[pc86]

The FI crowd is 90% expense management and 10% investment. It seems like most folks there have a goal to stop working but are willing to do that and live like a pauper the rest of their lives. If that works for them, great, but I'd much rather work at a job I love, make very good money, and enjoy my life, rather than "retire" at 35 and live on $24k/yr in interest for the rest of my life.

I'd love to see a Financial Independence plan around growing [a] business(es) and retiring early but not crazy early (40-55) and living on a substantial middle/upper-middle income for several decades.

[ryandrake]

I've read some of those web sites and they're insufferable. Buy a house in cash so you have no payments, shop only at Goodwill, collect rain water for drinking, and never, ever get sick, and you, too can retire at 40!!

[kcorbitt]

Sure, there are people in the FI crowd trying get by on $15k a year. Not my cup of tea, but if they're happy that way I say more power to them. But the community is a spectrum -- there's also a fairly large contingent (composed mainly of doctors, engineers and other high-income workers) whose savings at early-retirement time seem to cluster around ~$3M, allowing for retirement spending of $90-100k. That buys a solid lifestyle by almost anyone's standards. Obviously, that's predicated on having a high-earning career and taking saving seriously, but it's totally doable in 10-20 years.

[ryandrake]

Do-able? Maybe. High-earning is an understatement though. If you want to reach $3M in 20 years, you'd need to save about $100K per year, assuming, say, an annually compounding 4% interest rate across your savings and investments. A lot of people who might consider themselves high-earners don't even make that much in a year, let alone are able to save it.

Even assuming you're a gambler and put all your savings into stocks and get that mythical "steady 7%" return, you need to set aside $75K every year to reach $3M in 20 years.

I'm not claiming to be the world's best saver, but I think I live frugally enough, and after 20 years into a fairly good tech career, my savings is an order of magnitude+ less than that.

[kcorbitt]

I don't think a 7% interest rate is unreasonable. One of the advantages of planning on early retirement means that you can take on a lot more risk with your investments, eg. putting everything into stocks (which isn't really "gambling" -- over long periods they've only ever gone up). If the markets are totally hammered the year you want to retire, no problem -- just keep working a few more years until they recover. And saving $75k a year is also quite reasonable if you have a high income, like a doctor or well-compensated engineer. I’m only a couple years into my career and am supporting my wife and kid, but we’re on track to save a bit more than that this year.

Of course, the lifestyle choices we make aren’t for everyone, and that’s fine. But they’re also not totally crazy. We can save that much still live about as well as the median American, and a lot better than the median human.

[fpgaminer]

> I'd love to see a Financial Independence plan around growing [a] business(es) and retiring early but not crazy early (40-55) and living on a substantial middle/upper-middle income for several decades.

That's roughly my plan. My goal is to achieve financial independence, but my wife and I will continue working even after that. FI just gives us the freedom to do work the way we want.

My current projections put us at retiring roughly when we hit 40.

I just started my own business, which I hope to grow into a indiehacker/lifestyle type business; not a rapid growth startup. Just something I like working at and that earns a reasonable income.

All that said, I'm not sure why you think $24k/yr is a pauper lifestyle. In fact that's roughly our yearly expenses once we achieve "initial FI" * . That's in Southern California, and we hardly live like paupers.

By the way, I never got involved in the FI "crowd". I read through /r/personalfinance in the past, and check it occasionally. It's definitely very heavily expense management. Makes sense, since most people are really bad at expense management. And there is definitely not a lot of discussion about where to draw the line between cutting expenses and having fun. I can imagine that FI specific communities would be much worse in that regard.

But I think all of that is driven by the fact that these communities are composed of, well, everybody. And most everybody can only dream of maxing their IRA. For people in the HN crowd financial management is quite a bit different. We need advice on what to do after we max our 401k! (HINT: Start your own company and do a solo 401k). I think a lot of us are also very privileged already in what work we do. If you're a programmer, you can generally find a programming job you life that pays very well. For most everybody else, finding a job you life is either rare, or would mean taking a massive pay-cut. So while most people dream of FI being an escape from work, I think a lot of the HN crowd is like me; dreaming of FI as just ... freedom. Freedom to take a year off and work on a startup. Freedom to work for a local company for $150k/yr instead of working for Google to earn that fat $300k/yr.

EDIT: * Forgot to clarify that "Initial FI", for us, occurs after our house is paid off so $24k/yr is without a mortage. I editted out long-winded sections of my original comment and forgot to clarify :P

[ryandrake]

Jeez, $24k/yr is my housing budget alone, and I went out of my way to live in a cheap area, multiple hours from work.

[fpgaminer]

Yeah, same here, mortgage is huge in these expensive areas. But having the house paid off is part of our FI plan. That's probably not true of the more hardcore FI crowd. They believe, rightly so, that stocks are better investments than a house and that a mortgage is basically just free investment money. I don't disagree, but I want to own a home ... just cause. So our investment portfolio is definitely real estate heavy :P I sort of balance it out by having less in bonds and more in stocks compared to the Boglehead's advised ratios (I don't see the value in having bonds for an FI plan anyway, but perhaps I'm just misunderstanding something?).

EDIT: See my edit above; I realized I forgot to clarify that my $24k/yr figure was excluding mortgage.

[jjeaff]

Borrowing on your home to invest is just a terrible idea. You may see higher returns on the aggregate in the market but doing so is a good way to lose your home. Too much risk and like you, I think the small spread (and it is very small) between your mortgage and market returns doesn't even cover the risk premium of the potential to lose your home.

[fpgaminer]

The idea isn't to borrowing against your home to invest.

Rather, the idea is that after you have your mortgage, you put your extra money towards your stock/bond investments rather than putting extra money into the mortgage to pay it off early.

This is because the interest on your mortgage is quite low compared to the long-term stock market returns (7-8% after taxes/inflation). So your dollars are more valuable there than spent paying off your mortgage.

In other words, if you take two people, each buys the same home, but one pours all their extra money into their home and the other pours it into the stock market, in 20-30 years the one who poured all the extra money into the stock market would have a much higher net worth.

[ryandrake]

That 7-8% return is not risk-free, whereas if you have a fixed rate of, say, 4%, any extra mortgage payments represent a risk-free 4% to yourself.

So the person who poured their money into the stock market may have a higher net worth, or they may not.

[pc86]

If you borrow against your home to invest you don't lose your home if the investments tank, you only lose your home if you can't make the loan payments.

[jjeaff]

Yes, but lets hope your income is not based on investment success and that your job is still safe even in a market crash. Of course, if you have a steady, locked in income from a very safe pension or trust fund, then go ahead and borrow on your home. You don't have to worry about losing it in that case.

But you only have to go back to 2008-2009 to see how well that worked out for a very large swatch of the American populous.

[pc86]

Where are you "multiple hours" away from work (presumably in a place that doesn't have salaries close to what you make now) and still paying $2k/mo+ in housing?

[ryandrake]

East Bay, work in South Bay. 580, 680, 880, 280 are all often parking lots during rush hour.

[hamstercat]

That's one way of doing it, but there's no one-size-fit-all solution. Some do what you said and just stop spending anything. Not everyone retires either, it's just that they do work they like because they can afford it rather than having to.

It's really a personal experience, I know myself I don't feel like my life is missing anything even if I'm putting money aside to my future. I'm still traveling at least once a year, and I eat pretty good food all the time. At the same time, I don't have a car and rent one whenever I need one.

[mancerayder]

What confuses me most is how people expect to pay for healthcare costs, which keeps going up. I'm an independent contractor and it costs me 1k a month. More than double with family.