing at all (investing in a non-qualified account). You still invest in the same index fund. Dividends and capital gains are taxed at the lower long-term capital gains (LTCG) tax rate (15% or less for most taxpayers) instead of ordinary rates later (up to 37% federal, plus state income taxes). 

Since the money is outside a traditional retirement account you don’t have to worry about early distributions or required minimum distributions. And if you die your beneficiaries get a step-up in basis the retirement accounts don’t get. Gains on these investments are also taxed at the lower LTCG rate. 

 

Matching

I can hear the complaint already: What if my employer matches?

A valid argument. We’ll go back to Joe again and assume his employer matched his contribution 100%.

Joe invested $10,000 of his own money and his employer matched his retirement plan contribution with another $10,000. 

Joe still gets a deduction worth $3,000 for his contribution. The employer’s match is free money and not taxed until Joe takes the money out.

In total, Joe has $20,000 invested in his retirement account. His account grows to $299,489 in 40 years. The tax on this at a 15% tax rate is: $44,923. 

The initial tax benefit to Joe is $3,000, plus $10,000 from his employer, for a total of $13,000. The implied interest rate in this situation is around 3.15%.

The lesson of this part of the story is that using your employer’s retirement plan up to the match maximum is still a good idea for most. After hitting the matching maximum you might be better served putting the rest into a non-qualified account, however.

 

Smart readers will also be quick to point out the extra tax savings means you have more to invest which mitigates any of the extra taxes owed in the future. This would be true if people actually did that.

When was the last time you invested your tax savings from a traditional retirement account investment? Where did you invest it? Uh-huh. Thought so. You spend the tax savings as most do.

(If you are one of the few who actually pull the tax savings from the family budget and invest it in a non-qualified account my hat comes off to you. You still need to run the numbers to verify the best course of action.)

 

Facts and Circumstances

You can’t read tax law for more than a few minutes before running across the words “facts and circumstances”. And this situation is no different.

The IRS has hidden interest-like charges on retirement accounts. Here is how to avoid them. #avoidtaxes #taxes #retirement #IRS #interestI gave you the tools to build a working plan based on your facts and circumstances. Use a future value calculator to determine the interest rate the tax code is forcing you to pay if you use traditional retirement accounts. 

Employer matching is a real benefit that is diminished by the tax code after very long periods of time. (I would focus on the employer match closely as real value can be found there.)

After the employer match and available Roth retirement plan contributions allowed are exhausted you might find non-qualified accounts the best course of action, for you

The important thing is that you are reading this. That means you are more likely to run your numbers for the best options, for you

There are a lot of factors at play. Index funds still kick out dividends and some capital gains which are currently taxed. This slightly reduced the implied interest rate of the traditional retirement plan if you are prone to investing tax savings. It also assumes you keep your fingers off the pile until retirement. 

The one thing to remember is that deferred taxes frequently come with an implied interest rate paid as a higher future tax.

This is the kind of stuff I think about in the dark of the night. It might also be the prime reason I top the net worth list at Rockstar Finance.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

19 year old buys her first car with cash. No loans or liens. Living the debt free lifestyle is a sure path to happiness and wealth. #happiness #debtfree #noloans

Nothing like buying your first car cash. Lien holders: NONE! Just the way it should be.

My daughters are very different from the typical young adult. Growing up in the Accountant household was never easy. I preached the Good Word of financial responsibility their entire life without any indication any of it sunk in.

As they grew older the firsts rays of hope appeared when I overheard my girls repeating my messages on frugality, saving and investing. Still, parents always worry about their children and I am no different.

My oldest daughter, Heather, cut a path I never saw coming. She travels a lot more than this accountant would ever want to and teaches English as a second language. She will be in teaching in China again this summer before returning home to teach special needs children. She uses art as a way to facilitate communication. You can see her backstory here. Things have changed a bit since that last article, but that is how life works. All I can say is she is living the dream.

My youngest daughter, Brooke, always caused me more concerns . Major medical issues have always been a part of her life so there is plenty to worry about. It’s the price of love. I published the deeply personal story here.

Brooke was never much for school. Heather loves school and books; Brooke reads after several hours of torture. . . sometimes. I jest a bit, but only a bit.

