A recent article by Roger Nusbaum, How To Retire At 30!, has spent much time on SA's most popular list. No offense to Roger, but I found the article somewhat lacking on specific advice as to how someone can actually accomplish that feat. The article reminded me of an observation I made on US colleges coursework after my own graduation: lots of theoretical knowledge imparted, but why didn't they have one class to teach us the basics of buying and selling a home, how bonds work, or true cost of buying a vehicle on credit?
I was able to "retire" at age 45. I put that in quotes because I work as hard now, or harder, as I ever have did in the workforce. The primary reason I was able to retire relatively early can be summed up in two words: work ethic.
So I have some concrete practical advice for young folks who want to become economically independent and retire early:
- Learn how to work.
- Educate yourself in both a skill set(s) & financially knowledge. The education process should last your entire lifetime.
- Stay out of debt.
- Be frugal but not stingy.
- Save and invest.
- Learn the value of bartering.
- Learn how to use tools (wrenches, drills, computers, etc).
- Invest in yourself.
- Prioritize your health: exercise & eat properly.
I bet there are some suggestions below that some of my older readers might find valuable.
Learn How To Work
My parents instilled a good work ethic in me at a very early age. For me, learning how to work at a young age was simply a necessity - my parents didn't believe a large weekly allowance. I remember as soon as I was old enough to do so emptying bushels of grass for my dad as he mowed the grass for a penny a piece. But each penny got me a small tootsie roll at the corner store and man, that was a good payoff. When it was my turn to do the dishes, or clean the gutters, or paint, or mow the yard, or change the shock absorbers on my dad's car or the oil in the lawn mower - these were simply expected of me.
I began mowing neighbors' yards in the summer heat of Louisiana as soon as I was able to push the mower (that's right, a push mower). I would mow an entire yard for $4 and this was when gasoline was $0.28/gallon. I did other odd jobs - washed windows, cleaned pools, and I even worked as a concession stand worker for the Alexandria Aces - a minor league baseball team whose claim to fame was future NY Yankees star Dave Winfield. I was a prized employee at the Aces because at the age of 15 I was the only person on the staff who knew how to properly tap-a-keg of beer. This taught me a key lesson: make yourself indispensable. I also worked as a front man for a circus at age 17. This job required driving to cities before the circus arrived and putting up posters and handing out free children's tickets for the circus. The catch was the entry to the circus required families to walk by the elephants. By the time the parents got to the ticket window and found out how much the adult tickets cost - it was too late. There was no way those kids were not going into the "Big Tent."
When it came time for college, I joined the "co-op" program at Georgia Tech. I alternated quarters (not semesters back then): between school and work. I would work and save so I could afford to go back for another quarter of school. The last thing I wanted to do was ask my parents for money. At one work assignment in Vicksburg, MS I actually lived in a room at the YMCA for $7/week. The door on that room did not even have a lock on it so I kept all my belongings in the trunk of my car. But I saved enough to go back to Atlanta and get schooled in calculus, chemistry, and physics.
Being educated is the key to living well. This doesn't necessarily mean a 4-year or advanced college degree. I know home-builders who never graduated high school, but educated themselves in a craft and are the very best in their field. And very successful. I met a young farmer in Austin, TX who educated himself in html with a book he bought at Borders. He took a job at a small company and helped Charles Schwab build their webpage. The man is now a multi- millionaire but he can still tell you the value of a hog with a dollar or two just by looking at it.
Whatever you chose to do in life, set out to be the best at it and learn everything you can about your craft. At the same time, you should work to diversify and increase your knowledge base across many disciplines.
Stay Out Of Debt
In my first engineering job out of college I was surrounded by other new graduates. This was just about the time Toyota introduced the 4-Runner. God I wanted one of those trucks and half the guys I knew bought one - on credit with a 15% interest rate. Of course I was driving a real piece they knick-named the "ghetto sled". They would say Mike, when are you going to buy a 4-Runner? When I said I could not afford one they were like what do you mean, you make just as much as we do and they knew I had no college loans to pay off like they did. So I would sit down and show them what the total cost of their 4-Runner would be after they made all their payments at 15% interest. Their faces would turn pale. I mean here are very smart engineers who excelled in physics and math who did not understand the basics of finance and credit. Long story short, I was the first one to buy a home in the rocketing San Diego housing market of the early 1980's. My old ghetto sled was parked in the garage. I was lucky and sold that house 5 years later for a $50,000 profit. That was the seed money for my early investments. So, you see - small changes in strategy at a young age can have a huge impact in your economic well being.
