Retirement is more than just not working, money and investments. A real retirement, retirement at any age, should have a foundation of love, happiness and joy. #earlyretirement #stoic #happiness #love #relationshipsThe early retirement community is alive and well in one of the greatest economic booms of our age. The government is working hard to create more jobs while the people want meaningful work and more time with family, friends and for pursuing other personal interests. Except for the most hardened, retirement is a goal that will be reached eventually whether you are ready or not.

The early retirement community has a lot to teach to those racing toward the finish line. There are serious risks involved, however. Without serious planning and thought, retirement can be hell on earth. Sitting around all day without meaning or purpose saps all joy and pleasure. Retirement is meant as a tool to explore wonderful new worlds filled with beauty and awe. Dream travel and the business you always wanted to start are now possible. You’ll have time to write that book; start that podcast; climb that mountain. Or, it could be anxiety, loneliness and fear.

There is an advantage to working in the accounting profession for three and a half decades. I learned a lot and noticed even more. Without fail, paying off the mortgage takes off 5 years (you look younger). I’ve witnessed it countless times. Retirement adds the 5 years back and more all too often.

It breaks my heart when a client works a lifetime and can finally retire. He is all smiles in my office the first year as he talks about no longer going to work. (I choose those words carefully because they make a difference as you will soon see.) When the focus is on “not working” problems soon follow. A year later when the client shows up to have his tax return prepared he is noticeably older. Seriously older, like 5 or 10 year’s worth of age in a single year.

Preparing Mentally for Retirement

Retirement is more than saving and investing. You hear a lot about those two things, including around this blog. So much time and effort is expended on frugality, saving every possible penny and investing in broad-based index funds. Laser focused attention drowns out all other matters. And therein lays the problem.

Preparing for retirement is a lot more than just money. With all the extra time on your hands, what will you do? If you love fishing and plan on doing more of it when you retire; good for you. But fishing (golfing or any other activity is the same) becomes the new “job”. Worse, you end up doing the thing you once enjoyed until it no longer brings pleasure. And you keep on doing it out of habit and no other options to fill your day.

Another downside of retirement is time with family. Yes, you read that right. When you are at work you have time away from family and friends. This makes time together sweeter. But once you have no obligations you will spend more time with family and that can lead to problems.

Retirement isn’t a bad thing! It might start to seem that way, but I’m a big fan of free time. Virtually all my adult life was in business and the profession I choose allowed me serious time at home with family with the exception of the two and a half months of tax season.

A Story about Pete

Friday night is cards night in the backwoods of Wisconsin. A certain accountant and his daughter trek a whole mile to visit with family and neighbors. The reason: a mean game of Sheepshead is in the works. Except for my daughter, we are all a bunch of old guys. The usual game starts at 7 and ends shortly after 9. (Old guys need their sleep.)

A neighbor, Pete, plays every week. He retired early and found a variety of things to occupy his new reserve of time. When he first retired he had plans for loads of projects around the house. He wanted to plant several hundred trees on his property. So, when work came to an end he set to planting all those trees. It took a lot less time than planned since he didn’t have to do it in the evening or on the weekend. He got out there and before you knew it the trees were done.

Planning is required to live the retirement of your dreams. #retirementplanning #earlyretirement #FIRE #friends #dreamsOther projects around the house and yard fell fast. In a few months my buddy Pete was done with his to-do list. And life is like that. If you think you have all these projects to keep you busy when you retire, think again. Unless you have a farm or serious acres, those projects will drop like dominoes.

Pete loves retirement. It suits him well. He had a rental property when he retired and kept it. Repairs and maintenance sop up some time.

Pete gets involved in community activities, helping friends, family and neighbors. It gives him something to do. He milked cows for a local farmer for quite a while. He hitches a ride with my dad (my dad always talks about retirement, but like his son, isn’t very good at actually retiring) just to keep him company when he has a long load to deliver.

Pete keeps busy and had a plan. But it didn’t work, or rather, he had to modify it quickly. The trees were planted and even odd jobs were not enough to fill the day. Of course more time was available to drive around the countryside and check out the neighborhood. It still gets old after a while.

Pete found a litany of things to fill his life with social interaction. Friday night cards is one of those things. His rental property is another. Tagging along with my dad or helping me get a tractor tire to Ditter’s for repair (we might be doing the tire run as you are reading this) is part of his normal routine now.

Pete’s original plan short-circuited fast, but he sat down and figured it out. Retirement has been good for Pete. I can’t say the same thing for many of my clients.

Negative Visualization

The ancient Stoics had a method for dealing with issues that disturbed the mind. They called it negative visualization. It works like this. Sit back and close your eyes. Think about the thing you fear and play it all the way through with the worst possible consequences. Illness might have you visualize permanent impairment or death. Money problems might have you visualizing the loss of a job, bankruptcy or foreclosure. Whatever the issue, you have to face it head on in all its fury.

According to the Stoics (and a certain accountant), negative visualization allows you to face down your fear and then realize it’s not real. And, if it becomes real you realize it really isn’t as bad as you thought. The Stoics would fast so they could experience extreme poverty. Once they realized it is a minor inconvenience they realized they had nothing to fear.

Retirement is different than a serious illness. But we can learn something from the Stoics and negative visualization.

See It to Believe It

Visualization also allows you to strategize your future. Sitting quietly with your eyes closed planning out your day is a powerful way to organize your thoughts and focus on what is most important. The thoughts don’t have to be negative. The negative part of visualization is used to destroy fear. For most people retirement isn’t something they fear; they actually look forward to it with excitement. Until reality sets in, that is.

Like my buddy, Pete, you can have a plan. You also need a contingency when things don’t work as planned. (Things rarely work as planned.) Golf gets old fast when you do it all day long every day, week after week. Even travel becomes a drag. Sure you can see exciting places, do exciting things. But the edge of excitement loses its edge after a while. I see plenty of early retirees. This blog gives me even more opportunities to see people up close and personal who really pull the trigger early. It becomes apparent quickly they are running from one thing to the next due to an underlying anxiety.

Action Plan

Achieving your dream of retirement doesn’t have to end in tears and depression. Retirement doesn’t have to create feelings of, “Is this all there is?” Planning ahead is more than just saving and investing. Accumulating money is the easy part. By the way, it’s not money or retirement that you want. You want something else. Only you can answer what you really want. Visualization will help you discover your true desire. It will take time. Do it before you retire and after. Your desires will change. The happiness and joy you experience depends on your commitment to planning and visualization.

Here are useful tools to prepare for retirement at any age:

The most meaningful life involves friends and giving. Turn your retirement into a gift. #earlyretirement #retirement #meaningful living #giving #caring #love Meaningful Activity: Pete planted trees and helps neighbors. There is a secret hidden in there somewhere. What Pete discovered was meaningful activities.

Golf and fishing are fun activities, but not meaningful. I love my life because I know I’m desperately needed every day by Mrs. Accountant, my daughters, clients, employees and the community. When I fall over dead people will know I’m gone because they were counting on me. Clients and kind reader alike will feel an empty spot. It’s the mark of a well lived life. My work is meaningful because it makes a difference in the life of someone other than me.

TV and other mindless entertainment does not provide fulfillment. You need a reason to get out of bed each morning. I never used an alarm clock in my life! I jump out of bed early ready to take on the day. I have an exciting life filled with exciting people and exciting stuff to do. Meaningful work fills my time and I have more of it to do than time is available. Busy is a good thing and a mark of a life well lived.

If you find yourself struggling to get out of bed in the morning after you retire you probably lack meaningful activities driving you to get at it. Use visualization again. Play through all the scenarios of things you enjoy doing and people you find a pleasure to create with. A part-time job might fit the bill or charity work. I can’t tell you what you must do. You need to figure that out and the only way to do it is close your eyes and think it through.

Mix it Up: The reason work became a grind is because you did it day after day, week after week, month after month, year after year. It got old because you did it too much.

My love of reading is legendary. But I would make a poor editor. If I was forced to read stuff (especially stuff I wasn’t interested in) every day, all day, without break, I would soon start to loath reading and want a break from it. That’s what probably happened at your occupation. The boss needed you 50 hours a week and after a decade you said {bleep} it! I don’t blame you. As the boss of my own business I like to take a break from the numbers periodically. I also pay close attention to employees to assure they are mentally healthy. I want happy, productive employees, even when stress is high. They should feel good about coming to work.

