BLUF: The book, “Choose FI: Your Blueprint to Financial Independence” is a great overview of the “FIRE” movement (which focuses on Financial Independendence and Retiring Early).
I really love books, especially audiobooks about investing and finance. I read all of them for free using my base library-funded subscription to Libby (its DoD wide). Though I’ll circle around to some of the more foundational books on investing, I wanted to share an alternate philosophy on investing… the aim of extreme early retirement.
“Choose FI: Your Blueprint to Financial Independence” by Brad Barrett, Chris Mamula, and Jonathan Mendonsa focuses on how to achieve an extremely accelerated retirement plan, so people can retire in their 30s and 40s (vs their 60s and 70s). The book is built upon the “Choosing FI” podcast, which covers the same material.
They outline 7 milestones on the way to financial independence, or what they call “FU money.” To get to this point, they base their analysis on a foundational idea from the Mr. Money Mustache blog. In short, the amount you need for retirement is 25x your annual cost of living. This is based on the generally accepted notion that you need enough money to live on 4% of your investments per year.
However, they make one really interesting step from there: Every dollar you save by cutting your living expenses greatly increases how soon you can retire. How? Firstly, by cutting your expenses by $1, you can invest that $1 in your retirement. However, it is also $1 less that you need during each year in retirement (as your retirement needs are based on how much you spend). These savings can have a huge compounding effect.
In short, living frugally drastically reduces the amount you need to save for retirement, while also allowing you to save way more (they recommend 30-50% of your income) and retire much earlier.
So, what are their steps to financial independence?
- Get to $0 Net Worth (Debt free, either including/not including mortgage)
- Fully Funded Emergency Fund (3-6 months living expenses)
- Hitting 6-figure ($100,000+) investment portfolio
- Half Financial Independence (FI). Your investments reach 12.5x your annual expenses
- Getting Close:
- 5a. Your investments reach 25x your annual essential expenses (housing/food/utilities/health insurance)… can stop working w/out starving
- 5b. Your investments reach 20x your total annual expenses… could fund your lifestyle with 5% distributions from investments (some risk, but possible)
- Financial Independence (FI) – Investments reach 25x total annual expenses
The idea is to cut things out of your life that don’t improve your life, and increase your investment percentage to an astronomical amount (50% or more, vs. the typical 10-15% recommended). The authors go on to outline several ways to cut costs, especially in the big three of expenses: living expenses, transportation, and food. Here are some sample ideas:
- Living Expenses – Rent vs. buy, rent your spare room or get a roommate
- Transportation – Buy an inexpensive, used car
- Food – Buy and prepare meals in bulk
- Insurance – Shop for lower rates, leverage health care subsidies/HCSMs if needed
- Phones/TV – Stop paying for cable TV, and get cheapest phone service
There is a lot more, including a very interesting technical discussion on minimizing your tax burden during early retirement. But, you’ll have to read the book if you want to learn more.
Note: This book is also available to borrow for free from Libby (using your DoD library card), or available on Amazon.