A young engineer I know asked me how I retired so early, and I gave him some advice - one of which was pay cash for a vehicle so you can negotiate a good price. He didn't follow this advice and bought a nice new car with a 5.25%. When he showed me the car (a nice sporty coupe), asked him about the loan and he said, don't worry Mike I am saving up and buying CDs and iBonds. I said what is the rate on your CD, and he said 2%. I said why are you buying CDs at 2% when you could earn 5.25% just by paying off your car loan? I even offered to pay the loan off for him and if he made me 3% interest payments to me. I said heck man, I can't get 3% on a 10-year treasury right now, I'd love to make 3% on your car let alone 5.25%. That got his attention. A month later I got an email that he had paid off the car loan.
Be Frugal But Not Stingy
As the old saying goes, watch the pennies and the dollars will take care of themselves. You should be as generous as possible when it comes to family and friends. Your time, assistance, advice, and help can be just as valuable - if not more so - as are gifts or money.
Save And Invest
After I saved enough for a down payment on a house (full disclosure - I did take a loan for my first house), I saved up some more money in a bank account with an eye toward investing. The first stock I bought was Phillips Petroleum ("P") after Boone Pickens was green-mailed and they paid a fat dividend to lure back investors. I was lured. That stock is now ConocoPhillips (NYSE:COP) and Phillips66 (NYSE:PSX). The dividends paid over the years have many times over covered my initial investment. Investing and holding high quality dividend paying energy companies that have a quality resource base and good technology has been the key in my ability to retire at 45. Don't worry about the day-to-day gyrations. Take a look at company's like COP, Chevron (NYSE:CVX) and Exxon (NYSE:XOM) and consider simply buying them and reaping the dividend income. Ten or twenty years down the road you will likely be surprised and very happy that you did so.
But you cannot invest until you get your seed money. And seed money often needs to be earned by hard work, sweat (mental as well as physical), and some of the advice given in this article. Read on.
Learn The Value Of Bartering
I learned very early on that I would seldom get a raise commensurate with the engineering work I was performing at my job. Corporate America, for the most part, just doesn't work that way. So my resume was always "out there". I laid out a letter of resignation on my bosses desk at least 5 times in my career. I got some enjoyment out of looking at my boss's face as he read the unexpected news. It was amazing how a 6% raise could suddenly turn into 12% when they knew you were ready to walk in 2 weeks. But of course this only works if you are indispensable - you need to find something that no one else can do (or wants to do) and be the best at it. And you need to be prepared to walk. Oh, and when I did change jobs, I negotiated a "move bonus". Yet I did all the work myself with rented U-Hauls and buddies helping me pack. I estimate I made $10-15,000 in my life just on move bonuses I was able to pocket. Again, it goes back to work ethic.
I barter on everything: vehicles, home insurance, the cable bill - anything. Take home and car insurance for instance. All the big carriers get you in with a good price and then jack up your rates and after a couple years you are paying 25-40% more than you were initially. They all do it. Being frugal, whenever I got the renewal notice and saw a 20% increase I would call the agent and give him or her a chance to "do better". If they did not, I would change carriers and save the 20%. Now, I use an independent insurance broker that understands me and puts my policies out to bid. I figure over the years I have saved an average of ~$1,000/year on my car/home/trailer insurance. Doesn't sound like much until you multiply it by 25 or 30 years.
Take my internet/cable bill. Same thing: the provider gets you to sign up with a "special promotion" and then jacks up your rates every 6-12 months. Not me. I found out if I called late at night to complain, I would get an hourly part-time employee (I would hang up until I got a female) and I would flirt and shoot the breeze and then say hey man, this increase is just too much - I can't pay it. And she would say well, let me see what I can do for you. Oh - I just happen to have a promotion yada-yada. That went on for years and I was consistently paying $50/month less than my neighbors ($600/year for ~5 years) until my provider got wise and put salary people on the phones. That put an end to that, and they jacked my bill up $50. What did I do then? I called and told them to turn off the service. They said seriously Mr. Fitzsimmons? And I said sure, with RedBox, Hulu, Netflix etc. - why do I need your over-priced cable service? Hold on Mr. Fitzsimmons - let me transfer you. Bing - another "promotion" magically appeared. See, I was playing off the fact that they were losing subscribers left and right and called their bluff. I knew they didn't want to lose someone who had paid their cable bill on time every month for years.
Bartering is a lost art. And it can actually be quite fun. I particularly like the looks on peoples' face when they watch me in action. It's a look of - what a schmuck, he must be having really hard times. Then I go off to the golf course and they go off to work.
