Welcome to this post about how to achieve financial independence and retire early!
I recently listened to How To Achieve Financial Independence and Retire Early by JD Roth and I have to say, it’s one of the best books I’ve ever read/listened to.
I always like to rate each book on a scale of 1 to 10 after I finish reading it. I’ve only ever given 3 books a 10/10…and How To Achieve Financial Independence and Retire Early by JD Roth is one of them. It covers the entire topic at hand, is straight to the point, and has practical advice.
So today, I want to write a post about some key concepts from this book. But, I also will be interjecting some of my own thoughts and advice into this post.
Financial Independence and Retire Early (FIRE) is one of those things I get really fired up about, so I’m super excited to write this post! Let’s get into it.
What Is FIRE?
Financial Independence Retire Early is a pretty common term in the personal finance space. You may see it abbreviated as FIRE, F.I.R.E., or FI/RE.
The name is self explanatory, but essentially is made up of two parts. Those pursuing FIRE are trying to reach a milestone known as financial independence, which most people hit when they retire at 65. However, those pursuing FIRE are trying to do this at a younger age, usually in their 30’s, 40’s, or 50’s.
The idea is to make some short term sacrifices in an effort to live a more fulfilling life at a younger age. MJ DeMarco says in his book, “Most people work their whole life to achieve wealth in a wheelchair.” Think about that for a moment. People spend the best years of their life working a job they don’t enjoy. Then, they try to enjoy themselves when their health is declining and they don’t have much time left to live.
Why Would Someone Want To Retire Early?
I don’t know about you, but I don’t want to achieve wealth in a wheelchair. I would rather make some sacrifices now to live a much more fulfilling life in the next 10-20 years.
My goal is to reach financial independence by the time I’m 30 years old. I’m currently 18 years old, so I have 12 years to make this happen. I tell people this and they say, “Why on earth would you want to retire at 30 years old? What are you going to do with the rest of your life?”
In my mind, that’s when my life begins. Or at least, that’s when I start pursuing the things I really want to do. Once I turn 30, I want to start a family, own my own business, and experience the things this world has to offer.
Now yes, I plan on doing these things to a certain extend before I “retire”. But, I can’t focus on them full-time until I reach financial independence and can quit my job.
I do not expect to have a net worth of millions of dollars by the time I’m 30. At this point, I just want to have enough saved to where I can coast the rest of my working years without having to worry about money. I have no intention to stop working, my income will just become more inconsistent as I will own my own business.
How To Achieve Financial Independence and Retire Early Audiobook Review
As mentioned, I want to cover a few of the key ideas from JD Roth’s How To Achieve Financial Independence and Retire Early. By no means does what I’m about to talk about come close to the extend of knowledge shared in Roth’s book. I just want to share a few of the biggest takeaways from each chapter as Roth does a good job outlining the steps toward financial independence.
What Is Financial Independence?
Financial Independence is a milestone you hit when you have enough money saved and invested to support your living expenses for the rest of your life. At this point, you could stop work completely and do whatever you want with your life.
The way I like to think about it is that your financial obligations are going away. You no longer have to work to sustain the lifestyle you want to live. You can work if you want, but you don’t have to. It’s a huge feeling of freedom once you reach this point.
The Power of Purpose
Roth spent a decent amount of time making sure that people have a purpose before they start to pursue FIRE. After all, it would be kind of pointless to put all of this work into retiring early and then have no clue what to do with your life.
It’s also important to realize what your end goals are before you start this process. Thinking about what you will do after you “retire” will be what motivates you when times get tough.
The Power of Profit
I believe that the fundamental key to building wealth is spending less than you make. Roth calls your personal savings, your personal profit. Your profit is determined by how much you have left over after you pay for all of your expenses.
If your profit is $0, you will never build wealth. Some people even have a negative profit which means they are incurring debt faster than they are paying it off. It’s only when you start to have a positive profit and begin to invest this amount that you’ll start to work toward financial independence.
How To Spend Less
In order to increase your profit, you need to cut expenses. Roth suggested you focus on cutting costs in the 3 largest spending categories: housing, food, and transportation.
To spend less on housing, consider living in a smaller house or house hacking. To spend less on food, eat out less and try to find good deals. To spend less on transportation, don’t buy new cars or don’t own a car to begin with.
How To Increase Your Income
Roth argues that at some point, there are no more pennies to pinch and you have to increase your income. While there’s a limit on how much you can cut spending, there’s theoretically no limit on how much money you can make.
To do this, he suggested further educating yourself, increasing the quantity or quality of your work, and learning how to market yourself. Using these three ideas you can get a college degree so you get paid more, work more hours, get a raise, get a second job, start a side hustle, and negotiate your salary.
Your Wealth Snowball
Hopefully after increasing your income and reducing your spending you have a personal profit. You should start to invest this profit to generate a snowball of wealth.
This growth will start slow, but will become faster and faster like a snowball rolling down a hill. Each debt you pay off will free up more cash flow, and each dollar you invest will start compounding.
Smart Investing Made Simple
In order to accelerate your growth, you need to invest your money. In order to achieve the best results, you should invest regularly into index funds.
Start by maxing out your 401k, Roth IRA, and IRA respectively. If you still have money leftover, you can invest in regular brokerage accounts, pay down any remaining debts, or set aside money for medium term goals.
How Much Is Enough
In order to have enough saved in retirement, it is commonly recommend to have 25x your annual expenses saved. This will allow you to sustainably withdraw 4% for the rest of your life (this is called the 4% rule). If you are on the older side, you can get away with withdrawing 5% per year (which means you need 20x your annual expenses saved). If you are on the younger side, you should be more conservative and plan to withdraw 3% per year (which means you need 33x your annual expenses saved).
Check out this FI/RE Calculator if you want us to do the math for you!
Barriers on the Road to Financial Independence
Roth does a good job laying out a few of the common barriers on the road to financial independence. The one I found most interesting was that FIRE can get boring.
After the initial excitement fades and you pass the first big milestones, things slow down. At this point, things might start to get boring. However, it’s important to remember why you started.
Building a Rich Life
Once you reach financial independence, you should have a plan for how you want to live a rich life. My biggest takeaway from this chapter was to do things that excite you, get you excited, and give you fulfillment.
Now is the time to enjoy the fruits of your labor, so go out and live an extravagant life!
While I touched on a few key ideas, I hardly scratched the surface of what this book has to offer. I highly recommend you check out this book for yourself!
The Takeaway
That’s it! I hope you enjoyed this post about how to achieve financial independence and retire early! Remember to check out JD Roth’s How To Achieve Financial Independence and Retire Early by JD Roth. Best of luck on your FIRE journey!