Once again we will rely upon Pete’s example. Pete planted trees and milked cows and serves as an elector when needed. He has a (as in one) rental property. Enough to provide a mild diversion without turning into drudgery. He slums with my dad from time to time and offered to help me with my tractor tire this week. He’s always doing something, something different. It keeps life exciting and that is a reason to get out of bed in the morning.

Build More Meaningful Relationships: Relationships define life and provide virtually all its joy. People make life worth living. Work provided a steady contact with people. With all the extra time of retirement you might be one of those people who cocoon. This is unhealthy. I would be one of “those” people and it’s the reason I don’t do traditional retirement. When I take extended days off I tend to get less done and mope around. I’m better at formalized work. Working for someone else I don’t care for—I want to be the boss. But I like control over my time which means I fill it with stuff that interests me so I’m always up to here with stuff to do. I like stuff, I guess, as long as it doesn’t take up space.

More time with a significant other is a double edged sword. Too many people work a lifetime to achieve their retirement goal only to find themselves so unhappy with the person they love they break up or end up in divorce court. Watching this unfold is the most depressing part of my job.

You family isn’t enough! Keep repeating that last sentence until it sinks in. Family is the ultimate of importance. But if you are connected at the hip or under foot all the time it will get old fast. Work provided people to communicate with. You need to re-build your network. I can’t tell you where to go. Only you know what trips your trigger. Maybe the church is for you. Others might like a card game or helping out a charity periodically.

Find people you like to talk with (not talk to or listen to). You have plenty of time so you will need more than a few acquaintances. Some relationships need to be deep and meaningful. Some relationships will be convenient acquaintances. Both are necessary.

Start building meaningful relationships before you retire. The transition is more painful if you don’t.

Give: What is the meaning of life? Plenty of answers have been given throughout the ages, but there is only one honest answer: to give. All the advice above is predicated on giving. Meaningful relationships allow you to give to people you care about. Mixing it up allows you to help as many people as possible. Meaningful activity usually involves giving.

Giving a piece of yourself each day make you stronger and more alive. When you provide value to others you will find a burning desire to jump out of bed each morning to greet the day. Every day is awesome when you make a difference for someone who can’t pay you back. Giving is what makes communities livable.

 

Finally, enjoy your retirement, regardless the age yours started. Retirement isn’t the end of work; it’s the beginning of meaningful activity. Retirement is nirvana or hell on earth. And only you can choose which one it is.

 

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.

A cost segregation study can save $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. 

Our view of the world is colored by our perceptions; our perceptions are colored by experience; our experience is adulterated by media influence. The secret to financial wealth is between the ears. How you think has as more to do with wealth creation than hard work. It is possible to work hard and accomplish nothing useful. Only with the correct mindset is value created.

Tony Robbins is fond of saying, “The past does not equal the future.” I think he is right. The average man or woman spends too much time worrying about every failure they experienced in life. Moving from mediocre to significance requires burying the past: the good and the bad. Past success isn’t good enough to ride on and failure doesn’t define you unless you allow it to.

There are only a few seemingly minor differences between happy, well-adjusted, successful, wealthy people and the masses. Believe it or not, wealthy people do NOT consider money their most valuable asset; time is. Money can be lost and having money always requires investing it or burying it in the ground. Both options carry their own unique risks. Rich people know money is easily replaced. In a world of fiat money (issued by decree) the government just prints more when things get tight.

Time is another issue. Whereas, you can always rebuild from a failed financial venture, time wasted is never recovered. The best one can hope for is a learning experience applicable to future endeavors. The financially successful of our communities know every moment should provide value. Sleep nourishes, quiet time allows for reflection, work feeds the soul and reading feeds the mind.

The Neighbors You Keep

I worry at times the FIRE (financial independence/retire early) community will implode. The group is diverse with people from all walks of life. Jealous and selfish people have plenty to gain by harming the movement. Perceptions are all important.

Think of a new friend you meet at a financial conference. You hit it off and share stories. You feel a strong affinity with your friend until you are shocked to learn she has AIDS. She never changed, your perception of her did. And that is wrong. If she was a nice person to talk with, she is still a nice person even if you learn she has a disability or disease.

Judgmentalism is a damning disease that destroys everything around it. It is so easy to judge others. The Bible even has a verse warning of such behavior, where Jesus preaches to take the beam from your own eye before the sawdust from your brother’s. (Matt 7:3-5)  Many religions warn against judging other as it leads to you being judged.

Walls are easy to build; near impossible to tear down! It is easy to stay within your own comfortable group. But if you are well on your way to financial independence, you need to share with people beginning their journey. Most people would rather continue their foolish money habits. Those who come to camps, meet ups and conferences (FinCon and the various FI camps around the world as examples) are eager to learn. Sticking tight to your click encapsulates your knowledge and experience. Only with open arms can they learn and grow. In fact, the only way for you to move another step higher is to share your experience! If you stagnate you risk tumbling back down the hill. It’s happens faster than you think. Billionaires have gone broke!

We can also judge people by where they live. Our initial impression is shattered when we discover our new friend lives on the wrong side of town. Once again, nothing changed except your perception.

Let’s hit closer to home. Your favorite accountant lives in a sleepy part of a quiet state. Yet, in this quiet neighborhood, the district attorney in the county where my office is planted went to prison on federal and state charges of bribery. A few of the convictions were overturned; most were not. Justice went astray for a long time in my community.

More recently, the district attorney in the county I live was booted out of office. His wife was accused of activities which could be construed as federal felonies! People get sick of that behavior from elected officials.

My county has a long history of poor behavior. The drama of the Netflix documentary, Making a Murderer, took place seven miles from my doorstep! To make matters worse, one of the key players in the investigation, Mark Weigert, is now running for sheriff and is likely to win! You can watch the documentary where Weigert gets a 16 year old kid, Brendan Dassey, in a secluded room and grills him for hours without his parents or an attorney present. Dassey has an IQ of 73 and a verbal IQ of 69 according to the documentary. Making a Murderer is chilling to watch. How anyone can take pride in cracking a kid with a low IQ is beyond me.

If we saw this happen in a third-world nation we would be up in arms. Since it happened right here in the good ol’ US of A we stand in stunned silence. Do we hate everyone from Wisconsin or my county? I sure hope not! Every community has things it would rather not talk about. Once again, we shouldn’t judge people without knowing all the facts. (And you never have all the facts.) Judging someone on a past fact diminishes you and invites others to return the favor.

Perceptions can cost a community or individual. Poor choices a lifetime ago can extract a current cost if you allow it. Perception has a powerful hold.

Wealthy people make mistakes all the same. The only difference is that they don’t allow perceptions to derail their aspirations. Never allow someone else’s perception to alter your focus. Lesser people will always want you to quit. Winners don’t do that!

Your Most Valuable Asset

While average people are concerned with the perception people have of their work ethic, status and affluence, the wealthy are laser-focused on the most valuable asset anyone possesses: time.

Warren Buffett, Bill Gates, Elon Must and Jeff Bezos all have the same amount of time each day as you. What each does with that time determines the level of value created. Create massive value and financial wealth is sure to follow.

When you are more concerned with the actions, past and present, of other people, you are allowing your perceptions to be twisted. This will make you average, mediocre. Your desire for all the benefits financial independence brings will be derailed because you allowed your precious time to be wasted by unimportant dramas.

Tony Robbins is right, the past and future are only loosely connected. Past mistakes mean you tried. That’s more than you can say for most. Mistakes do not define you; how you handle them does. If you quit because you’re worried what others might think, you rob the world of your talent and experience! All the time invested learning those skills is squandered. You have wasted the most valuable asset any human being possesses. Rich people don’t do that.

If your dreams involve early retirement (retirement at any age) then you must use your time wisely. Business ventures will fail. Ideas that sounded good at the time will fall flat. Screwing up is not the problem. Never screwing up is! The only way to never screw up is to never try. If you never try, all you have is delusions of grandeur.

Carry It with Pride

I don’t walk around telling people my net worth. Money is a score card for determining value created in my practice. As much as I avoid talking purely money, people tend to come to the conclusion quickly I have a significant financial pot of goodies.

