Posts Tagged ‘financial independence’

Motivational Goals

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. 

I’m 19 and Bought My First Car, Cash

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. 

3 Steps I Took to Reach Financial Independence by Age 32

Do what this man did to become a millionaire by 32, starting from nothing. This man's story of growth is moving as we went from poverty in a rural area to massive wealth in a few short years. See what he did to accumulate his massive wealth and become a millionaire.The news feeds seem to be filled with story after story of people retiring at a very young age and how they did it. Most of the stories are very similar and goal always seems to be retirement and world travel. 

But what about the rest of us who want to continue making a difference in the world and refuse to bow to hedonism? 

Most people, I think, are unhappy doing nothing for long periods of time. Travel is fun until it becomes your full-time job. 

There are the hyper performers — the Steve Jobs’, Elon Musks’ and Warren Buffetts’ of the world — who never stop working and then there are the folks we see in the news feeds looking to check out at the earliest date. 

Most folks, however, are somewhere in the middle. They want financial independence for the freedom and security, but enjoy the social and productive nature of gainful employment. These people might work a traditional job, run their own business, consult or volunteer. 

That is what this story is about: How I reached Financial Independence (FI) by age 32, defined as net worth north of $1 million, and the steps I took to get there while retaining a happy and productive life.

The finish line will not include exotic travel. Instead, I focused on what I considered important: family and community. I still run the same business I did back then and I’m married to the same woman (31 years and counting and it just keeps getting better!). I’m most proud of my successful and happy marriage, though that doesn’t seem to sell considering the number of stories on long and happy marriages in the news feeds. 

So this is my story of how I accidentally discovered I was a millionaire.

 

Humble Beginnings

I never inherited a penny in my life and if I am so blessed in the future it will make no difference in my lifestyle. Born to a poor family in the backwoods of Nowhere, Wisconsin, I learned of family and hard work from little on. When Vince Lombardi said “Winning isn’t everything; it’s the only thing”, he gave my dad the adage, “Family isn’t everything; it’s the only thing.”

And good thing, too! When you live on a farm in the middle of nowhere there are not many folks to socialize with other than family.

We never had much money growing up is what I’m saying. We always had food on the table, but I remember when I was very young my dad put a piece of plywood across two sawhorses as our kitchen table. (Well, it seemed like luxury living to me!) We were happy because the outside world had not yet crept in to educate us to how backward we were.

Somewhere in this utopia I decided I wanted to be rich some day. It was probably the outside world sneaking in and corrupting a certain accountant in the room, but I had to be receptive to be tainted.

But there was trouble in paradise. The late 1970s were a difficult time for farmers. By 1982 when I graduated high school the writing was on the wall and I was oblivious. 

Less than six months out from graduation the farm was gone. I had no skills to sell in a world not hiring. In 1982 no employer was hiring in the county I lived in. It was so bad employers no longer kept up the illusion and didn’t waste paper giving you an application. The answer was NO!

I managed to save a bit in this environment. I turned 18 with a couple thousand to my name and no debt. 

 

Budding Entrepreneur

The money I had came from a variety of sources, a common theme in my rise to FI. In high school I got up every morning to milk cows at 4 a.m. After school I started milking cows again for 4 hours. I pulled a lot of teats, folks. You might laugh at that, but you would lose that grin if you were there.

For 56 hours per week I milked cows, plus other farm chores, and was paid $40 per month for the effort. I spent nothing! Not because I was smart, but because there was no place to go to spend the money. Town was a long walk and there weren’t many stores in the closest towns.

My freshman year of high school I joined the Future Farmers of America (FFA). To raise money members of FFA sold light bulbs. (Back then we only had the incandescent bulb which burned out a lot.)

I took to selling like a duck to water. I talked to everyone in town and every farmer within a day’s drive (I might be stretching the truth a bit). And when the light bulb drive was over I had sold more light bulbs than anyone in FFA history by a very large margin. 

I could sell. That is an important trait other articles on FI don’t mention. Working a job with good wages and benefits and living a frugal lifestyle has several glaring problems.

First, you might not have a high paying job. Minimum wage is not going to get you there by age 32.

Second, you might live in a high cost area of the country. 

Third, formal education and high IQ — and EQ — also make a difference

Forth, it assumes you are in good health.

Fifth, that you never lose that high-paying job while running for FI.