Brooke was paying attention, however. She heard about all the other personal finance bloggers and their methods of building wealth. I brought my financial wisdom home from the office to spread the message, too.  Then, just prior to graduation, she decided she wanted to publish her story on how she plans to retire the day she graduates from high school. Okay!

While Brooke may have taken a tad bit of literary license, she has the right mindset. 

 

What is Work?

Brooke may not enjoy cracking a book unless she is specifically looking for something, but she isn’t stupid either; she just enjoys different work. 

Brooke turned 19 a few months ago and has been working almost from the day she graduated high school. She — wait for it — does landscaping. Yes, Brooke, standing a full 4′ 10″, loves digging in the dirt and planting things. And she makes good money at it.

She has good teachers. My parents have a landscaping business so it was the natural place to go. (I could not interest any of my children to pursue a life in the accounting field.) For 19 she really is starting to know her stuff. And she is fussy. Do it right or get the heck outta the way so she can.

And she saves money like it’s lifeforce (which it probably is).  Every penny (and I do mean penny) is saved and invested. This has grown to a fairly nice nest egg. And now it comes time to spend some of that cash.

 

Major Life Purchase

In May of 2018 the Federal Reserve issued a report on the economic well-being of U.S households for the prior year. The most shocking statistic repeated in mass media is that nearly half of all households struggle to save a mere $400 for an emergency. 

Is she old enough to drive? Yes! At 4' 10" she needs a car she can reach the gas pedal on. And she paid for it with cash. Here is how she did it. #financialindependence #wealth #money #buyingacar #nodebt

Is she old enough to drive? Yes! At 4′ 10″ she needs a car she can reach the gas pedal on. And she paid for it with cash. Here is how she did it.

Think about that.  Almost half of all households have a financial crisis if they get a flat tire or have a minor medical bill!

What makes this more alarming is that Brooke did more than deal with a flat tire this past week, she bought the whole darn car! Along with all 4 tires. Honest! 

And she paid cash. Like I said,my girls are not typical.

Yes, Brooke, at 4’10” (on her tippy toes), with serious medical issues, bought her first car cash.

Now granted, it isn’t a “new” car. The kid is smarter than to buy a high priced wasting asset. Bad enough she had to part with $4,800 (plus licenses and sales tax), say, $5,300 when all added together) to purchase a vehicle with utility.

But it is better to want than to have. Sure, dad’s 2000 Honda Accord is almost undrivable so it was time to buy her own car. But cars cost money. Real money!

The car purchase wasn’t as bad as the insurance. A newer vehicle not part of dad’s policy is slightly — to put it politely — more than what she was paying. 

She was up earlier than ever the next day to get digging in the dirt and planting trees. The car isn’t going to pay for itself.

 

Lessons Learned

Brooke needed a car and we spent plenty of time looking for one fit for her needs. She still lives at home so her other bills are practically zero. She helps around our house, too, so mom and dad are open to her staying until she decides where (and with who) she wishes to move forward in her life.

The next day Heather confided in us that she caught Brooke in the bathroom fighting back tears. She might have paid cash, but this is the first time her account value declined because she spent it. It wasn’t a good feeling.

A valuable lesson was learned. Spending is okay to get things that benefit you as long as you realize the price for such luxury. She could have biked to work or hitched a ride. Winters would have been hard, but manageable. 

Brooke also figured out real quick what the real cost of a car is. After she added the purchase price with insurance, license, gas, oil, other maintenance and the eventual need to replace the car it became overwhelming. Then she used dad’s secret formula to determine how much that money would grow into by retirement age if you kept it invested in an index fund instead. Then the tears had to be held back.

She is one tough young lady. She bounced back and knows the car is a tool. The greatest news of all is she will never pay a penny in interest. And she still has quite a large nest egg for such a young adult. 

 

Growing Up

I share Brooke’s story because so much of my children’s lives are not traditional. Heather just graduated from college with no debt, including student loans. (Think about that for a while.) Brooke managed a cash cushion that allowed her to by a fairly cheap vehicle at the ripe age of 19 and she wrote a check. (And it cleared!)

When most people are borrowing to the hilt for an education, my daughter was getting an education and not amassing debt to achieve her goals. I mean, come on! Heather has traveled the world more at 24 than I have in nearly 55 years. And Brooke is living the dream her own way, yet on another path. The common denominator is they did it with fiscal responsibility.