People develop a perception of me fast. The same happens to you. Then the gloss wears off. My human side is exposed, warts and all, and the weaknesses and failures are revealed. Business ventures that ended with a dead thud remove the illusion, the perception, everything I touch turns to gold. (I butchered that goose a long time ago for stew meat.)

Successful people make mistakes. Big ones! It comes with the territory. You’ll also notice the failures don’t distract the successful from the true prize.

Elon Musk is a modern example. He made a fortune with PayPal and instead of sitting on his hands he risked it all on SpaceX, Tesla, Solar City, and now The Boring Company. Any one of these ventures could cost him his financial fortune.

But Musk knows money is not real wealth anymore than the scorecard in a bowling game is skill. Value must continually be created! He had to risk it all to do something of real value. His rockets are unique in their performance. Nobody has anything like it. Automotive manufacturers told us electric vehicles were not a viable option until Musk made it a reality. Now the simple-minded are playing catch up.

I don’t encourage mistakes. They happen easy enough on their own. But you should own your mistakes. Wear them with pride. They are a reminder you are human and remain motivated to create value. Scars are a badge of honor. When they lay you to rest, pray your skin isn’t smooth and soft. Pray to be covered in scars of experience. Yes, it is painful. But it is the only way to live life with meaning.

Our Deepest Fear

I’m going to close with a quote from Marianne Williamson:

Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, and fabulous? Actually, who are we not to be? You are a child of God. Your playing small does not serve the world. There is nothing enlightened about shrinking so other people will not feel insecure around you. We are all meant to shine, as children do. We were born to make manifest the glory of God that is within us. It is not just in some of us; it is in everyone and as we let our own light shine, we unconsciously give others permission to do the same. As we are liberated from our own fear, our presence automatically liberates others.

I can’t say it better.

 

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?

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.

A cost segregation study can save $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. 

The FIRE (financial independence/retire early) community is a growing demographic still trying to find its way. The FI part of the equation is easier to understand than the RE part. The issues revolve around the definition of retirement and what constitutes the appropriate lifestyle once FI is reached.

Some of the wealthiest individuals of the last half century provide an example. When Sam Walton was the richest man alive on the planet he still drove a beat up old pickup truck. He saw no reason to spend money on a new truck when the one he had was comfortable, did the job and gave him pleasure (a bit of a status symbol). In a recent interview with the Wall Street Journal, Warren Buffett confessed he has been semi-retired for decades. Charlie Munger, Buffett’s right-hand man at Berkshire-Hathaway, joked Warren is good at doing nothing.

Like Walton, Buffett doesn’t go for the extravagant spending so common among the rich. Buffett’s suit is off the rack and he eats at McDonalds. He also lives in the same home he bought in 1958.

Spending Decision

This last week an email arrived chastising me for my frugality. I was reminded my net worth is at the top of the list on Rockstar Finance. (I haven’t updated my net worth status in a while so the number listed is a bit shy.) The sender was concerned over how it looked for a blogger like me with an eight figure net worth to have an annual spending habit in the low twenties.

I responded with the same stories on Walton and Buffett above. I also reminded the concerned reader spending more would not make me happy and I was in no way interested in what people thought of my spending habits. If folks think I’m cheap that is their deal and doesn’t concern me.

What the reader missed (and he was exceptionally polite, and worried my spending level might offend some) was what really mattered in my life: joy and happiness.

Living in the boondocks makes it easier for me to spend less. The nearest retail outlet is nearly a half hour drive. I could shop online, but I tend to break out in a severe rash when engaged in the shopping experience. (For Father’s Day — yesterday here in the States — I wasted spent $3 in gas to visit a restaurant in Forest Junction (my old haunt) for a free glass of milk and dish of ice cream for the whole family. Life really is good in boondock country.)

At the end of the day I really don’t want for anything. I have a beautiful, loving wife and two awesome and wonderful daughters. Books are on my shelves waiting for consumption. The level of contentment I feel is greater than any other activity or spending could bring me.

Lessons Learned

There is a difference between happiness and joy; joy is more important. I’m happy most of the time, but always joyful. I found the right path to a joyful life at an early age. I was lucky. The noise of urban living never distracted me. My grandparents lived downstairs of the farmhouse and we lived upstairs until I was in middle school. Growing up in the 1960’s and 70s with grandparents you were sure to hear the lessons they learned living through the Great Depression. Like most kids, the lessons had a hard time sticking. As I grew older I remembered the stories and took them to heart. It made a difference.

There is a significant difference between granddad and me. Grandpa, who we called Doc, would never in a million years have told anyone his net worth. It was none of your damn business. I’m more open, but experience is showing me I should have listened closer to my grandparents in that arena too.

Growing up on a farm in a very rural area of 1970 Wisconsin meant we did things differently. We had more fun than you can imagine. My brother, uncle and I played cops and robbers on our bikes every summer. The dog days of summer always had a water fight or two. Those were good days I miss tremendously. They are gone now and only exist in here (pointing to my temple).

As hard as life was we always found time to laugh and tell jokes. We worked and played hard. Free time frequently meant a quick run to the creek (we pronounced it “crick”) to fish. When we were older we raced around the back forty on mini-bikes. The best we could do was 40 mph; we could also jump ramps.

We missed out on nothing. Nothing! I was as oblivious to the world at large back then. Buried deep in the recesses of my mind I was aware of a brave new world that hath such people in it as I am now.

We were happy as a tight knit family. We felt joy with rare exception. These days we play cards Friday night at my parents’ house. Afterwards I hug my mother and father and tell them I love them. Yes, even my dad. You see, money will never buy you the things that matter, will never buy you joy. And the happiness money buys is fleeting.

Money, after a certain point, is nothing more than a game to occupy one’s time. Money is a scorecard in the grand scheme of daily life. Nothing more.

Back to the FIRE Community and the Nouveau Riche

The FIRE community is comprised of highly intelligent people with honorable intentions. Lately we see the focus turning more toward the FI part of the equation. I like to pretend I had a bit to do with that.

Retirement is still a hotly discussed topic! Professor Jordan Peterson said it best when he stated most people don’t have a career and will never have a career. What they will have is a job. A job is what you do to keep a roof over your head and put food on the table. It is rarely a lovely experience. It’s work you have to do to earn money. A career, on the other hand, is something you enjoy immensely. Only 5% of people ever have a career. Most only have a job.

That explains the reason why so many in the FIRE community want to save like crazy so they can check out of the job and into a life that fills them with joy. Too many people trade a traditional job for a self-imposed job: income properties, small business or side hustle even though it doesn’t bring fulfillment, only a bit more free time.

Warren Buffett is pushing toward 90 and still goes to the office. I understand his drive. There is a certain comfort in doing what one loves. Charlie Munger is 94 and spends a serious percentage of is waking hours reading. He, like Buffett, is still dedicated to learning daily even at their age. Some might argue it’s a waste of time, but Buffett has expressed on numerous occasions the pleasure he gets searching for good companies to buy at a good price.

Retirement is a trap! I see plenty of people in this demographic on my social media pages. They fill their days with all kinds of activities. Before long they are doing things that create value. This is no surprise. The human spirit is designed to build, grow, share, experience, create. One recently semi-retired member of the community is working on stained glass projects. Good for her. Many start blogs or podcasts. Many travel, at least for a while. Then they invest in real estate (the other RE) or start a business or fill their days with a variety of side hustles.

Hear the Wisdom

My grandparents imparted powerful advice to us kids all those years ago. It shaped and formed our lives. Warren Buffett admits he is semi-retired. What he is really saying is that he has to do something to fill his days so it may as well be something he enjoys.

The uber-successful seem to never want to quit. Elon Musk had it made financially and put it all on the line to start a litany of businesses which promise to revolutionize the world we live in. Steve Jobs worked until his body gave out less than a month before his death.  Even then he worked as much as possible from home.

Here is an old and often told story:

A scorpion came to the edge of the river and wanted to cross. The river was wide and deep. The only way across was if he received help.

The scorpion said to a nearby frog, “Frog, please take me to the other side of the river. I can ride on your back while you swim across.”

“Are you crazy!” said the frog. “If I let you ride my back you will sting me as we cross the river and I’ll drown. Scorpions sting frogs; it’s what scorpions do!”