I certainly wasn’t connected and let me be honest here. I, ah, ahem, don’t have a college degree either. {cough} 

You heard me! I did take some college courses, but not enough credits or the right combination for even an Associates. And here I am with my enrolled agent license (the EA is a licence, not a degree) teaching other tax professionals and hiring highly educated people, some of whom have moved on and work for the IRS now.

Not being the smartest guy in the room or with the right education (or pedigree, I might add), I wasn’t on anyone’s radar as Most Likely to Succeed. So what did I do to reach FI so young?

 

3 Steps to Financial Freedom

From graduation day to my 22nd birthday I put those selling skills to work and managed to accumulate a $200,000 nest egg. And remember, this was back in 1986 when $200,000 was serious money. A $10 an hour job was good money in those days. (And I walked up hill to school (both ways) in snow all year around. Just sayin’.)

FFA decided to expand their light bulb fundraising to include garden seeds. There were no records to break as it was the first year offered. Needless to say, I sold a lot of seeds too. (Would you like some light bulbs with those seeds, sir?)

Ditch the job and start living. No more daily grind for the man. Instead, use these 3 steps you build your fortune. #retirement #job #finance #work #wealth I bowed out of selling for the school my junior year and started selling imported goods wholesale to retailers (and anyone else who would buy). I got my supply from a company called Specialty Merchandising Corporation (SMC). Oh yeah, those were the days. And, oh what a lesson I learned.

You see, people will buy over-priced cookies from young girls when it feeds corporate headquarters of a non-profit. But start selling stuff to line your own pocket and the number of “yeses” to “nos” changes radically!

So I improved my skill sets.

By the time I reached the age of majority I accumulated more experience than wealth. Sure, I had some money, but I wasn’t flush. The family farm was gone and that avenue of gainful employment with it.

I worked a short time in my dad’s agricultural repair business. It was tough sledding for dad back then, too. He’s doing well now, but in 1982 it wasn’t a pretty sight.

While working for dad earning a meager wage (money was preserved to pay other employees and to get the business profitable enough to feed a family of four) I worked 80 or more hours per week (record week on the job: 122 hours). I supplemented my income preparing taxes in the winter months. 

Before we knit our eyebrows in dad’s direction, understand it was survival back then. I worked long hours 7 to 9 months of the year (depending on the weather); January and February were light so I had time to prepare taxes. Late May got really busy and for the rest of summer and autumn. So I could earn more in a few months doing 50 or so tax returns than I could working day and night the rest of the year.

To be fair, dad paid me $40 per week, if memory serves, and later, $100 per week. (After I got a raise I quit. Ungrateful kid.)

Readers quick at math will realize this doesn’t add up to $200,000 in 4 years. And that is where we begin our journey of Steps to FI:

 

Step 1:

Unless you make a lot of money at your traditional job you will need multiple sources of income

Let’s count where all my money came from. 1.) Dad was paying me $160 a month, 2.) I was still selling SMC and profits were growing, 3.) I was preparing a small number of tax returns with virtually no expenses (gross margins approached 100%!) and, 4.) interest and dividends.

Interest rates were sky high in the early 1980s. Passbook savings accounts (remember those) paid a minimum of 5%, but most bank products yielded near or over 10%.

While bank interest was guaranteed and the rates mouth-watering, I decided I wanted to own a piece of America by owning stocks. I fondly remember one of my first purchases, a company called, ah, what was that now, oh, Phillip Morris (MO). And I owned a piece of Wrigley, too, until Warren Buffett screwed it up by funding the buyout of Wriggly by Mars, Incorporated for cash. 

I still own those shares of Big MO, now called Altria. The dividends were and are a growing part of my income and don’t think for a moment I didn’t realized the value of getting paid for not working; just for own a piece of a business.

I can’t stress enough how important it is to have more than one source of income. If all your income sources are in one basket and that basket withers you are screwed. You might put all your eggs in one basket with a business since each client is a separate income stream, but relying on one traditional job as your only financial resource is problematic. A simple layoff can destroy all your plans.

 

Step 2:

A few years later I got it in my head I would invest in real estate (RE) and go full-time as a tax professional. SMC died on the vine as I focused on building my practice and managing my RE investments.

Which leads to the second step I took toward FI: I owned income producing things (RE and the business) that I had a reasonable amount of control over. 

A job can disappear just like that through no fault of your own. The company can go belly up, the economy can slow, or your job gets outsourced.

Business and real estate have plenty of risk, but it was risk I could control. The Tax Code is never going away and when people try to stop paying less in tax I’m in trouble. Until then I’m golden. 