And that is why I wrote this short post. To show you that anyone can do it. Even Brooke, with medical issues that may make her life very short, she is living her life on her terms. 

She is the kind of role model you want to follow.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Every fortune starts with the first small investment. See how this man turned a small investment into a large fortune with a steady stream of income.

Every fortune starts with the first small investment.

I did something different this holiday season than I ever did before: I took two five-day weekends. This may sound like a minor thing considering the FIRE* community I supposedly belong to**, but to me it was a serious adjustment.

The first long weekend over Christmas didn’t feel like a true long weekend. Every day was filled with family events so I didn’t have to worry about filling lots of dead time.

The New Year’s weekend was the opposite. I had a full five days to do anything I wanted. Sure, I still checked the office email a few times and kept current with social media, but for the most part I stayed the course and enjoyed five days without the obligations of work.

As most people know, it is easy to waste a day or five if necessary. For hyper-productive people this is more of an issue. Can you imagine what Elon Musk, Bill Gates, Warren Buffett or the late Steve Jobs would do with their free time? You guessed it. They do exactly what they do every other day. Either you create value in the world or you don’t. One has a reason to be alive; the other does not. You choose.

The extra days off were delightful, actually. I enjoyed several good books and extra time with Mrs. Accountant and the girls. Still, I was reading the stuff I always read. I was learning and growing. The only difference is I was on my couch versus my office chair.

But this story isn’t about my long holiday weekends; it’s about money; the reason you stopped by this place.

Anyone Have Some Spare Change?

As the holiday came to an end I was sitting on the living room  floor reading a book as Pinky, my cat, pawed underneath the edge of the couch. I put my book down to see what she found. (I was hoping it wasn’t a real mouse (as opposed to the toy mouse we gave her.))

Pinky had her paw underneath the edge of the couch as far as she could reach and kept trying to push further. Whatever she found—or lost—she wanted back badly. I nudged Pinky to the side and lifted the edge of the couch and reached under and found the elusive prize.

A quarter! Pinky’s keen eyesight found a shiny quarter deep under the couch. A guest over the previous weekend must have lost the coin and it finally fell through the cushion to the floor beneath the couch.

To most people this coin is a modest 25 cents. If found in a casino most people would immediately drop the coin into a slot machine with the outside chance of turning the coin into serious cha-ching. Most people would be just as broke as the moment before they found the coin.

Pinky is not a gambler; neither am I. As small a prize as the coin was, Pinky still wanted it. It was shiny. That was it’s value and Pinky knew it.

The Gift that Keeps Giving

Like any cat, Pinky soon gave up her prize when she realized I wasn’t giving it to her. (In my defense, I retrieved the coin she couldn’t get. A smile emoji might go nice here.)

Proud of the prize I stole from Pinky, ah, earned, I should have dropped it into my coin bucket I use for playing cards Friday night. But I didn’t. Something else entirely different crossed my mind.

Why does one man succeed and another fail? It comes down to one simple rule. Follow it and you win; break it and you lose.

Why does one man succeed and another fail? It comes down to one simple rule. Follow it and you win; break it and you lose.

You see, that simple coin is money! Add enough of them together and it becomes a serious nest egg. Even a mere 25¢ has value! If you respect money—which is a store of value—then a simple quarter will be respected as much as a hundred dollar bill. You don’t toss it away in a mindless casino game.

Even Pinky understood the coin has value (as a toy). But it’s worth a heck of lot more than that to me.

The first thought that entered my mind when I saw the coin was how much of a fraction of a share of an index fund will that buy and how much of dividend (an income stream) will it throw off? Pinky, our resident diva, placed a more immediate, hedonistic value on the coin. Pinky’s human (me) was thinking longer term.

Now I know what some of you are thinking. How much income can one simple 25¢ piece actually throw off? Well, by my calculation, the same amount as every other quarter in my portfolio.

Think about that a moment. From this perspective, your entire investment portfolio is made up of a bunch of quarters throwing off an income stream.

This isn’t a hard concept to understand. Your body is made up of a large number of cells. Cells are made up from numerous chemical compounds constructed from atoms. Atoms are made of electrons, protons and neutrons. And the components of atoms consist of a number of elementary (sub-atomic) particles.

