The Cult of Early Retirement Meets (Or Strangely, Doesn’t Meet) The Cult of Entrepreneurship
Very few words seize my attention like “retire early.”
So it’s no wonder that, over the years, I’ve found myself consuming a wide range of ideas from ‘early retirement’ bloggers and financial gurus. Most emphasize the fundamentals: being frugal and saving money. They talk about making purchases mindfully, putting off short-term consumer highs for long-term financial freedom.
Most of all, these writers warn against going into debt. Debt, we all can agree, is the antithesis of financial freedom.
Although I read many of these writers - some favorites include Early Retirement Extreme, Dave Ramsey, and Mr. Money Mustache, who we’ve interviewed here - I've never felt part of their tribe. Some of their specific suggestions make sense, but their worldview never fully clicked with me.
And here’s where it gets a little, well, religious. We’ve all been in a conversation with people who have different beliefs.
Awkwardness and irritation can flood in as both sides catch themselves wondering, “why are they kidding themselves?”
After all, we agree on the facts, right? So how did we leap to such radically different conclusions?
This is how I feel about the early retirement crowd. We both want financial freedom. But how can they believe that saving money for decades is the optimum way to achieve it?
Let's start with some of the 'facts' that we all agree on.
The path to early retirement begins something like this:
Radically reduce your spending.
Become debt-free. Aggressively pay off your loans. Ideally, no mortgage.
Save as much as you can, and invest those savings safely.
???
Can you guess what number four is?
I know my answer. I believe it religiously.
So when I read these ideas part of me is always waiting, nodding my head in anticipation of the big payoff. The argument has been clearly laid out. The facts are on the table. I expect that we’ll arrive together at step four with resounding confidence.After all, it’s right after number three.
***
For the 'retire early' crowd, though, step four is is generally a muddled affair.
Early Retirement Extreme, for example, is awfully vague:
"I am reluctant to give specific investment advice on this blog. The reason is that unlike frugality and personal finance, which anyone can learn in a couple of months... investing properly takes at least a couple of years...
Mr. Money Mustache (MMM) is more resolute. In a popular article about attaining financial freedom, he declares that:
"if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37.”
Retiring at 37 sounds pretty good!
But earning a good salary, paying taxes, living life, all while saving half of your income-- that sounds daunting. And doing it for 17 straight years seems? Even more so.
But I think it's fair to distill both their strategies as something like this: save, and then wisely invest those savings.
And for me, that's pretty good. But it's not the answer.
It's a nice rule of thumb. But I could never see it as the path to salvation.
***
Occasionally, on a long walk, I’ll imagine myself in conversation readers of these early retirement blogs (or Dave Ramsey podcast listeners).
"Okay you want financial freedom, right?"
"Yeah of course! I've already started paying down my debt and putting aside savings.”
"So now that you’ve got your financial life in order, what are you going to do with your time?"
"What do you mean?"
"Well, according to Mr. Money Mustache, you need to save 20 to 30 times your living expenses to retire and live off of residual income. For me, that means I'd need to save well over $1,000,000. So how are you going to do that?"
"Oh. Well, I …. We’re going to live frugally … we now only have one car, and it’s all paid off."
"No, no. I mean, how are you going to earn the money in the first place?"
"Oh...well, I’m going to continue on with my career. I make $85,000 a year from my job as an accountant, and that might go up in the coming years. If my family and I can live on 30K a year, we can save about $35,000 a year! So I only really need to do this for, let me grab my calculator...
Oh my.
I believe that the reason we reduce debt and change our spending habits is not to stockpile salary, but to take control of an even more precious resource -- our time.
Once we do that, we can put it to good use sorting out the complexities of step number four.
Our time is so powerful, in fact, that we might even risk some of our savings to get more of it.
But in the early retirement world, step number four is focused on saving, investing, long periods of stability, and good returns in the market.
I imagine a stoic sort of endurance. Simple living. A garden. Staying in one place. Avoiding major shakeups and medical emergencies. A "do it yourself" ethic to everyday (and often, very boring) problems. I imagine many years of so-called gainful employment, all to make sure the plan stays on track. Because without the plan, without the earnings and the savings, there is no early retirement.
But I can’t relate. I’ve lived this plan - this religion - and in my experience, it's brutal on the mind and soul. Here's why: if you spend your days finding clever ways around consumer purchases, you haven’t won any battle that's worth winning.