RE is also risky and comes with a mortgage to increase the incentive to get those units rented. Doing proper research before buying and joining your local apartment association (as I did) and applying some sweat equity increases your chances of success.

I used Step 1 above in RE as well. One vacant unit, if that is all you own, is a 100% vacancy rate. I bought several properties fairly quickly because I knew a few vacancies would only be a nuisance then rather than a catastrophe. 

I worked hard at my businesses. There was no free ride for this backwoods boy. Sometimes it hurt, a lot. There were times I didn’t know what to do. But I never stopped learning and never backed away from labor: manual or desk work.

In Step 2 I structured several income streams into something I had at least some control over.

 

Step 3:

You would think after my business was profitable and the rentals started throwing off reasonable income I could lean back and enjoy the ride. And if you think that you are wrong!

Retire early with these 3 steps used by a wealthy accountant to retire at 32. Early retirement can happen if you follow the simple steps this man used. #FIRE #financiallindependence #money #wealth #earlyretirement Before it was made popular by the tech industry, I always pushed my business into new territory. My goal was to create the company that would replace my business before competitors do.

I was the first in my community to offer free electronic filing. That might not seem like much now, but back then it caused my tax practice to grow explosively. When Wisconsin offered e-filing I was first on the list because the state knew I offered it for free and had no fraud cases. In other words, I could offer State of Wisconsin e-filing in my Wisconsin community for free before competitors could even offer the service. By the time e-filing was rolled out for all I had a commanding lead.

I also sold life insurance in the business for a while. I was never big on traditional life insurance, but key-man and for buy-sell agreements it made sense.

I was also a stock broker for a number of years before I realized I’m a tax guy first and hawking high-fee investments rubbed me wrong.

You can read this blog and see example after example of things I tried. Some ideas worked great; others I’d rather not mention (but share anyway so you benefit from my experience). 

And that is Step 3: Try an idea. If it doesn’t work, step back and reevaluate, then try again until it works. Never over-commit. Test small before jumping in with both feet. You don’t want to do something that destroys what you’ve built to-date. Once you determine you have a winner you can expand. Remember, most ideas don’t work! Trying a lot of ideas to see what works best before committing serious resources is a better way to reach FI at a young age.

 

Accidentally Get Rich

Of course, you need to avoid debt as much as possible and pay it down quickly when it arrives. You also must spend less than you earn if you are ever to build real wealth. You’ve heard it all before. It’s really simple. Spend less than your earn; invest in index funds; wait. If you want faster you better be good at sales or business; preferably both.

And this is where it gets interesting and how I discovered I blew past a $1 million net worth without even knowing it!

From age 22 to 32 a lot happened. My business grew and I got married. (Marriage brings in additional considerations.) Mrs. Accountant was open-minded, allowing me to funnel excess cash into investments rather than a higher lifestyle. I went from around $200,000 in cash to $1.2 million.

Remember the real estate investments I had? Well, eventually my dad, brother and I started a partnership with one-third ownership each. We bought a lot more properties. 

The bank that funded our RE holdings required we provide a personal financial statement every year or so even if we were not borrowing more money.

So I sat down to figure out what I was worth. I valued all RE holdings at what we paid for them rather than what I thought they were worth minus mortgages. I added retirement and non-qualified accounts. I valued my tax practice at zero and the practice had no debt (I only had real estate debt at the time).

As I added the values of all the accounts it started to dawn on me I might be a millionaire. I had a good idea what my share of the mortgages were and the assets were climbing too far above $1 million to drop below that level once mortgages were subtracted. 

When I struck the double lines below the bottom number it was clear I surpassed $1 million by a large enough margin to say I was a millionaire. 

Mrs. Accountant was in the dining room clipping coupons. I shared the good news. All she said was, “That’s nice,” and kept clipping coupons.

You see, I was more important to her than any amount of money. She lives frugally as I do and enjoys every day we are together. She saw, better than I, what was really important.

It was a let down in so many ways. Mrs. Accountant wasn’t excited about the money! I didn’t feel different either. I missed the big day when I crossed that magical seven-figure number. There was no bump or turbulence to indicate I crossed into another zone of existence. In reality nothing had changed; only my mindset.

Once I digested that it was only a number I decided to do what I always did. I tried lots more things, grew my business and expand my sources of income, much of it passive.

You see, I learned the most important step of all: It’s the journey that matters, not the destination. And I had the best mate in the world along for the ride.

It was that day when I was a 32 year old man that I learned to live life for the first time. Live, for Real. 