All things of size are composed of many parts. Each part alone seems small, but remove the infinitesimally small part and the house of cards starts to crumble. Remove an electron from an atom and the atom is different; responds and reacts different. Helium has two protons. Take one away and the atom is now hydrogen, a very flammable element. One small change does make a difference.

Anatomy of Wealth

What makes one person rich and another poor?

Two people working the same job side by side earning the exact same wage can have radically different financial conditions. One worker can squander her paycheck each week while the other maxes out her retirement plan and saves even more for a rainy day.

The worker spending all her income as it comes in is under a lot of stress. A slow economy is cause for concern. If her hours are reduced, or worse, she is let go, hard times will follow quickly. The worker saving a large percentage of her income feels virtually no stress. A lay-off or reduced hours is nothing more than a reallocation of life-hours. She can always do something else productive with her time. Since she has plenty saved, money will not be a problem.

How much can you turn a 25¢ coin into to? How much of an income stream? If a man and his cat can do it, so can you.

How much can you turn a 25¢ coin into to? How much of an income stream? If a man and his cat can do it, so can you.

So why did one worker save/invest and the other live paycheck to paycheck? It might take a series of questions to get to the bottom line, but I bet the final answer sounds something like this, “I save so I have an income stream when I need it or when I retire.”

The concept is simple in theory; difficult in practice. Everyone knows they need to save and invest for the inevitable day when the money will make life easier. But some see money as a chance to spend and party. So why do some save? What motivates them? Triggers them?

Once the thought entered my head when I saw the quarter Pinky was trying to dig from under the couch it seemed silly. Why was my first thought to invest the newfound wealth for an income stream? And do other people think this way or am I just weird? (Don’t answer that!)

My guess is about the same number of people who have financial wealthy have the thoughts I have about money. Financial wealth is a simple process. Start investing early as much of your income as possible, reinvesting the income stream except in extreme emergencies. Yet, some people can’t do it. If they have it, they spend it.

It comes down to mindset. The ancient Stoics talked about visualization. Well, investing money for an income stream tomorrow requires vivid visualization. I could see the income stream from that quarter the second I saw it. It’s the reason my first thought was to invest it.

People who spend most or all their income can’t see the benefit of saving/investing some of their hard-earned income. “I don’t want to be the richest guy in the cemetery,” they say. “Can’t take it with you.” To which I reply, “You’re right. But I’d like to have some while I’m here!” Perhaps it is time to train your mind to visualize yourself with lots of money and the income stream it provides.

If Pinky can see value in digging a coin from under the couch you can visualize the value and benefits of investing a significant portion of your income.

Warren Buffett is known to keep personal expenses low so he has more to invest. Wealthy people think this way and you need to adopt the financial mindset of the rich if you want less stress and more options in the future.

Every dollar that passes your paw is an opportunity to create an income stream. Even a bank deposit throws off a limited amount of interest. The income stream is vital to your financial health and future.

My grandfather always had a saying that has stuck with me: Never take off the pile. Granddad was an old farm boy living the dream in the backwoods of Nowhere, Wisconsin. He lost the farm in the farm crisis of the early 1980s and then rebuilt his fortune doing nothing more than saving a serious portion of all his income. Most money was only deposited in bank accounts. And he still managed to re-grow his liquid net worth well into the seven figures starting over from an old age. His rule of only consuming the income from an investment had a lot to do with his success.

The corpus of your investments, that original seed money, is sacred. If you never touch the sacred you will always be safe! The income stream keeps growing larger with time. Dividends reinvest to earn more dividends. You don’t need a pension when you have one far safer and personally designed.

 

As for the quarter I commandeered from Pinky? Well, I tossed it into the coin bucket I use for Friday night cards. Seems Vanguard requires a deposit larger than 25¢. Guess I’ll up next month’s auto investment.

 

* FIRE: financial independence/retire early

** Before someone takes these words wrong let me clarify. There is no doubt I’m a member of the FIRE community. I handle tax issues for several key bloggers of the demographic and attend conferences periodically. I say “supposedly” because I don’t feel like a member to the FIRE community. I’ve never been a fan of retirement—I like doing productive activities as long as I’m breathing. As readers may notice, I don’t chum with many members of the community either, instead choosing to keep plugging along in my tax practice. I’m a rural guy who likes his rural life without the bright lights of center stage.

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here.