Michael Robinson and his wife, Ellen, achieved financial independence at age 33.
They ‘retired’ (they still enjoy working) three years later at age 36 on two five-figure incomes.
Today, Michael and Ellen are raising their two children to be bilingual by slow traveling throughout Latin America.
Michael and Ellen blog about their FIRE adventures at uncommondream.com. They believe that “the Uncommon Dream is the dream pursued – the dream met with planning, action, and sacrifice. With just a dream and those three tools, you can accomplish almost anything.”
Today, Michael joins us on the show to talk about the seven ways that he and Ellen escaped the rat race and achieved FI at 33.
Here’s a breakdown of those seven methods:
#1: Take the Status Quo Approach
“The status quo is really the default script that we’re following … in developed economies … Even a 10 percent savings rate has you working for 51 years into your 70s to have assets large enough to cover your expenses.”
When is this approach beneficial?
Situation #1: Dire Financial Circumstances
Legal or medical bills can spell financial ruin. You can choose to forego saving and spend everything that you earn to avoid crushing debt.
Situation #2: You Love Your Job
Plan to stay at your job for decades to come, and don’t want to retire early? As age 65 grows closer, so does government assistance, and your personal savings rate becomes less important.
This strategy contains risk. Government policies could change; you could become disabled; you could get laid off. Your plan could fall apart for several reasons.
#2: Use Portfolio Income
“It’s essentially the path of saying ‘I’m going to save my money aggressively so that I can quickly accumulate assets – enough to cover all of my living expenses.’”
The goal of this strategy is to save 25x your annual spending, at which point you’ve achieved financial independence.
Here’s what your retirement horizon could look like:
- Save 25 percent of your income, retire in 32 years
- Save 50 percent of your income, retire in 17 years
- Save 75 percent of your income, retire in 7 years
The quickest way to do this is to mind the gap. Grow your income, reduce your expenses, and invest the difference wisely.
#3: Generate Passive Income
Passive income is money that you earn without ongoing effort. It’s the exact opposite of trading time-for-money, because your time and earnings aren’t related.
Michael cites the following five characteristics of passive income:
- No significant upfront investment of capital
- Significant upfront investment of time
- No real-time involvement
- Some ongoing effort to maintain the business
- Automating as many tasks as possible
Examples of passive income include:
- Royalty income from eBooks
- Advertisement revenue from a website you own, but don’t have to maintain
- Rental income from properties you own
- Product sales that don’t require your support
Passive income can supplement your portfolio income or passion income.
#4: Create Passion Income
“This is kind of taking a shortcut out of the rat race by saying ‘I’m not going to work seven years or even 17 years in work I don’t enjoy. I’m going to find work that I’m really passionate about doing now so that my every day life is something that I can be enthusiastic about and engaged in.’”
Passion income is a way to experience fulfillment now, rather than deferring it until you reach financial independence.
The goal is to find work that is meaningful. You’ll still trade time-for-money, but in a way that aligns with your values.
Keep in mind that passions change. What called to you at age 25 might be different than what will call to you at age 30.
#5: Set Yourself Up For a Windfall
When you read ‘windfall,’ did you think about receiving an inheritance?
That’s one type of windfall, but there are others, like growing and selling a business.
J.D. Roth’s story comes to mind. He created and sold Get Rich Slowly. That sale skyrocketed him to financial independence.
Michael also mentions that you can practice this strategy by working for a startup. You’d take an offer for equity or ownership and hope that it pays off.
Are these approaches risky? Yes. You can’t predict the success of a business. But if launching a business or joining a startup appeals to you, consider it.
#6: Take a Sabbatical
“The sabbatical strategy is essentially saying, ‘I need to escape the rat race now, or sooner than later. I can’t endure this miserable work life.’ You need to refresh your perspective.”
Michael and Ellen took five sabbaticals while they were working regular jobs. They lived in low cost of living areas where Ellen could deep dive into the Spanish language and further her value as a bilingual teacher.
A sabbatical gives you a chance to decompress, travel, learn new skills, and discover what inspires you.
There is a drawback: opportunity cost. If you don’t earn money, you can’t invest, so kiss compound returns goodbye.
There’s also risk. A resume gap can present a challenge, and job security isn’t guaranteed.
#7: Adjust Your Perspective With Gratitude
Can gratitude act as an escape from the rat race?
Yes, and it’s easy to practice.
The next time you catch yourself wrestling with how far away retirement is, take note of how fortunate you are, or reconnect with your purpose in your work.
Reframe the situation to get a fresh perspective on it.
You can escape the rat race by achieving financial independence the ‘conventional’ way, but that isn’t the only option.
You can take short breaks or a sabbatical.
You can reconnect to a greater purpose while at your 9 to 5.
You can transition from unfulfilling work to a life-affirming calling.
You can reframe your situation.
Figure out which path is right for you and take that first step towards escape.
Resources Mentioned:
- Uncommon Dream
- 7 Ways to Escape the Rat Race, blog post
- The Millionaire Next Door, by Thomas J. Stanley and William D. Danko
- TED Talk on Sabbaticals
- Bluehost
- Passion Income, from Montana Money Adventures
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