And I discovered I was always wealthy as long as I had my family.

 

 

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. 

Do You Need an Investment Adviser/Financial Planner?

Your personality determines your investment success. Understanding your relationship with money can make the difference between outstanding and sub-par results.

Your personality determines your investment success. Understanding your relationship with money can make the difference between outstanding and sub-par results.

Once again we see the market throwing a temper tantrum. On the way up it was tempting to handle your investments on your own. Now with the horizon less clear and a modest correction in the books as I write, you wonder if professional help might be worth the extra expense.

Those most knowledgeable about money resist the advice of commissioned (or fee-based) professionals. As everyone know, fees have serious consequences over long periods of time. The lower the fees the more you’ll have 10 years down the road.

But when the market gets schizophrenic confidence in one’s abilities declines. Worse, you can make serious mistakes well in excess of what you would pay a financial professional.

The stereotypical financial planner or investment adviser is history. Commission based compensation still exists but on a much more limited scale as fee-based planning has taken over, hitching the client’s performance to the adviser’s income. Annual fees typically run around 1% of assets per year. While this fee is lower than many mutual fund expense ratios from decades ago, 1% annually starts to add up. And remember, you not only lose the 1% fee, but all the future gains that 1% would have earned.

Readers of this blog generally forgo advisers since they are well versed in the details of money management. Some readers apologize when they call me for a consulting session as they pay investment management fees to an adviser. It doesn’t bother me if you use an adviser because there are good reasons to hire an adviser which we’ll cover shortly.

Normally people in the FI (financial independence) community would want to pass on an article suggesting you might benefit from a financial adviser. This should be the exception. After careful consideration I decided to share 3 reasons a financial adviser could be a good idea for you.

Actually, I personally believe there is only one true duty of a financial professional. Don’t cheat and skip ahead. There are other minor duties a financial planner should provide should you decide to hire one.

Broken Confidence

Before we begin I want to share why I’m writing this post. This blog has a presence on several social media platforms. I also follow several groups and pages in the genre on Facebook. Recently a few people confessed they were willing to sell because the pain was too great since they lost maybe 10% or so of their portfolio value from the market top a few months back.

This confused me since these same people exuded tremendous confidence in their personal investing habits without the help of a professional. How could a run-of-the-mill correction have people screaming? How would they react in a real down market? A bear market?

Further digging showed many were investing in individual stocks such as Apple, which is down is bit more than the broad market averages.

Of course selling after the decline is in full swing is rarely a good idea. The time to sell is when the market is up, not after it drops 10% – 25%.

People comfortable spending less than they earn and investing the difference consistently do fine when the market is climbing. But when the ride gets bumpy or a bear market growls loud, these same people consider making the largest mistake of their financial life: selling at a market low.

I see this whip-sawing with clients all the time. It breaks my heart to see a client bust her tail to build a sizable nest egg only to lose money in one impetuous panic trade.

And that is where professional help comes in. While fees are always a concern since we know it hurts long-term performance, we need to weight the costs against real world results.

So here are the 3 things a financial planner or investment adviser must do to earn your business:

3. Asset Allocation

Index funds get all the press, but index funds are not the answer to every problem. (Have halitosis? A healthy dose of a Vanguard index fund will clear that right up! If only.)

Index funds are an important part of almost every financial plan. A financial professional should help you (or keep looking until you find one who does) determine how much should be in bonds, equities and cash. (If the adviser recommends Bitcoin, commodities, options, or other esoteric investments, especially if commission based, run like the wind while you still have a chance. And hold your wallet tight as you run!)

A financial planner should understand you and your goals with consideration for your investment temperament. The only investment that works is one you stick with. Here are the tricks financial professionals use to win the money game.

A financial planner should understand you and your goals with consideration for your investment temperament. The only investment that works is one you stick with. Here are the tricks financial professionals use to win the money game.

My personal portfolio has very few bonds. I certainly don’t follow the traditional investment philosophy of subtracting your age from 100 and having that much in bonds, or some such advice. (Yeah, I know I mangled that. The point is I don’t follow traditional investing advice.)

This brings up an interesting point. Your portfolio will look different from mine even if we are exactly the same age, in the same health, and have the same amount of money! The reason is that your personality will be different from mine. I’m willing to ride out any storm (for real!) while you might lose sleep at night if your investment/s decline temporarily.

When the market drops I start licking my chops. Where some people get scared and want to sell to protect from additional declines, I’m thinking about—and usually carrying out—purchases of more shares of companies or index funds.