If I had stuck with this way of doing things, I probably would have found ways around consumer purchase until year five before exploding, saying "screw it," and getting a loan on a brand-new, big-ass truck.
So much for the plan.
But since my experiments with the religion of early retirement, I've guzzled a different kind of kool-aid.
To me, getting financially fit means treating your personal finances like a business (steps one through three). They’re the natural first steps to being enterprising. The most meaningful changes happen in steps four and five.
Here's how I'd write the steps, TMBA style:
Radically reduce your spending.
Become debt-free. Aggressively pay off your loans. Ideally, no mortgage.
Save as much as you can, and invest those savings safely.
Become an entrepreneur, start or buy a small business.
Retire early, often, or not at all. Up to you.
In case you’ve been skimming the article, it’s worth saying out loud:
THE ANSWER IS TO BECOME AN ENTREPRENEUR, GUYS.
If you have a job, or don't feel ready to start your own venture, get a gig that will help you build the skills and resources you need to eventually start a small business (even if you get paid less). We call that 'becoming an apprentice.
'Regardless of what your answer is to step number four is, we might come together to agree on this point-- it's complicated, and it's difficult.
Pie Chart
The Steps in Terms of Difficulty
It's so complicated that most financial gurus outsource step four to jobs and investment funds.
(They also often fail to follow their own advice, working long guru-hours instead of cutting back on personal expenses).
There are lots of reasons for not talking about step four.
So I perk up when they do talk about it.
And recently, Mr. Money Mustache talked about step number four. Which got my interest.
Here’s MMM (emphasis mine):
“For the past two years or so I’ve been keeping a secret from you, and I think today it is finally time to spill the beans.
The secret is that my wife is no longer really retired, and in fact she started a business that is now big enough to fund our entire family’s lifestyle.”
Interesting.
Mr. Money Mustache’s wife used her free time (thanks to being frugal, being out of debt, and having savings, steps 1, 2 and 3) to build a business that now covers their living expenses.
I kept reading the article. How long did it take Mrs. Money Mustache to cover her expenses with her new business?
“This was in April of 2014. That’s when I started my first [ecommerce] shop.”
It’s now almost April 2017, I thought.
That’s three years.
I started to feel some unwarranted and sanctimonious vindication.
The business started 1,000 days ago.
If Mrs. Money Mustache had sought my advice about how long it might take her, or her readers, to cover their living expenses with a small business, I would have guessed three years. I’m on the record.
Three years might sound like a long time just to cover expenses, but it's much less than the majority of retirement strategies. And it's just the beginning. Small business ownership and expertise, much like stock ownership, can compound. As an owner, you can also directly influence the value of your portfolio. (Doing so in the stock market, by contrast, is both illegal and unfair).
I don't say any of this to knock Mrs. Money Mustache's ecommerce store.
What she’s accomplished is amazing.
It really is. I'm just, you know, arguing about religion.
***
Entrepreneurship is hard. It takes years, not months. It can feel daunting, just like paying off $100,000 in student debt or foregoing a vacation to pay down your mortgage.
But payment by payment, step by step, you can make progress. And, when you look back, the most critical moment in the process was believing you could do it in the first place. It was thinking “Ya know, I’m gonna stop saying "screw it," I’m going to return my awesome big-ass truck and focus on financial responsibility.”
I know that's hard.
But the hardest part is still ahead of you.
If you stop there, after setting your budgets, filling out your spreadsheets, planting your garden, and wisely investing the money you've set aside, you’ve missed the point.
***
How many people do you know who earned a high salary for 15+ years? Or who stayed healthy for an entire career?
Or whose job didn’t move to a place they didn’t want to work?
And, even if all those factors work out, and they love their jobs, at the end of it they're living on a fixed income.
I’ve met people like that in real life and you know what most of them have in common?
Fear.
Fear that the money will go away. That the plan will get messed up.
And perhaps the strangest one of all: fear that they will live too long.
***
I’m not saying entrepreneurs are fearless people, of course. But if we have confidence in the future and the courage to try things, it's because we've spent years investing in a set of skills that can adapt and grow stronger.
***
Is starting a small business risky? Perhaps. But my religion only asks for a few years, not 17.