“Why would I do that?” said the scorpion. “If I sting you while crossing the river  I’ll drown with you. My request is honorable. Let me ride your back across the river.”

The frog saw the logic of the scorpion’s argument. The scorpion would die if he stung the frog while riding his back across the river.

The frog relented and allowed the scorpion to climb on his back. The frog stepped into the river and started swimming across. About half way across the scorpion stung the frog. As the poison started working the frog began to drown. The scorpion fell into the water as well.

“Why?” asked the frog as he started to go under. “Why did you sting me? Now you will die! Now you will drown with me!”

The scorpion replied words of wisdom before he went under the waves, “I am a scorpion. Scorpions sting frogs. It’s what scorpions do.”

Do not be fooled. We are what we are. Our minds and bodies were not made to be unproductive. We play and work to our happiness, joy and health.

You and I are human. Humans play, love and create. It is our nature. It’s what humans do.

Don’t be in a hurry to RE. FI is an honorable and noble goal I strongly encourage. Find the things which bring you joy and happiness, then do them. And don’t let anyone convince you to live their version of life because therein lies sorrow.

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?

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.

A cost segregation study can save $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. 

Note: Camp Accountant is postponed for now. The original planned weekend is two weeks after FinCon and the same weekend as the tax extension due date. A large number of accountants wanted to attend, but couldn’t due to the due date. There were also several complaints the event wasn’t in Wisconsin. Colorado is an awesome place, but a lot of bloggers promote Colorado; it was felt I should promote Wisconsin. We can satisfy all these issues by having Camp Accountant in West Bend, Wisconsin at the Cedar Valley Center & Spa the week following the Novel-in-Progress Bookcamp, a program I’ve been involved with in the past. Sorry for the inconvenience.

 

The Event you have been waiting for your entire life had finally arrived! Camp Accountant is Here!

I don’t know about you, but I’m tingly all over. Camp Accountant is different from any camp you’ve attended in the FI community. All proceeds go to support the local Boys and Girls Club. In fact, all the registration money is collected by the Club. They pay for the cost of running the camp and put the rest to work serving the community. Everybody wins! Many of the venues are provided at low or no cost so more money ends up helping the Boys and Girls Club.

The first ever Camp Accountant is limited by the size of the venue so register early (details and links at the end of the post for registration and accommodations). First I need to share details. Read to the end for a special surprise!

Karen (she can share her full name if she wants) put this thing together. That means she did all the work. Please acknowledge her efforts. These things take time and cause stress so I am tremendously grateful for Karen’s efforts.

Karen and I have communicated during the planning process. She put together an information sheet so I’m going to cut and paste her words because she said it first and better:

 

Location – Salida Colorado — main location 419 D Street

 

Cost – $400 per person.

Participants – 30 people.

 

What this is all about –

 

Have a great time meeting like-minded folks, bike and hike around the Rocky Mountains in Colorado; learn cool stuff about accounting and how it supports our road to Financial Independence.

 

Keith from the Wealthy Accountant is hosting this event.

 

Lodging is not included in the event – it takes place in downtown Salida, Colorado.  Lots of camping and lodging nearby, all info provided upon registration. All lunches and most dinners are included in the cost of the ticket.

 

The camp will be a fundraiser for the Boys and Girls Club of Chaffee County. This amazing program supports youth in a rural county in Colorado.

 

A bonus of supporting the Club is that Colorado residents attending the camp will receive a donation letter for $200 that will equal a $100 credit on their Colorado state taxes.

 

Boys and Girls Club

 

Salida, Colorado is a very economically diverse community. As a small town of 5,000 people, there is no other after school programs for working parents that are affordable, and no other enrichment programs for families of limited means.

 

This program supports our local youth in many ways. Kids are with staff for homework help. They join structured programs to follow interests as diverse as sewing to robotics, and have a chance to be physically active instead of home alone in front of a screen.

 

The Club needs its own building to guarantee its future, instead of renting space and moving every few years. The opportunity to get word out about supporting the Club through the Wealthy Accountant blog could help us get a building so that the youth served by this program will have a permanent home.

 

Link to the Club website – http://www.bgcchaffee.org/

If you want to donate – http://www.bgcchaffee.org/Donate (click green button to donate online)

This is what the FI community is all about. We share ideas to improve our own lives and pay it forward so the upcoming generation can enjoy the same.

Here are answers Karen provided to important questions:

 

FAQ’s

 

Can I come just for the day?

 

The space will only hold so many comfortably, so we will only have tickets for the whole event.

 

Where should I stay?

 

There is camping, Airbnb lodging, and a couple of B&B’s all near the site. Details of lodging and transportation will be sent upon registration. Most locations for lodging downtown are within walking distance of under a mile.

 

Is registration refundable?

 

No, but we will try to find a way to transfer tickets to people on a waitlist.

 

Who is hosting this event?

 

Keith from the Wealthy Account Blog is hosting the event.

Snap Pea (Karen), a longtime reader of the blogs and OG of the FIRE world, is helping coordinate all the logistics, and is crazy excited for the fundraiser for her local charity.

 

For profit event?

 

No. Information on the club is linked above.

 

Could I or Should I bring my rugrats?

 

While there is a lot to do in the area, the setup isn’t good for kids running around if the weather is bad. They would have more fun with a non-attending person around. If you do want to have kids and/or partners join for meals, please email for availability and rates to cover food costs.

If you have any additional question use the contact button on this blog. I’ll do my best to calm Karen down, ah, work with Karen to get you an answer.

Here is the planned itinerary.

 

Tentative Event Schedule

 

Thursday, October 11

 

5 PM

 

Intro: evening at the Salida Hostel.  Beer, wine and appetizers (enough for dinner) provided.

 

Friday October 12

 

9 AM: meet at 419 D Street for a bicycle ride or hike around the Salida area. There are mountain bike trails, road bike routes along low traffic county roads, and hiking trails all nearby.

This activity is dependent on weather – coffee and conversation at the site is the alternate plan.

 

Noon: Lunch at HQ

 

Intro talk by Keith, Q and A’s, etc. (I promise not to upset stomachs.)

 

4 or 5 PM: beer at the site or nearby park, happy hour, dinner on own downtown Salida.

 

Saturday, October 13

 

8:30 AM: Yoga with a volunteer leader – for those so inclined.

 

9:30 am: Event – talks, Q and A, discussion topics, power presentations, breakout discussions

 

Noon: lunch at site

 

1 PM: Event – talks, Q and A, discussion topics, power presentations, breakout discussions

 

5 PM: happy hour and BBQ. Volunteers from Chaffee Boys and Girls Club will be helping with the BBQ.

 

Sunday, October 14

 

10 AM: coffee and conversation, possible 5 min power talks, hanging out.

 

Noon: sandwiches and leftovers for lunch, organized event ends.

 

1 PM: Mountain bike rides and trip to local Hot Springs for those inclined. Car-pool organized by participants.

 

Afterparty –

 

The after-party will continue in Salida, Colorado –

 

Stay longer and come check out our volunteer coordinator’s business – www.salidainnandhostel.com The Inn is set up as a friendly and social place to continue the fun after the Camp.

Salida is near several hot springs, hiking and biking trails and just a cool little town.

I’m happy to do all the talking, but for this to work best we need participation from others. Taxes are always a hot topic, especially with the new tax law in effect. I’ll answer questions personally as well.

We also need volunteers to give short presentations. Topics should be of interest to the FI community. Those active in real estate should consider a short presentation on the real estate market, RE values around the country and rent rates. Frugal living and early retirement are always of interest. And don’t be afraid to step forward and share some travel tips. Just because a certain unnamed accountant prefers to avoid travel doesn’t mean other wealthy accountants feel the same way. (For the record your leader is a slightly nuts!)

Here is additional important information before I provide the registration links:

 

Lodging–

 

We recommend staying in the downtown area. Salida Inn and Hostel www.thesalidahostel.com the Palace Hotel https://www.salidapalacehotel.com/ and the Simple Lodge https://www.simplelodge.com/  are all within walking distance.  We also recommend Airbnb as many locations are within walking distance.

 

Camping/RVs – There is a lot of free camping just outside city limits on public land. There is also a nice private campground just on the outside of town, as well as a public pay campground called Salida East.