Down markets are where the real money is made! The same applies to an individual stock if it is a quality company in most cases. (Apple is down hard recently and may drop more. I added a small amount to my portfolio and if the decline continues I’ll add more. Apple is a well run company with superb management. Temporary setbacks are part of investing and usually a time to invest in more shares of great companies and always a good time to buy broad-based index funds.)

A good adviser/planner will help you build a portfolio that allows you to sleep at night. For some it might be all cash, ie. bank deposits. (I actually have a neighbor who has it all in the bank and is happy as a clam in his retirement. He sleeps at night! No index fund gains would be worth the loss of security to him so it is the right thing to do. . .  for him.)

2. Goals

The financial professional is more than a product pusher. The professional will know his client (that’s you) before making any recommendations. If an adviser prescribes before diagnosis, walk. Keep looking until you find an adviser who wants to work for you.

Investing isn’t about “more money”. Well, not completely, at least.

Investing needs a reason, a purpose, for it to be something you’ll be consistent with. Financial independence can be a solid goal since once you reach FI it opens your view to the horizon rather than working a job because you must. You may stay working in your current environment if you enjoy the work after reaching FI. There is nothing wrong with that! You might want to start a business or explore an idea. That is good, as well, as that is where all progress comes from.

Early retirement is an honorable goal. So is building a nest egg so you can work less and spend more time with family is a goal that motivates. Growing your portfolio to leave an adequate legacy is also an important consideration. So is growing your portfolio so you have the resources to fund philanthropic causes dear to your heart.

Goals are endless. An adviser or planner must be willing to listen to your goals, even help you formulate clear financial goals that will serve your needs.

Often times we don’t even know what we want. Just wanting more money isn’t reason enough! With only a vague, undefined goal, that SUV looks mighty tempting fast. Only goals you fully subscribe to will keep you on course and fill you with joy.

So, advisers and planners need to understand who you are and what makes you tick and work with you to discover your real financial life goals. It might sound like a detailed job; it is.

When I work with clients I practically give them a tax and financial proctology exam. You might be laughing now over my choice of words, but I’m dead serious. I need to know my client when dealing only with taxes. My advise is based on what I discover about my client and her goals. If it’s important with taxes; it’s tremendously more important when it involves your financial plan.

1. Panic and Greed

Two very important traits a financial adviser must have before you work with them is they must understand who you are and how it affects your asset allocation and a determination to help you reach your financial goals. But those traits are nothing compared to what I consider the only true value a financial professional has: dealing with your emotions: fear and greed.

It might seem like a total waste of money to pay a financial planner 1% of your portfolio annually when all the money is tucked safely into index funds. The whole low-cost benefit of index funds is partly removed with the advisory fee. So how can it be worth it to hire a professional for such a simple (and appropriate, I might add) investment portfolio?

On the surface the fees might seem like a waste until you remember how we entered this post: people freaking out on social media over a mild market correction.

If a 10% correction has you running for cover you made the wrong investment! Or at least you didn’t adequately prepare yourself for the reality of your investment choices.

Do you have the right financial plan? The right investment adviser can help you create, set up and implement the appropriate investment strategy for success and then work with you to stay the course.

Do you have the right financial plan? The right investment adviser can help you create, set up and implement the appropriate investment strategy for success and then work with you to stay the course.

And this isn’t a blame game either. Most people have no idea how risk adverse they are until the proverbial manure starts hitting the fan. Then Katy-bar the door, boys. It’s about to get real.

And for this reason a financial professional can earn her keep.

People who build a large portfolio do so by ignoring short-term market moves. It’s easier said than done. Most people need a steady hand to see them through. Enter the investment adviser/financial planner.

If the current market volatility concerns you then you either made the wrong investments for your personality or you need a professional to smooth the emotional peaks and valleys, maybe both.

The same applies to bull markets. If you’re tempted to use margin (borrowed money) when the market is hot you need a professional to talk you down.

My decades of experience makes it clear to me many people need professional help with their money. Everyone wants to go it alone because we all think we’re smarter than we really are, and as the market rises (as it usually does) it masks our deficiencies. Blue skies lull us into a false sense of security. Then the storm arises.

If you are considering a financial professional after reading this then I want you to do it right. Interview several financial professionals. If they aren’t interested in you, really want to know and understand you, move on. The adviser you hire (you’re paying them so you are hiring them so they darn well better do their job!) must take an interest in your goals. In fact, they should naturally gravitate toward questions bent to learn about you and what most motivates you.

