I bet you thought I had abandoned my beloved FIRE series. Not so my friends! Today I’m delighted to bring another post to the series from The Happy Philosopher. Our philosopher is also a doctor who faced down the burn out beast and turned to FIRE as his solution. Now he works part time, is a dad, and has re-discovered a love for life.
What I dig about this website is that there is such an emphasis on life beyond the numbers. I love talking about money, but there is a whole world beyond it. The Happy Philosopher talks about how money impacts life, not just how to get to FI. So let’s learn about his FIRE journey!
What can you tell us about your FIRE journey?
I went through a period of burnout from my job several years ago and turned to the internet for answers. Looking into early retirement lead me to sites like Early Retirement Extreme and Mr. Money Moustache where I discovered that not only was FIRE possible, but ridiculously easy for someone earning a high income like myself. In fact, I was completely bewildered why anyone would work in a job they didn’t like much past age 40 if their income was at least above average. I unplugged myself from the Matrix and never looked back.
When did you reach FIRE?
I have a high degree of financial independence, but I’m not retired yet.
Will you have any streams of income in FIRE or solely just your savings?
If I do it will be completely accidental. I plan on living off of savings and investments.
-If just savings/investments, please describe why you’ve chosen that and how you decided to forgo passive income.
I’m a physician, and like almost all physicians there are few things I can do to make money as efficiently as I do now without either taking a lot of risk or spending a lot of time building the income stream. Now that I am the superhero known as The Happy Philosopher I will only spend my time on things that are necessary or fun (like blogging!). If I make a little money after I retire from medicine from writing, consulting, etc. it will be a side effect of having fun.
What is the single most important step someone looking to reach FIRE can take?
Build the habits of wealth accumulation and take action. Spend less than you earn and wisely invest the difference. It is really quite simple when boiled down to its core, but often people do not take action. They know what to do. They read books and blogs but they just don’t implement the ideas. They put them off until tomorrow. They complain about not being able to save enough for retirement while sipping $10 cocktails.
What have been some valuable tools you’ve used on the road to FIRE?
Honestly, the best ‘tools’ for me were people blogging about their FIRE experiences. With a high income the tactics of saving a few dollars here and there are almost meaningless. It’s avoiding the big mistakes and hedonic adaption that can easily creep in, and this is a philosophy problem. It can’t be solved with tools. Seeing people way more frugal and awesome than me gave me the permission to follow through on the path that deep down I knew was right for me.
Any recommendations for sources of FIRE info?
There are sooooo many good resources out there, so I will focus only on a few. First, for my top books I will refer your readers to my short book list. The two I would recommend for FIRE are Your Money or Your Life and How I Found Freedom in an Unfree World. Both books are really about changing your philosophy with respect to time, money and freedom. Everyone reading this probably already knows about Mr. Money Moustache, but just in case definitely check his blog out – it is the mothership of FIRE blogs. There are really too many other blogs to list. On my Facebook page I try and keep a list of blogs I like, many of which are in the FIRE space directly or indirectly. My favorite podcast is the Tim Ferriss Show which will send you down many interesting rabbit holes of self-improvement. I also like Radical Personal Finance podcast for out of the box thinking.
How did you formulate your FIRE plan?
I was actually on the path to early financial independence without actually knowing it. Learning the mathematics behind it (like fully understanding the 4% rule, tax, social security and insurance planning) just made it tangible. I actually didn’t really change my spending all that much as we were pretty frugal relative to others in our income levels, but what I did do was realign my spending with my values. The top line numbers didn’t change, but the allocation to what I was spending my money on did.
What tools did you use/do you use now?
You know, I don’t really have any special tools or programs. I don’t budget, but I do loosely track spending each year. As long as things make sense within reason I don’t dig into the data. I know this is considered blasphemy in the FIRE community so hopefully I don’t lose too much credibility!
What was the biggest mistake you made just starting out? And conversely, what was the best thing you did early on?