 

Transportation to Event

 

There is one bus a day to Salida — it leaves in the afternoon from downtown Denver, to get there from the airport you take light rail. It works best if your flight arrives quite a while before the bus leaves.

http://expressarrow.com/

 

Renting a car is highly recommended unless your flights really work out for the bus.

 

The Colorado Springs and Gunnison airports are much closer — you would need to rent a car from them.

 

I come from a small town so I’m excited about our venue. The boondocks are my home and anytime my tail is planted in the outback I’m a happy camper.

This is going to be such an incredible event. Registration is on Eventbright.

 

Register Here!

 

Now for the surprise! I’m donating all my time and all my travel and lodging expenses are coming out of my pocket so the Club gets more of the proceeds. Airfare between the Accountant farmstead and Denver is really, really cheap; like $100 or $150 per person. Buuuut, Mrs. Accountant and I are driving so we can spend more time checking out the sights along the way. And since I’m driving there is a strong possibility a case (or ten) of the world famous Spotted Cow beer only available in Wisconsin will be smuggled in the truck of a wayward accountant willing to share.

I’d say the first beer is on me, but we all know it’ll be more than one.

See you at Camp, kind readers. There will be loads of powerful information for you and a future for the kids. And that is what life is all about.

You need a lot less to retire than you think. Early retirement dreams come real faster when you know the facts. The 4% rule isn't good enough. #earlyretirement #FIRE #financialplanning #personalfinanceA common question in the FIRE (financial independence, retire early) community involves how much money you need to retire. Before I became a card-carrying member of the community I would hear the question something short of a dozen times per year. This blog means I hear the question a lot more these days. And people still don’t believe my answer.

There is a great misperception over how much money is needed to cash a check and walk your own path. I’ve consulted with 70 year old men worried they don’t have enough to retire. In the FIRE community younger people are more interested in the same question with a different set of rules.

Social Security changes all the rules. The 4% rule is wildly off the mark because they forget two simple facts; facts we will cover right now.

How Much is Enough

I will use one example to outline how much you need to retire. It is easy to adjust to fit your personal circumstances.

This exercise began when I started to wonder how much Social Security I’ll receive monthly at 70. We will not use my actual numbers. Instead, we’ll use a hypothetical married man my age. (I don’t use my actual numbers since they are atypical.)

Later this month I’ll tip the age scale at 54. Yeah, I know. Never thought I’d live that long either. It also brings up a few interesting facts. First, I qualify for early retirement (qualify for early discounted Social Security) in eight years. (Where the heck did the time go?) Full retirement for Social Security is 13 years away and I can get a bump in my benefits every year I wait until 70, or 16 years. Regardless, Medicare is for the taking at 65, or 11 years for your favorite accountant.

My daughter, Heather (age 23), and her friend, Katie (age 27), at the centerpoint of Beijing, China. They’re getting paid to travel.

So how much do you think I need to call it a career? A million? More?

It all depends on my spending habits really. Depending on the circumstances, most years I spend about $20,000. Some years I spend as much as $30,000 in the event the car dies (every twenty or so years) or some other personal adventure arises. Summertime is low spending season. An average summer month sets me back $600 – $800. Rare is the non-winter month that sees a four-figure reversal on my spending fortunes. Winter is another matter. December is property tax month. January (February, too) is cold in backwoods Wisconsin. The utility bill gnaws at me the entire time.  By the time the frost clears I’ve lost $20,000 of weight from my money belt.

The 4% rule (bantied about in the FIRE community a lot) says you need a cool $625,000 to be safe with a $25,000 annual withdrawal rate. This is just plain stupid! You don’t need $625,000 to retire with a $25,000 annual budget!

Here are the two mistakes most people make. First, it assumes you’ll never earn another penny after you retire. Oh, for God’s sake people! You will earn money after you retire, if only by accident. Heck, you can sell tradelines if you’re allergic to work and need a thousand or so each month to supplement your wants.

Time for Math Class, Accountants

Let me ask you this. If you have $625,000 at age 54 and withdraw 4% ($25,000) annually, how much do you have at age 70? Answer: More than Zero! The 4% rule is considered a safe withdrawal rate to never run out of money in retirement.

But this assumes you want to leave a legacy at least as big as your net worth pile right now! If 4% is a safe withdrawal rate then in all but the rarest of circumstances the account balance will continue growing!

The second mistake people make when deciding how much they need to retire is using the 4% rule rather than amortizing the liquid net worth balance over the maximum years needed before another form of income kicks in.

There are plenty of amortization calculators around the web. I’m using the program inside my tax software. I asked my amortization program a simple question. How much will I need today to withdraw $25,000 annually for 16 years (remember I’m 54 and want to wait until 70 before drawing Social Security) at a 4% return? Since many people consider the 4% rule safe (as do I) it is acceptable to amortize the liquid net worth balance at a 4% investment return rate.

My tax software says I need $291,307 (I rounded) to make this work. I’ll have exhausted my liquid cash at the same time Social Security kicks in. (Assumptions: withdrawals for the year are in one payment in advance with the money market holding the funds prior to use earning 0% with the first payment drawn the first day to account for an immediate retirement and the next full year withdrawal of the first day of each fiscal year.)

This is a far cry from $625,000! The amortization solution doesn’t take into account several factors. You are likely to earn at least a small amount of income in the next 16 years, but inflation is not factored in so  buying power slowly erodes. It also assumes the stock market (I assume we’re using broad-based index funds) only performs at half its historical average. That is a serious assumption! Odds are the market will do better and you will still not use up your nest egg by the time Social Security kicks in. If fact, it’ll probably be bigger than when you started.

The Crazy FIRE People

The crazy FIRE community needs even less than my calculations indicate. When a 35 year old walks into my office and wants to know how much more he needs to retire when he has $200,000 stashed away already with no debt I tell her she can retire today. After they break the dead stare they think I’m joking. I’m not!

Once again we are assuming the $200,000 will only throw off $8,000 per year under the 4% rule. Not so. Once you give up on the rat race you can join a race you really enjoy! If you’re 35 you need something to fill your time. First, you are likely to move to a lower cost area if you don’t already live in one. (My low living expenses are partly a product of geography. New Your City or most of the West Coast would force me to talk out of the other side of my mouth.)

You can live the good life with spending a fortune. This museum piece in Beijing, China requires a King’s Ransom, but you can enjoy the jewels for less than a $10 admission fee.

Second, you’re 35 years old!!! There is only so much travel or golf a guy can handle. It gets old fast, becoming the new rat race you want out of.  Then reality sets in and your interests bubble to the top. A side hustle you always wanted to try is now a viable option. It doesn’t have to pay tremendous amounts of money. Your cost of living will decline unless you engage stupid spending habits. If you have said habit it is unlikely you’ve read this far. (For the rest of you, this way.)

Using the assumptions above, the $200,000 amortized over 32 years will throw off a bit more than $11,000. Still not enough to retire.

But if you spot a 35 year old $11,000 per year and she only needs $25,000 per year to live you have a helluva start!

If you can swing $1,200 per month with a side hustle you can retire at 35! Yes, Social Security might be pretty small, but your side hustle will add to your account when calculating benefits. At full retirement a husband/wife team should realize around $2,000 a month even with the low earnings assumed here! Retiring at 35 with $200k is doable if you have any interest at all in any activity with potential to throw off an income stream.

Crybabies this Way

The information above has the tendency to bring out the crybabies. “I can’t do that! Waaaa!” “It’s impossible! Waaaa!”  “I want my mommy! Waaaa!”

Your mommy isn’t here so pull up your shorts and listen. $200,000 is a bit light to retire on at 35, but not bad for someone a certain accountant’s age. Amortized over a shorter period means you will have enough until pensions and Social Security kick in.

You can travel the world or stay closer to home. Beauty is everywhere. This piece is showing at a Beijing, China jewelry expo.

At 35 you will be required to still earn some coin. Notice I didn’t say work. Please don’t break out in a rash.

A seasonal or part-time job can provide enough money to enjoy a very joyful and full life. The first ingredient is cutting out all the stupid spending! The more you spend annually, the more you will need at the start to make it to the finish line!

If you live in a high-cost area it many require a move. If you stay put you need to adjust my numbers. Younger people need to calculate on their age, not mine! If you have a higher lifestyle than mine you’ll need more to start unless you plan on spending more time on your side hustle.

