Joe Dominguez didn’t let the pursuit of money dominate his life. In fact, when a teacher in middle school asked his class to write an essay on what they wanted to be when they turned 30, he reportedly wrote that he wanted to be financially independent. But even more astounding, just before his 31st birthday, he declared himself financially independent with enough money to meet his needs for the rest of his life!
Joe quit a good job at age 30 and set off for a life of adventure free of the need to earn money. The year was 1969, well before the FIRE (financial independence, retire early) movement began. In fact, he is considered by many to be the father of that movement. But he didn’t set off on his adventure because he had won the lottery. He “retired” with $70,000 set aside, or about $450,000 in today’s dollars, and never earned money again until his death in 1997.
Do you want out of the traditional work world early? Not all of us want that, but it’s good to evaluate our life calling periodically and see if a change is in order. I want to try and answer three questions today about the idea of pursuing early retirement. First, what is the motivation to make a quick exit from the traditional 40-year career and retire route? Second, is early retirement really about a life of leisure? And finally, what’s the best route to achieve it if you’re not making the salary of an Investment Banker?
The Motivation to Retire Early
Those of us baby boomers who grew up being taught the virtues of the Protestant Work Ethic that created so much prosperity for this country probably had an initial reaction against the FIRE movement the first time we heard about it. However, I think it’s important to note how the changes in corporate culture contributed to this movement. Corporate loyalty in the 50’s, 60’s and 70’s was typically rewarded with a gold watch and a generous pension. But then came the 80’s and corporate downsizing. What a shock to see our parents or friends severed from what they thought was a social contract for life. The deal with corporate America changed from lifetime employment to, “we will give you marketable skills if you work for us, but don’t think we won’t cut you when the going gets tough.”
And of course, the rise of Dilbert cartoons and movies like “Office Space” with the “TPS reports” illustrated the meaninglessness in the corporate world with excessive meetings, fake mission statements and annoying bureaucracy. It seems it was predictable in this environment that young observers with innate creativity would start questioning if there isn’t more to life than a cubicle world they saw their parents occupy for 40 years.
Early Retirement is not About a Life of Leisure
If you’re like me, you love a beach…for a couple days. Then I start getting restless to do something. In fact, we know that we are created with a rhythm to life of work and recreation. Not all work, but not all play.
And this is what I see in those who have escaped jobs that they grew to no longer love. Added time for leisure and for travel in many cases, but also a chance to pursue a new passion in life that ultimately serves others. This could be a new writing career, a small business idea, a family business with kids helping, or a return to school to pick up skills in a new area of interest. Ultimately it seems to me that money finds its highest and best use when it gives us the freedom to recreate ourselves from a burned-out job to become a passionate producer of a new form of wealth that serves others in some way.
How to Achieve Early Retirement
Some people love their job their entire career. Warren Buffett is still going strong at the age of 90 and talks about how he “tap dances to work” doing what he loves. In a sense, these people are already retired from a mundane boring world of work, and are renewed every day with the new challenges of the life they love.
But what about those of us that no longer hear the music inspiring us to dance to work. As a community banker I observed a lot of ordinary people escape jobs they didn’t enjoy by taking some proactive steps. I’ve listed four of them here.
Four Ideas for Financial Independence at Midlife
- Start a side gig in Rental Real Estate. Over the years as a community banker I saw many customers escape jobs they didn’t enjoy through successful investments in real estate rentals. Most would start small, gain success and experience, and continue to build their business until they felt comfortable quitting their day jobs. Many became some of my best customers as rental units typically require debt. I saw some incredible success stories including many becoming millionaires. Today there are even more opportunities in this area with the success of Airbnb and VRBO type rentals. Asking someone in your community who has already succeeded in this area would be a great place to start learning how to build your financial independence through rentals.
- Build Passive Income through Internet Businesses. Today, the world of passive income offers even more opportunities in breadth and depth than I could have imagined when I started my career. Back in the day, business success was all about physical location. Today, with the internet, we can sell our products and services all over the world from our basement if we put time into developing what others want. For example, I have been amazed at the explosion of online courses. If you know how to do something that others need, develop an online course and market it. If you build an audience in your specialty, there are also many ways to earn money through affiliate sales of others products online. Online personalities like Pat Flynn who runs the Smart Passive Income Blog should be helpful for anyone wanting to start building an online side hustle that could explode with proper care.
- Don’t follow your heart when you’re young. Follow the money. Conventional wisdom says we should follow our hearts in our 20’s, maybe in our 30’s. Go traveling abroad, join a rock band, be free and live easy. You can always work later.
While some flinch at this idea, I’d suggest a different perspective. Most of us find any job fascinating in our 20’s and 30’s. A raise or promotion at 28 is exciting and motivational. It boosts our self-esteem as we prove ourselves in the workplace. At 55, not so much, since we’ve been there and done that. In fact, as we get older, we tend to find out what we are truly passionate about and want to devote more time too. If we pursue the highest paid ethical work we can find early in life when every little achievement brings joy, and save a large portion, we are in a much better position to explore new interests later in life with a nest egg supporting a matured curiosity. On the other hand, if we pursue our low paid fantasy job when we are young, and like most struggling artists, never made the big time, we will be ill suited financially when the thrill is gone to pursue our true interests later in life.
- Save Early and Often. Albert Einstein reportedly said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” Obviously connected to step three above, saving money early and investing it aggressively is a way to end up at midlife with a nest egg that will allow experimentation as the wonders of the corporate world diminish. When we are young, we haven’t yet stepped up our cost of living. Like Joe Dominguez, in our 20’s we should be able to live more frugally than at any other period of our life. Refusing to step up our living standards as our income ramps quickly is a wonderful way to let the tailwinds of compound interest work in our favor.
One of the saddest parts of my job as a bank president was trying to manage employees in their 50’s or older who had lost the passion for their job and were just working for the paycheck or the health insurance. Living in a vibrant capitalistic society, most of us have choices like few others have had in the history of the world to avoid that fate. I hope this short post has given you some ideas!
Joe Kesler
Founder, Smart Money with Purpose