My biggest mistakes and the best thing I did are actually both the same. I started the habit of paying myself first and investing quite early (good), but was doing a spectacularly bad job of actually making money on my investments. I lost a lot of money investing in internet and tech stocks in the late 1990s. I chased mutual funds with high fees. I bought individual stocks after reading something or hearing a stock tip. I basically did everything wrong. Fortunately when the dollar amounts increased so did my investing wisdom. I made most of my mistakes while I was younger and the dollar amounts were small.
Where do you keep your investments and how did you choose?
I am invested mostly with index funds like Vangaurd and DFA. These were chosen primarily due to the low cost structure of these funds.
What kind of investing should newbies be looking into or do you personally recommend?
This is a tough question because investing can mean so many things; paper assets, real estate or a business. I would say the biggest investment you can make when you are starting out is in yourself. Increase your financial intelligence by reading as many books and blogs as you can. Next invest in your mental and physical health so you have the stamina and longevity to achieve your financial goals. Your biggest financial asset is you.
What kind of accounts do you fund?
IRA’s, 401k, 529s, nonqualified account and a HSA (Health savings account).
What is your annual savings rate?
It changes each year as my income changes, but after I finished fellowship and residency my savings rate has always been over 50%. For someone seeking FIRE 50% should be the minimum savings rate.
I’m a low-income earner, at 35K a year. How would you approach FIRE on that income?
The math is very simple: Spend less or make more. I would seek to increase that income through changing jobs, promotions or side hustles. I would seek to push frugality to its limit. It is the ratio of income to spending that matters. The biggest expenses most people have are housing, transportation, and food. I would seek to minimize all of these costs very aggressively.
Also, the lower your hourly wage is, the more valuable a side hustle becomes. If you make $400 an hour vs. $20 an hour this may change whether or not you should invest 100 hours per year managing and looking for real estate deals, etc. The $400 per hour attorney should probably spend her time billing a few more hours a month rather than starting a dog walking service on the weekends (unless she really loves walking dogs of course!)
How did you calculate your FIRE money needs? Which tools are best to do so?
Back of the napkin calculations using the 4% rule as a guide. Again, I’m not a tool guy, I’m a philosopher
Actually, I do track my spending and have a pretty good idea what we will be spending in retirement. In reality I use something closer to the 3.5% rule to hedge against financial disasters.
What money tips would you tell your 27 year old self?
Think about each purchase. Most of the crap you buy will bring you no happiness and just end up in a landfill, and ultimately will delay your date with freedom.
How do you deal with market dips that take away big chunks of your savings?
Well, I’m not retired yet so market volatility has not affected my cash flow. Using 3.5% SWR I feel like I wouldn’t have to worry too much about it. Also because my life is ridiculously luxurious by any reasonable global standard I could cut back a lot on spending and still be perfectly happy.
Do you have a back-up plan?
Always. I think we should build systems in our lives that are resilient and that function in a wide range of possible outcomes. I am assuming I will not collect social security, not receive any kind of inheritance, and never earn another nickel after I retire. It is unlikely that all three of these things will come true. My backup plan is really my plan, save a little more than I think I need and hope that I’m pleasantly surprised.
Does any of your advice change for those on one income right now, as opposed to a couple?
Not really, although adding two personalities into the mix complicates things a bit. People want different things in life, and it is unlikely two people will be perfectly aligned on money issues. I would add this advice: talk about money, goals and values early and often in the relationship and come to a common place that both people can accept.
IF you have children- how will that affect your lifestyle when you reach FIRE? What does it mean for your savings goals now? (I always like hearing about healthcare in FIRE- what does FIRE mean for your kid’s healthcare?)
There are several issues here. First, one of the reasons I sought FIRE was because of my kids. I wanted to be home more while they were still young and living at home. I ultimately decided to work half-time, and my kids were a big reason for this. I am saving a bit for their college education should they decide to go, but it will not affect my FIRE date or lifestyle that much.
I’m not concerned about my kids’ healthcare in my retirement, but I am concerned about MY health care in retirement. Major medical disasters can be financially brutal, even with insurance, and I struggle with how to appropriately hedge against it in retirement. Nobody worries about this in their 20s and 30s, but in your 40’s and 50’s, bad stuff starts happening to people you know and health care costs start to enter your consciousness.