Until your health gives out or you die, you will bring in more income than you realize. Just doing the stuff you enjoy doing has a tendency to become an income source. Even small income sources do wonders to your investment account. Using your favorite accountant as an example, the lower spending habits of summer means money is left to earn more before it is spent. Every nickel earned on the side is one nickel less needed to appreciate the awesome retired life you’re living.

You probably worry as much as my clients about how much you need to retire. Financial advisors always scare you with big numbers. It’s good for them when they get more of your money. The truth is you don’t need as much as you think to have a comfortable retirement with spare change for some travel and entertainment.

And for God’s sake, please don’t be that guy who has $200,000 in cash, a $25,000 annual spending budget and is 65 with Social Security checks for him and his wife totaling over $3,000. Just don’t be that guy. You’re never going to run out. Now go and enjoy your life.

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?

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.

A cost segregation study can save $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. 

The universal basic income doesn’t solve all inequality problems. It might even make the problem worse.

I don’t know who first came up with the idea of a universal basic income. My earliest exposure to the concept was from Sinclair Lewis’ 1935 novel It can’t Happen Here. There is no doubt the idea was around much longer.

It’s an age old story. Mechanization and technology will destroy all the jobs. Computers and machines will do everything so people will be left with nothing to do but wander around the cities and countryside with dazed stares.

The solution is to provide a basic income to everyone so income inequality is reduced. The cause is noble; the solution fraught with problems. If you have freedom, you have inequality; if you have equality, you have no freedom. The real question is: how much inequality will society tolerate?

In the United States we have a modest solution in our tax code called the Earned Income Credit. People with a low income qualify for a refundable credit to compensate for their poverty level earning. It also happens to be the area of the tax return with the most fraud.

Around the world experiments with a universal basic income are in the planning stages, ready for implementation on an experimental scale or recently concluded, as we saw in Finland.

What is certain is that more people than ever are ready to try a universal basic income. The Finland experiment was concluded early without plans for a wider roll-out. I take this to mean the results were less than hoped for. If anything, it probably exacerbated inequality problems as it encouraged more people to work less.

This isn’t a debate about the merits of a universal income. The video below is one of many discussions on the issues. I don’t agree with all the comments in the video, but they do provide ample starter fuel for an argument discussion. We will focus our attention on something more important today: creating your own personal basic income.

Back to Basics

At times I will sound like a rabid liberal when discussing universal basic income and an unrepentant conservative at other times. I am neither. Rather, the issues are complex and it is nearly impossible to stand firmly on one side of the aisle at all times.

The FIRE (financial independence, early retirement) community is a perfect example. These people (most people if we are honest) look forward to the day when they can either retire or live a semi-retired lifestyle. There is nothing wrong with such an attitude. I even argue it’s a healthy one. A universal basic income will only make it easier for people to achieve their magical goal. An extra thousand dollars a month can do wonders for those determined to build a nest egg large enough to retire early.

Unfortunately, it also encourages disengagement. If a basic income doesn’t work as planned in a place like Finland (where many feel it was a failed experiment) then it is unlikely to work anywhere at all. Higher taxes to pay people not to work will not bring the best out of a society. Social safety nets are necessary for a moral society, but there is a difference between feeding hungry people and providing unemployment benefits and giving everyone a handout.

All that said I still love the idea of a basic income. Notice I didn’t say “universal”. Don’t take this to mean I think people should be left out. Quite the contrary. Anyone who really “wants” a basic income should be allowed to have one! And I’m going to show you exactly how you can get your very own basic income.

Perception

In its broadest terms a universal basic income provides everyone in the community with a minimal amount of money every month just for being above ground. The cost is prohibitive, but if machines do all the work due to increases in technology and automation, there is nothing left for people to do to earn the money needed to buy the stuff automation is producing. The idea is to tax the crap out of the automation processes and spread it around.

Since this story has been around in one form or another since mankind decided to move from manpower to draft animals, we have plenty of reference points to learn from. The most import thing learned is that people over blow the consequences. In 2008 the world was coming to an end and now we are at full employment and then some. The next economic slowdown will bring the basic income idea front and center again. Don’t fall for it.

But if you are anything like me you wouldn’t mind a juicy check showing up every month like clockwork as a base line to the household budget. The universal basic income is always some modest payment sure to bankrupt the government while providing modest improvements (if any) to families. What I propose is far more draconian. Rather than few hundred or a thousand dollar per month, I suggest something a bit north of there.

A universal basic income is small thinking. It doesn’t do enough to really solve the problem. But if $3,000 or more shows up each month early retirement is in the cards! So how do we get the government, anyone, to send us $3,000 or more each month?

A Multitude of Basic Incomes

The small thinking mindset requires the government to tax and redistribute massive amounts of money. Worst of all, the beneficiaries of the basic income are reliant on one source for their bonus. This is just plain stupid.

What you need is multiple sources of basic income flowing into your bank account on a regular basis. The source of your basic income should also be more secure than the next vote in Congress!

Here is the secret. The wealthier you are the more likely you are to be receiving the multiple payments of basic income. In fact, the total of all these streams of income aren’t so small. Now I, as a wealthy accountant, will share the secret to the crowds. If you read my body has been found in a ditch somewhere you’ll know the bourgeoisie got to me. Too bad the word will already be out.

By now I’m certain you figured out what I’m talking about. Multiple streams of income are the hallmark of wealthy people. There is nothing preventing you from engaging in the same activity regardless your economic status. A lower income means you start slower, but you can still start.

Sources of Basic Income

Sources of basic income are everywhere. Index funds provide an income stream in the form of dividends. A side hustle can line the household budget nicely.

Passive income is where it is really at. Dividends and interest are nice. Rental income can be much larger than dividend income with a smaller investment. Income property can provide a steady passive income stream without hardly any net worth! (I recommend you pay down the mortgages as fast as possible for a margin of safety.) The trick is buying the right properties.

Free money! Woo-hoo!

I’ve provided plenty of ideas in this blog for generating additional income. A side hustle as a forensic accountant is a fun part-time job that pays like a full-time job. Selling tradelines on the side is another way to feather your personal basic income program. No tax increases required. Here is one last link to an article on a dozen high income part-time seasonal jobs.

The ways to produce passive income is nearly endless. You should always maximize retirement plans for maximum tax benefits. Even in a nonqualified index fund dividends and capital gains are taxed at a lower rate than ordinary income. Income properties generally have higher cash flow than reportable profits on a tax return.

The universal basic income is a grand idea whose time will never come. When machines and automation destroy jobs, new opportunities arise. People in the vinyl record business lost their job in the 1980s. More jobs were created than lost in the CD business. Digital is doing the same today. Yes, the horse industry died when the automobile showed up, but the automotive industry is the largest employer in the U.S. today. And it’s not just the manufacturers. Repair shops, gas stations and the oil industry have more than made up for the lost jobs raising, training and feeding horses.

Technology and automation increases efficiency which means we have a better quality of life and standard of living. This is a good thing and not to be feared! I know it seems scary out there, but remember all the Chicken Littles frantic the sky is falling. The sky is fine. And brighter than ever, I might add.

Social safety nets are the moral thing for a society to provide. A constant struggle for the “right” amount of safety net will drag on until the end of time. What you need to understand is a basic income is yours to have. You decide the amount.

Your personal basic income will start small with one rent check, one dividend payment, one tradeline sale. Reinvesting your great fortune only grows your basic income larger each month. Soon, you can have a basic income greater than your financial needs. Then you can step back and let the next person enjoy your old job while you live on the multiple streams of income. In the new basic income world, fewer people will need a traditional job. But you will still provide value to society without working yourself to death.

 

 

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?

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.

A cost segregation study can save $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 the life you want. Control money rather than having money control you. #goals #financialgoals Early retirement. #success #wealthIt’s hard to see when watching at the speed of life, but there is no doubt it keeps getting easier to reach financial independence. Some in the crowd might disagree with me. The statistics are clear, however. As the hand of time ticks by the human race is finding greater and greater opportunity at every turn until now when it is laughably easy to reach virtually any financial goal.

But we need to start at the beginning.

In the Beginning

Depending on whom you ask, humans (Homo sapiens) have been around for around 300,000 years. For most of this time we were limited in our conversion of energy into useful tasks. Men, women and children all contributed to their subsistence lifestyle.