Make it clear to any adviser you consider that you want a steady hand, not exotic investments. She must help you deal with the emotions in a down market so you don’t crush your financial dreams with impetuous trades; she must hone your desire to take a flyer when the world is getting rich in FAANG stocks.

A good adviser does those kinds of thing because they are responsible and looking out for you, her client. Anything less and you’re better off with the security of a bank.

A Parting Story

The mid and late 1980s were an incredible time to be invested. A long-time client with experience managing his own money added religiously to his portfolio. From 1982 to 1992 the market churned out an annual return well into the double digits. It was a good time to be invested in equity mutual funds.

During this decade my client invested in Fidelity’s Magellan Fund. During a good portion of this investment period the legendary Peter Lynch managed Magellan. Returns were in nose-bleed territory.

My client was a steady investing hand. An up market didn’t turn him greedy. He added funds steadily as he earned them.

Mild downturns were also okay for my client. But the 1987 stock market crash turned him into a sleep-deprived zombie. He couldn’t take the market volatility so he sold. At the bottom! Then the market recovered and blue skies returned so he moved back into Magellan.

Then in 1990 the market once again declined. Not nearly as bad as 1987, but enough to shake our good friend. As you may have guessed, he sold. A short while later when the market returned to new highs he felt safe enough to push all his money back into Magellan.

During this period the Magellan Fund was up an over 20% per year on average if you never sold. Our hero managed a measly 2% because he sold twice in decade out of fear, less than money market funds would have earned back then. Our hero went from mouth-watering investment returns to performing worse than money market funds over two stupid decisions.

Moral of the story: It only takes one or two stupid investing mistakes to sabotage your financial goals.

Now be honest: Do you need a financial professional to see you through the storm clouds?

Now for the bad news. If you do, they are as hard to find as a good under-priced stock.

Good luck.

 

 

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. 

 

Planning a Spending Fast

A spending fast is as vital as a food fast, rejuvenating your financial muscles. Personal finance and financial independence require a spending fast. #spendingfast #spending #personlfinance #earlyretirementFasting is a refreshing way to reset your body’s internal regulation. The benefits of fasting include weight loss and energy gain. Intermittent fasting can give you the same benefits of longer term fasting without shocking your body so hard.

Fasting is necessary for most people due to awful eating habits. Processed foods and sweeteners wear the body down, requiring a fast to cleanse the toxins out. Periodic long-term (multiple day) fasts are punctuated by several shorter fasts. Continuous intermittent fasting can train your body to burn fat while reducing cravings and increasing energy.

Bad habits are solved with a reset. You start small so success is higher. Starting with a four-day or longer fast is certain to end in failure for all but the most determined. The longer fasts also require medical supervision. Starting with intermittent fasting or a one-day fast makes a lot of sense. The timeframe is reasonable and most people can stick with it, therefore, the benefits are received.

As much as the body needs cleansing, so do your financial habits. Spending fasts have been around as long as money. Spending fasts were a natural part of money management until modern times where spending opportunities are everywhere.

Mass media and opportunities to spend at every corner (and most spots in between) encourage the growth of terrible spending habits. Left unchecked, these habits will be a cancer on your financial life. Dreams of financial independence and early retirement will burn with the bad habits. The natural cure is a spending fast and you don’t even need a doctor’s note.

Ground Rules

Like regular fasting, a spending fast has different levels of commitment. The idea is to start small, building your financial muscles before advancing to the next level. As your financial skills increase, you can engage in some truly historical spending fasts. And the good news is you get to keep all the money.

Before we begin I must point out spending fasts are not about frugality or cutting spending. The fast is designed to train you mentally and socially to live a normal life without money as part of every step. Enjoying a walk in the park with a significant other is an awesome and free experience. You can leave the wallet at home. Another lesson to learn is to walk out of a retail store without buying anything (or stealing it) if the item you were looking for wasn’t available. Shopping for the sake of finding a “good deal” is the mother of poverty.

I will outline 5 spending fasts starting with a simple financial purge all the way to the hardcore. I recommend starting small and working up. If you never manage a Level 5 Spending Fast in your life you are still a good person! Not everyone can handle a dietary fast of a week. Most will never manage it. Your health may not allow. The same applies to money. Anyone can manage the first few lower levels, but struggle as they approach the highest level. You may not want to attempt Level 5 in the same way you may never attempt to go without eating for a full week. It’s okay. Each spending fast level will help you recharge your financial muscles worn out by the constant bombardment from mass media. All fast levels are beneficial!