Learn How To Use Tools
How many kids today know the difference between a crescent wrench, an Allen wrench, and a box-end wrench? Between a skill-saw and a jig-saw? Of all the things my father taught me, I will always be grateful for him sharing his knowledge of tools and how to use them. I built a set of loudspeakers for $200 when I was a junior in college. I still have those speakers today and their frequency response (especially on the low-end, 22 Hz) is hard to match in speakers 5x that price today. I built my current tool-house (the one shown above) as well as decks, shelves, and work benches. I have performed thousands of dollars worth of home repairs over the years. Calling "Mr. Fixit" is a last resort for me - heck, I am "Mr. Fixit". I replace my own brake pads, spark plugs, oil and gas filters. I flush my own radiator. I've even been known to rotate my own tires. When I was in college my car broke done one summer in Longview, TX. I pulled the head off under a shade tree, hitch hiked into town, bought a new valve, seated it myself, and slapped it all back together. Magically it started on the first turn. Necessity is truly the mother of invention. Yet I don't mind hard work - it gives me a feeling of pride and accomplishment. Besides, my vehicle always seems to run better when I perform the work myself.
I love to see women using tools. Love it.
My dad gave me many tools and I have bought many tools. They have paid for themselves many times over. Again - it all comes down to work ethic.
Invest In Yourself
Sometimes people get the impression I don't spend a dime. It's not true. While I am certainly not your average American consumer, when I do buy something I buy high quality items that will last. My current Toyota truck, for example, I bought new (for cash) and have owned for 12 years now. I have 150,000+ miles on it and consider it barely broken in. I will likely put 300,000 miles on this truck before I even think of a buying a new (or used ) one.
When I spent $700 on a bamboo fly-rod, my girlfriend at the time thought I was absolutely nuts. Yet how can she understand the thrill (and value) of being able to land a #16 Adams Wulff fly as gently as the real deal and watching an 18" rainbow trout rise to it? You must have your relaxation and leisure "down time". If you can combine the two with exercise that is even better.
Travel. One of the best investments I have made is in traveling both inside and outside of the US. Many of my trips were work related (Japan, Singapore, Israel, and England) but even then I would break out my wallet in order to immerse myself with the native people and enjoy the food and customs of other nationalities. I loved it. And I think it extremely valuable - especially for Americans who I believe very much need the exposure. Outside of these work trips, I also took vacations to Ireland, Europe, Mexico, Canada and the Caribbean. Invest in yourself and travel. Traveling grows your knowledge. Knowledge is power.
Another investment in yourself is reading. I am a voracious reader, and not just the Wall Street Journal. I am a frequent visitor to my local library and frequently exchange book suggestions with friends and family. Reading is a very inexpensive way to relax, open your mind, and gain perspective about the world. And yourself.
Lastly, the US tax code is designed for self employment. Consider starting your own business in order to take advantage of all the write offs that you are legally allowed to deduct.
Prioritize Your Health
I still remember the day in college when I realized smoking would kill me. I quit that very day. Diet wise, it took me a few years of bad habits in early bachelorhood to prioritize it. Today, I don't eat out much because I simply cannot find the quality of food that I can make at home. I eat fruits and vegetables every day. I also eat chicken, beef, and seafood - but in moderation. I do spend extra for meat and chicken that is grain fed and organic. I have a garden and love walking out my back door to pick fresh spinach and kale. I cannot even buy store bought potatoes any more after growing my own.
Exercise daily if possible. I can't stress this enough. Even if it is just a 20 minute walk around your neighborhood - do it. I try to practice yoga daily. I have a workout routine. I run a woodstove to keep my heating bills down in winter and can frequently be seen in my yard in 30 degree weather with my chainsaw or with my 8 lb maul splitting and stacking red oak and hickory wood for next winter. I wonder if my neighbors think I am nuts at my age doing this kind of work. But not only does the work help keep me in shape during the winter months, I also save an estimated $1,500 a winter by running the wood stove. Again, it doesn't sound like much until you multiply it by 5 or 10 years.
Taking care of your health (including your teeth), can pay many dividends down the road. If you haven't discovered psyllium whole husks yet, you should do so. As they say, without your health you got nothing.
Summary & Conclusion
So that's how I retired at 45. But just remember: it all starts by having a good work ethic. In comparison, the saving and investing part is easy. While I would certainly not consider myself wealthy, and while I still face financial challenges in the future (old age care, etc.), for now I am able to spend time doing the things I either want to do or need to do (for my family) without having to work for someone else. Yet in many ways I work just as hard today as I ever have (if not harder). I doubt this will change until I grow old enough to be physically unable to work. At that point, I bet I play a lot of chess and dream about fly-fishing in the mountains of Colorado.
Disclosure: I am long COP, CVX, PSX, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am an engineer, not a CFA. The information and data presented in this article was obtained from company documents and/or sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for investment decisions you make. Thanks for reading and good luck! NOTE: I am considering buying shares in VET over the next 48 hours.