Because energy input determines so much of quality of life (as will soon become clear) we need to use a consistent measure of power. Energy is best describes in joules and power by watts (W). This allows a better understanding of inputs by humans over time.

A human can sustain around 100 W of labor. From the beginning when modern humans started its own branch of the family tree until the third millennium BCE, the most power mankind could muster was limited by the backs of the very same people. It took several hundred thousand years before mankind figured out a way to utilize more than the limited 100 W of power available from an average adult male.

Sometime during the third millennium BCE people learned to harness draft animals and their sustained 300 – 400 W of sustained labor. Not satisfied with the several fold increase, humans experimented with different ways of harnessing draft animals and even breed animals for greater labor.

Over thousands of years the maximum prime movers (draft animals in this instance) slowly increased until around 1000 of the Common Era when horizontal waterwheels came into wider use, providing up to 5,000 W of power. (The waterwheel was employed earlier, but not widely or in a modern sense.)

What took over a hundred thousand years to move from 100 W of manpower to draft animals and their approximate 350 W of power only took four millennium to reach the technology of the waterwheel. As slow as it moved it was still an improvement. Progress was slow because people needed to expend all their resources to survive. Draft animals allowed more land to be tilled which meant more people could be fed and better.

By 1800 steam engines surpassed 100,000 W (100 KW) of power. The late 19th Century brought water turbines, driving the maximum power of one unit to as much as 10 megawatts (MW).

The pace of energy use expanded rapidly. Life was still harsh for many people, but the goods and services available grew as more prime movers grew more and more powerful. Subsistence living was declining. Life was still hard, yet more people than ever had a better diet. Also, more people than ever before were able to live an upper class lifestyle. As power use increased due to technological advancement, fewer people had to work to cover the basics of living for the entire community.

The rate of increase accelerated until 1960 when the largest steam turbine reached 1 GW of power.

Modern World

The more technology increased the power of a single prime mover, progress advanced in efficiency.  The first draft animals could replace three or four men max. By the 19th Century better harnesses and certain horse breeds could do the work seven or more men.

Waterwheels increased in size and efficiency until steam turbines were invented, catapulting the power available in one unit (prime mover) to unheard of levels.

Start living your dreams today. Financial independence is easy if you follow a few simple rules. #easystreet #personalfinance #financialindependence #FIRE #earlyretirementThermodynamics places a limit on the maximum power that can be extracted per unit of coal or other energy source. Steam turbines also have theoretical maximums. The first steam engines were extremely inefficient. Advances in efficiency were slow at first, increasing faster until the gap between best performance and the maxima narrowed.

The first steam driven machines operated at less than 1% efficiency to over 40% today! While 40% seems like there is lot of efficiency left to wring out, there is only modest possible improvements available.

Home heating has come even further. Heating a hut with grass or dung has serious disadvantages. Wood was a major improvement once tools were invented to cut trees versus the limited supply of branches available on the ground. Early gas furnaces enjoyed 40% or less efficiency; today homes have gas furnaces up to 97% efficient.

Lighting has an even greater efficiency improvement. Candles convert between 0.01% to as much as 0.04% into light. Edison’s first light bulbs were 0.02% efficient. The first fluorescent bulbs in 1939 were 7% efficient. In the year 2000 a lumen of light in Britain cost 0.01% of what it did in 1500 and 1% of what it did in 1900 (see reference at the end of this post).

The Ease of Wealth

We will now switch from the historical use of power to how the above information yields increased ease in acquiring financial independence.

It seems like wages have been stagnant forever while prices continue to climb. The data tells a different story.

Overall Adjusted Average Salaries, Five Year Increments

Adjusted for inflation, wages have been flat for at least 50 years (see chart)! Before anyone become alarmed, know that wages are what drive inflation. When wages increase it eventually is reflected in the prices of goods and services, kind of.

Natural gas and gasoline prices have been steady to lower over long periods of time, adjusted for inflation (see charts). Natural gas has been up and down, but is basically unchanged since the mid-1990s even before considering inflation or the unadjusted growth in wages. All this while vehicles are larger than ever with more gizmos and home gas furnaces are the most efficient than they’ve ever been.

Historical gasoline prices in today’s dollars.

Inflation causes the most angst. In 1913, when statistics were first kept in the U.S., the CPI-U started at 9.8. The latest CPI-U (April 2018) stood at 250.546. What cost a dime is now 25 times more expensive. The average worker earned around $300 per year in 1910! (A competent accountant could earn $2,000! I would like to think I’m competent so, adjusted for inflation, I should make around $50,000. Looks like this competent accountant is doing a bit better than expected. Bet you are too.) In 1918, after the inflation of WWI, the average household earned $1,518, which is, adjusting for inflation, less than the average household income today.

Inflation is real and affecting household budgets. But while prices are increasing, wages are oscillating around the baseline, adjusted for inflation. At first glance we might be depressed to learn we’ve made no progress. However, wages and inflation only tell part of the story.

A hundred years ago many homes lacked indoor plumbing. We’ve rectified that problem since. Electric appliances have been added to the daily luxuries of life. Over the last 30 or so years we have added computers, internet and smart phones to our list of luxuries. You’re probably reading this on a smart phone.

Natural gas prices haven’t moved at all while wages and efficiency have continued to climb.

Increased efficiencies are where most of our increase in living standard comes from. Wages mimic prices as efficiency keeps rolling along. Energy costs have gone nowhere fast over the last century. But what we do with that energy has changed radically. Heating our home takes less than half the natural gas of 50 years ago. Of course, our homes are twice as big so we’re still broke. The electricity needed to light our homes has decreased to such a level that it is an insignificant part of our budget.

Money for Nothing: FI for Free

Frugal today is nowhere near what frugal was a century ago! What we consider austerity would get us laughed back into our time machine if we had such a machine to transport us back in time. Most households spend less than 10% of household income feeding the family. There was a time not that long ago when 50% or more of the budget went to feeding hungry mouths. Back then the house didn’t glow at night the way our cities do today.

As technology allows us to utilize energy resources like never before, we have a lifestyle never before enjoyed by any species in history. And it gets easier to reach financial goals!

Once upon a time all but a few worked till the day they died. A select few, very few, enjoyed a life of luxury supported by the backs of the masses. Then draft animals were put to work, allowing for a larger population and a better diet. Later coal, oil and gas powered the turbines of industry and heated our homes. More work horses (steam turbines, et cetera) meant we could delegate the most back-breaking labor to machines. We went from nearly 100% of the population working in the fields to under 2%. The freed labor did other things. Many spent more time in educational pursuits; some did nothing at all, choosing to live longer with mom and dad.

Some lived frugally for a few years and retired early.

In the U.S. 49% of the population works a traditional job. That percent has probably crept up in the last year so we might be over 50% as of this writing. Young children and the old are understandably unemployed. Still, of working age adults, we are near the multi-decade low labor participation rate. What gives!

The answer is rather simple. Our use of energy resources continues to become more efficient while wages remain stable and prices are moving in tandem with wages over time. Productivity slowly grinds higher. After centuries of progress, the cumulative gains have made it possible for large numbers of society to pursue other interests. Food is plentiful thanks efficient use of energy. Even with half the population not engaged in traditional employment, we still have abundant food, shelter and clothing.

Financial independence keeps getting easier and the trend will remain intact! There is no excuse to not have financial wealth. None. We are so rich today with abundant resources and technology we can throw away massive amounts of money on interest to support debt. This is unheard of in history. Debt was always considered bad, if not an outright sin. Governments had debt, but regular people who knew better followed the adage: neither a lender nor borrower be.

Mass media has brainwashed us into thinking things are hard. The 2008 financial crisis was not that bad compared to reality of 100 years ago. The Great Depression was bad. The Irish potato famine was bad! When was the last time you heard of a famine in a developed country? It’s been a long time and for good reason. The only reason less developed countries starve is because they have not implemented the prime movers the way developed countries have. Once you use the energy resources efficiently you can move food from any part of the planet to wherever a drought or blight is affecting crops.

We live in an age of abundance like never before. We need to start acting like it. We need to feel grateful for our largess. It’s easier than ever to save a massive percentage of our income and invest it safely into index funds. You can retire early with plenty of financial wealth because you live in the most awesome time in history. All thanks to the never ending increase in energy utilization and increasing efficiency of its use.