And you'll be investing at the same time - in yourself, and in your own skills.
Let’s say the economy takes a hit and Mrs Money Mustache's business goes under. That’s a huge setback, but her three years in business have helped her hone a dynamic skillset and a set of relationships that will serve her next business.
And in fact, here's what Mrs. Money Mustache says about the second store she built:
"This second shop is so much more fun than the first. For one thing, I am making products that I love using myself and really believe in. I also had so much experience at making my first shop successful that the second one was much easier. I had a few customers that shopped at my first shop that immediately bought from my second shop. So, that first sale came much faster."
That sounds a little bit like... compounding.
Let's take this a step further. I believe TIME is more valuable than MONEY. So, why not prioritize making our time compound as well as our money?
***
Over the past few years, I have taken Mr. Money Mustache's advice, (and that of many of his colleagues) investing some of my savings in an index fund. This year, that money grew a little bit. Pretty cool! But those returns, even if they remain good for a decade, would pale in comparison to what I've achieved in my own small business.
Those returns have been 30x in the last 8 years. I have effectively "retired" in less than a decade.
And the whole time I traveled and bought most of the things I wanted, without thinking about any of it too much (I didn't buy that big-ass truck, though; instead, I picked up a van).
Both strategies have risk, and won't work out for everyone.
But Ian and I both believed that if "the market" could compound our money why couldn't we compound it with our own effort? Why not be financially responsible and cut out the middleman?
Perhaps my conviction here derives from a very basic issue: when I had a career, I felt powerless.
I did my work according to the strange timeframes set by society. I had little control over my physical location. I took a lot of abuse from customers. I moved my apartment when my bosses moved their office. I came to work when they said I should come to work. And, when I had to go to the dentist, I worried that it would cause a problem (or worse, that it impinge on the few weeks a year I had away from it all - my so-called "holidays").
For these and many other reasons, I’m always just a little bit suspicious of people who insist that they “actually love their jobs.” I've met so many people who have the best jobs I can imagine, and the reality is often something between "It's okay" and "I'm stuck.
"Even rarer is the career person who's built equity in their work, relationships, education, and profession over decades, only to drop it all to go do something else and live off their savings. Those who truly love what they do, and the people they do it with, find it very hard to walk away. And if you do walk away, how much did you love what you were doing in the first place?
I’ve also met a lot of self-made millionaires who have retired early. And here’s the thing about them - they are almost never people who ‘hit it big.’ Instead, they're people who worked on their businesses year after year. That small store eventually becomes a big one.
When I ask these early retirees how they made their money, how they take Wednesdays or entire months off, the answer almost always boils down to:
"I started a small business."
But maybe the popularity of early retirement blogs will change all that.
And perhaps I only see cases that confirm my beliefs.
At the end of the day, the early retirement crowd and I aren't so different. We're like alternative sects of the same religion. The facts are the same: Be smart about your money. If you must drive, drive entrepreneurmobiles! Find financial and personal freedom.
Over the years I’ve heard hundreds, if not thousands, of early retirement stories in-person, from young and middle-aged people all around the world. I go out of my way to have these conversations.
Fifteen years ago, if I had overheard a young American couple in a cafe -- on a Wednesday afternoon in Europe -- talking about how much they were looking forward to spending the summer with their families, I'd have assumed they were from old money. Today I'd listen in for more clues. I probably wouldn't be able to help myself - I'd interrupt them and ask for the story. How did they end up with so much control over their time?
I'm fascinated by the ingenious ways people make it work. You built an online store that sells what!?
So you can blame my spotty memory, or religious allegiances, or the cities I frequent, or the circles I hang out in.
But for all the early retirement stories I've heard, "We paid off our debt, built winning careers that we loved for just over a decade, quit, and now we're going to live off the interest indefinitely" would count as one of the most unique yet.
Cheers,
Dan
Ps: Thank you to MMM for his truly excellent blog and for helping inspire this article. I know I’m using his ideas a bit unfairly here. For example, MMM does go into great detail often about how he uses his savings to do enterprising things, like invest in real estate, support charity initiatives, and give back to his community and society as a whole. It's also most certainly the case that a meaningful percentage of his audience are entrepreneurs. I’m making a religious argument here, but we agree on lots of the smaller points.
Like the TMBA? The best way to follow along is to subscribe.