Also, use common sense. Turning off the heat in January in northern Minnesota is not a spending fast; it’s stupid. The idea of the fast is learn money doesn’t buy everything, even the most important things. Your geographic location will determine additional rules from those presented here. Safety first! If you require medication, you follow doctor’s orders. Don’t do anything that risks your health or that of your family or anyone else. Got it? Good.

Let’s get started.

Level 1: The Starter Fast

Breakfast (break the fast) is so named because it is the first meal of the day after not eating since dinnertime, 12 or more hours in the past. Technically you engaged in a mini-fast every day.

A spending fast doesn't have to be a lonely road. Discover all you're missing when you put your credit card down. #spendingfast #spending #creditcard #frugal livingYour starter fast should be just as simple. Brown bag lunch to work. Better yet, leave your money at home one day per week. Driving is still technically spending, but you will plan ahead and avoid the need to buy gas the day of your fast.

The Starter Fast is short-term and in most cases less than a day. You need identification and/or driver’s license when driving or away from home, but cash, credit/debit cards and the checkbook stay at home. You can still pay regular bills as always. The light bill still gets paid. The idea is to strengthen your financial legs; learning to say no to minor spending habits. The first step is to stop spending at least a few days a month at work. No office pools, dining out or other crazy spending that takes place where you work. Work can be darn expensive and it destroys your financial goals! Your work should support your dreams and goals, not suck the financial life out of you.

Level 2: Serious Spending Fast

Level 1 is the training wheels level. Everyone should practice Level 1 fasting often, in fact, virtually every day.

From this level on we will engage in a full day or longer spending fast. At Level 2 you are allowed to plan ahead. Fill the car with gas beforehand. Stock up on staples to take you through the fast. Your habits will not change much yet at this level. The cable is still ticking away; so is the electric bill. You pay those bills timely; late fees are considered spending at this level and are punished with a stern look. Your spending fast at this level is more a shuffling of expenses. Gas is paid for before and after the fast, but the consumption is still the same. The real benefit is avoiding foolish spending. Lunch at work comes from the home fridge. No tavern detour on the way home from the office. Office coffee instead of a Starbucks detour

Level 2 can start at a full 24 hours and move up. Try one day where no spending is allowed for a full day. This is more than just a “leave your money at home when you go to work” plan. Online shopping is not allowed. Money is stripped from your daily lifestyle. Now is a good time to see what’s hidden at the bottom of the freezer. Past spending will fuel your daily needs. If you run out of something, you find a substitute or do without. The exception is safety related issues. Medicine is still purchased if necessary. If injury requires medical treatment you get said treatment. Yes, it’s spending, but this program is to teach financial skills, not harm you.

Once you start building your financial muscle, work from one day to two, then three, until you can handle an entire week spending fast, including weekends. Yes, even at Level 2 the challenge starts to make the muscles sore. That only means its working. Once you can do a week at Level 2 it’s time to move to Level 3.

Level 3: The Power Fast

Now we get serious. Once again we start at a single 24-hour period and move up to a week or longer. Pre-paying for certain items isn’t allowed. For example, driving the car is an expense regardless when you fill the tank so biking or walking to work is the only option.

Ideally, you want this fast to go for several days. The light bill and cable will still operate, but most everything else will require consuming only what you have at hand. The fridge and freezer will be your food supply. The rent or mortgage payment of course still get paid; the same with other debt. In fact, since you are spending on nothing else it might be a good idea to bury that money in debt reduction. Most people at this level will not have debt so the money will go to the First National Bank of Wallet, aka, your index fund. Saving isn’t spending; neither is paying off debt. Interest accumulating on debt is spending so I recommend taking an ax to it.

Level 3 is a lifestyle change. At this level you will start to learn how to live without money. Money becomes a tool only, instead of a means of distracting you from life. Acceptable spending is limited to minor recurring bills like utilities (phone, light, heat, Netflix).

Level 4: The Lifestyle Fast

Remember all the stuff you didn’t buy in Level 3? Well, I bet you found a way around the spending problem by shifting it to somebody else.

At Level 4 you are not allowed to accept spending from others. You might have accepted a meal from a co-worker as a work-around. If the weather was hot you might have used that as an excuse to enjoy air conditioning in a public building. Shifted spending ends now! The shifted spending mindset is the same one that tells you to steal all the soap from your hotel room, justifying the action by claiming it’s a minor thing. Unfortunately you are stealing and it is a form of shifted spending we don’t tolerate around here. Getting someone else to foot the bill is still spending! All you’ve done is shift your spend thrifty ways to somebody else’s pocketbook. Good friend you are.