Reference

Smil, Vaclav 2017. Energy and Civilization: A History: Cambridge, MA: The MIT Press (Pages 397 – 407 were used in the writing of this post.)

 

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?

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.

A cost segregation study can save $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. 

Square root employee?

The FIRE community has been educating the public in attaining financial independence and early retirement for a decade or so now. Whenever the topic arises it is sure to be followed by the exasperated rebuke, “We can’t all do this! Who will do the work if we all retire at 30? The economy will fail.”

The argument has a sort of logic on the surface. If everyone retired by their 30th birthday there could be a problem. A 50% savings rate could crush the economy! Right?

Or maybe not. A high national savings rate doesn’t harm the economy! The United States had a double digit savings rate in the 1950s and the economy roared. China and many other nations with vibrant economies have high savings rates. A low savings rate seems to be the real problem. In the U.S. we struggled more as our savings rate declined to its current low single digit home.

High savings rates don’t kill the economy; it provides a massive pool of ready capital to invest in infrastructure and future economic growth. No wonder our road, bridges, water and sewer works are subpar. The government decided it was good for the economy short-term to spike growth by encouraging excess consumption. As the savings rate kept declining less money was available for high speed rail and advanced internet services. And don’t even think of fully funding roads and upgrading the electric grid.

 

Price to the Rescue

Derek J. de Solla Price discovered an inverse relationship between how many people actually do most of the work in a given setting. Price discovered the square root of a group did half the work and the remaining members of the group did the other half. If you have a business with 10 employees, then 3 were doing half the work.

Here is where it gets scary. If you have 100 employees, 10 are doing half the work and 90 the other half! As an organization grows, incompetence grows exponentially while competence grows linearly! As the organization grows to 1000, thirty-two are doing half the work with 968 doing the remaining half! This is why it is so hard to grow a very large organization and keep it large.

Price’s law is visible in corporate America. In 1928 the Dow Jones Industrial Average expanded to 30 stocks. Of all the stocks on the original list, only one is still there: General Electric. The other 29 companies are either merged, bankrupt, dissolved or significantly smaller firms. Current financial difficulties at General Electric could soon remove the remaining holdout from the original Dow-Jones stocks. In less than 100 years every single one is off the list!

You don’t need as long a timescale to see Price’s law in action on the S&P 500. Of the ten largest stocks in the S&P 500, most were not on top a decade ago. Companies like Kodak, Sears, and Xerox are nowhere to be found at the top of the list, yet they were the crème de la crème at the height of the Nifty Fifty days of the early 1970s. A damning fact is the average stock in the S&P 500 spends an average of 30 years there. That’s it. Some make it longer, other less. But 30 years is all the leaders can manage on average to stay on top. This is why we buy index funds instead of individual stocks. Individual companies come and go, but as the economy keeps climbing, so does the size of the index.

 

Faulty Thinking

A quick reader might be thinking of how to game this information to her advantage. A few ground rules are in order before we get cute.

According to the U.S. Bureau of Labor Statistics, on January 1, 2016 the U.S population was 322,810,000 and 157,833,000 were in the Civilian Labor Force. You read that right. Forty-nine percent of the total population is in the labor force! As you can see, a very large number of people are not engaged in any kind of formalized labor. Children, the disabled, military personnel, incarcerated and the retired are not part of the labor force.

Running 157,833,000 through a square root calculator gives you around 12,500. At first blush we might be tempted to believe 12,500 people are doing half of all the formalized work in the U.S. with 157,820,500 doing the other half of all the work. Now you know why you’re so tired. You’re one of the 12,500!

Except it doesn’t work that way. As much as you may want to believe you’re carrying an unfair labor burden (and you might be), the truth is far more than 12,500 people are doing half the work of the country.

Price’s law works wherever there is creative productivity. It is certainly possible a mere 12,500 people are providing half the creative productivity as long as you narrowly define “creativity.” Elon Musk is a hyper productive individual. But you can’t discount the workers building the cars!

While Price’s law works wonderfully when applied to baskets scored or city sizes or a single business, it fails to adequately disclose who is productive nationally. If only 12,500 provide half the nation’s GDP there are not enough producers to have at least one productive employee per successful company.

No, the Civilian Labor Force is not “creative productivity” and therefore we should not apply Price’s law. Price’s law explains what happens within an organization. Again, if you have 10 employees, 3 are doing half the work. Thirty percent of employees are kicking out half of the company’s creative production. It could be tax returns or widgets. The percentage contributing to half the company’s production declines to 10% when staff increases to 100. The bigger the company grows the worse it gets.

The Pareto Principle appears more generous in stating 80% of results come from 20% of the inputs. In other words, 20% of employees are doing 80% of the work; 20% of clients are providing 80% of the profits; and so on. In the end Price’s law and the Pareto Principle are explaining a similar reality.

 

 

Price is Saving the FIRE Message

Back to where we started. The FIRE community message is you can save half or more of your gross income, invest in index funds and retire early, some as young as 30. And then the economy drops off a cliff and nobody is around to get the work done.

Except Price told us what we needed to know! If 30% of the people in a small business with 10 employees are doing half the work, 70% aren’t getting shit done! And business owners, tell me I didn’t just hit the nail on the head.

Square root kitty?

If so many people are unproductive it is easy to have fewer people in the work force and still get all the work done. What we need to do is train employees to be like the minority producers (the square root guys).

How can we do that? First we need to look back at our error in assuming you can apply the square root of the entire nation’s work force and conclude 12,500 people do half the work. A business can be just like the national work force. If you have one huge group within a company Price’s law is going to crush you.

But then explain companies that are large? How come some outperform for very long periods of time?

The solution is simple. By breaking a huge company into smaller groups you can increase the number of productive people. A major corporation can act and perform as nimbly as a smaller company by organizing human resources appropriately.

Of course another issue arises. If some schmuck in accounting can’t get off dead center, how will a smaller group make her more likely to increase productivity? And the answer is: it doesn’t. Merely cutting a larger group into smaller groups will not have a meaningful effect on overall productivity of the firm. Unless you organize the smaller groups to focus on specific tasks.

Large groups tend to get less done because they take on too much. By breaking tasks into smaller sizes handled by smaller groups you can unleash before unrealized creative powers. And there is an example that proves it.

 

The Richest Guy in the Room

Just as the largest companies don’t stay on top forever, neither do the wealthiest people stay on top of the Fortune 500 list of wealthiest people on the planet. The 1% churns. A lot!

Don’t get me wrong. Warren Buffett was the richest guy on the planet for a while. Now that Jeff Bezos jumped in front, Warren isn’t looking for gainful employment to put food on the table. Bill Gates was on top for a while. Back in the day Rockefeller was on top. What I’m saying is the list changes for people just like businesses.

The insight Price gave us and the understanding we have of the Pareto Principle allows us to better use our human capital. People are the most important resource. But an employee struggling in a large group is far more likely to excel in a smaller group.

You’ve experienced this yourself. You go to a conference and attend a breakout session where 10 people are in the audience. A significant percentage of the people participate by asking questions and adding additional information. If the room fills with 50 people a smaller percentage get involved. The bigger the group gets the more likely you are to keep quiet. A few step forward, but fewer than in smaller groups.

Also, productive people in one setting will be less productive in a different setting. Smaller groups only work if effort is applied into providing the right environment in the smaller group so more people become interactive producers. This is the solution to the problem presented by detractors of the FIRE community.

 

The FIRE Community was Right All Along

It is possible for people to save more and invest the difference without killing the economy. We can be just as productive as a nation, as a company, as an individual. Even more so if we apply only a small amount of effort.

Reaching financial independence at an early age does NOT harm the nation. Quite the opposite; it makes us tremendously stronger! A nation wallowing in debt loses vibrancy. So do companies and people!

Fewer people need to work when the ones who are working are more productive. The end of formalized work doesn’t mean the end of productivity. Early retirement frees times to explore new ideas. Some of those ideas are the Tesla’s of tomorrow.

Spending down household savings accounts for conspicuous consumption does provide short-term economic growth. Then again, snorting cocaine gives you a high that doesn’t last either.

FIRE is the only way.

 

 

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?

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.

A cost segregation study can save $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.