Early Retirement’s Bullet List

Attaining financial independence and early retirement as quickly as possible requires applying a simple set of principles to your mindset and your financial practices. Here I’ve collected these principles into a bullet list and linked to explanatory articles elsewhere in Early Retirement Dude.

Above all else:

– Keep as mentally and physically fit as possible.

This makes everything else—everything—easier. And even if you fail to achieve financial independence and early retirement, mental and physical fitness can only serve to increase your quality and quantity of life.

Keep the right mindset.

– Be sure you’re not using early retirement as a proxy for a geographical cure.

I’m guilty of this. I realized after retiring that I was using the pursuit of FI/ER as an attempt to get away from personal  troubles that were more my own devising and perception than intrinsic to my surroundings. If I’d gotten some therapy and been more honest with my superiors, I might still be working—and enjoying—that job. 

– Those who can’t imagine what they’ll do after they retire, won’t.

Simple, really…If you don’t know where you’re going, how will you get there? And to this I’m convinced there’s a corollary: painful stimuli serve a purpose, but it’s better to move towards something positive than away from something negative.

– Retirement <> idleness.

The most common question put to early retirees is this: “What do you do all day?” When contemplating early retirement you may be afraid you’ll be sitting around on your can all the time, bored, but after maybe a month when you’ve caught up on sleep and overcome burnout, etc., you’ll be surprised how much you’ll find to do.

For more info and a real-life case study, read The Purpose of Life.

Put your job in its proper perspective.

– Work towards having something to sell besides your time.

This statement’s a bit like Einstein’s “E = mc2”. From this it’s possible to derive all other steps in the FI/ER process.

For further discussion, read Early Retirement: The Magic Bullet.

– Use your creativity and energy at least as much to your own benefit as you do to your employer’s.

Remember that your job isn’t a personal relationship, but business. You may want to sell your time to your employer and your employer may want to buy it from you. Work smart and hard and well at your job, but work even smarter and and harder and better at your own life.

For another real-life case study, check out The Gift of Time: a Rant.

– Investing: set it and forget it.

I’ve earned the highest returns when I don’t fiddle with my investments from day-to-day.

Perhaps the most important principle of investing for financial independence and early retirement is this: timing the markets is impossible. There are many studies showing that across time, markets have tended to return 7% year-over-year. These two ideas imply that since the goal of early retirement is maintaining a sustainable withdrawal rate–meaning a rate that allows you to withdraw your living expenses in perpetuity without depleting your funds–you should focus on investment vehicles that mirror the markets.

The go-to vehicle for the financial independence/early retirement community is Vanguard’s Standard & Poor’s 500 Exchange Traded Fund. It’s a low-fee, market-mirroring fund that does all the work for you. Take a look.

– Not all debt is bad.

Show me a capital loan that carries a payment of two or three hundred bucks a month at an interest rate close to the rate of inflation, and I’ll likely take it because it’s essentially free money. The loan on our Prius, for instance, carries a rate of 1.9%—meaning the principal essentially erodes for the life of the loan. True, the dollars I pay are also eroding, but across time there’s still an arbitrage of five-ish percent between the interest rate and market returns.

– Geographical arbitrage can make many years of difference.

A personal example: a key component of our FI/ER plans was living and working in a very expensive (and consequently high-salary) northeastern city. While we were there we ran three rental properties, which when we finally ER’d we condo-ed out before moving to a house in the southeastern Appalachians. The appreciation on the rental units paid in full for our new house, leaving our principal free for us to invest.

And finally:

-Keep your plans quiet.

If you divulge your FI/ER plans to others, you’ll find that the two most common reactions are incredulity and jealousy. The jealousy is especially toxic since people tend to keep resentment secret, especially in a work setting. Supportive reactions will be a distant third. Take that into account.

In Keep Your Plans Quiet: A Family Tale I discuss how I sparked a major family conflict when I revealed my plans.

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