Plan your spending fast the right way and start living the good life. Control your finance; control your future. #spendingfast #frugal #frugalliving #freedom #money #moneyfreedonOnly the barest of necessities are allowed at this level. If you truly emptied all food sources in the house you may consider (I said consider) buying the most basic of food. This will be the healthiest and most basic stuff. I’m talking lentil soup folks. Maybe beans, the ones you soak all night and simmer all the next day. You’ll live.

The ultimate goal is to power through a month at Level 4. I encourage multiple food fasts at the same time. This is about living life at its most basic, where the real living takes place.

Level 5: The Insanity Spending Fast

This level is so diabolical my fingers are bleeding as I type. Level 5 requires a minimum of one week and ideally a full month. And everything goes.

Cable and Netflix are gone and unless your local climate doesn’t allow, you pop the main breaker to the house. No heat, air conditioning or electricity. This is brutal! Electricity is the ultimate shifting of spending. Electricity is cheap and versatile. For this fast you will learn to live in harmony with nature rather than forcing the world to your demands on the back of energy resources.

Once again, if your climate or health doesn’t allow for such extreme fasting, then don’t do it. You still need to take and fill prescriptions. If it’s well below freezing you still need to heat the house to above freezing. Broken pipes are spending! But don’t use climate as an excuse for your minor discomfort. A cool house (or humid and warm in the summer months) is no excuse to fudge on the fast. Beginners might want to plan this spending fast around a time of year where they experience the least discomfort and where utilities are least needed.

In addition to the fasting from Level 4, you will need to adjust to nature. When the sun goes down; you go down. Artificial lighting has given us a false sense of reality. This fast will break that illusion. Without electricity, TV and the computer will no longer occupy a large part of your day. You will rediscover library books and books from your personal library. You’ll also rediscover the lost art of communicating with neighbors and friends. If you have a significant other she will buck this fasting idea you have until she discovers you pay more attention to her. Real, undivided attention. It’s not a brave new world, just the one that existed from the beginning of time until the advent of modern society a hundred or so years ago.

Recap

A final recap of each fasting level is in order.

Level 1:

  • A simple short-term fast similar to intermittent fasting
  • This is more a “leave your money at home” fast for the workday.
  • Most spending is still allowed.
  • Driving to work is allowed; the stop on the way for Starbucks coffee is out. Drink office coffee. You will not die.

Level 2:

  • The minimum is one-day for this fast and ideally a week or more is needed.
  • Fill the car and stock the fridge because when it’s gone it’s gone.
  • Medical is always allowed since we practice safety first.
  • You still have Netflix and/or cable to entertain you.
  • No stops at the tavern on the way home from work.
  • You can accept gifts that are disguised as spending (co-worker buy lunch) if you must.

Level 3:

  • Stockpiling is out except for food for home preparation.
  • Burning gas still in the tank is de facto spending so walking or biking to work is your only option.
  • You always pay the rent and mortgage because late fees and penalties are spending. You also still pay your taxes on time since interest and penalties are once again spending.
  • You are encouraged to use the extra money you’re not spending to reduce and/or eliminate debt. If no debt, then invest in your index funds. Investing isn’t spending.

Level 4:

  • Level 3 is still in effect.
  • Shifting spending is out. Someone else spending on you is shifting your consumptions habits to others. How rude!
  • Basic, simple, nutritious food only is allowed. Stock piling doesn’t help at this level. Lentil soup and other simple and healthy fare is your diet during this spending fast.
  • You are reaching Stoic levels.

Level 5:

  • Level 3 and 4 restrictions still apply.
  • Cable and Netflix are out.
  • If climate and health allow, pop the circuit breaker for the house. Electricity is still spending.
  • Ideally you want at least a week to a month for this fast.
  • Learn to live in harmony with the environment.
  • Read more.
  • Spend real, quality time with friends, family and loved ones. Spend real deep emotional time with your significant other. Without the distractions of modern life she will be the center of your world. I bet you’ll love what you find.

There is still one unmentioned level: Level 6. I’m numb just thinking about it. If you think you are ready for an even more rejuvenating spending fast you’ll have to take lessons from this guy.

 

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. 

 

CAMP ACCOUNTANT HAS ARRIVED!!!

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.

Create Your Own Basic Income

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. 

Financial Independence is Getting Easier Every Year

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.