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. Status Quo
The status quo is really the default script that we’re following… This is what most people are doing in developed economies… You’re working with a low saving rate. Even a 10 percent savings rate has you working for 51 years into your 70s to have assets large enough to cover your expenses.
Most Americans are working until they die, or qualify for government assistance. What kind of life is that, though?
Well, the benefit to this strategy is that you have the option of spending everything that you earn. This can be handy in times of need, when circumstances are beyond your control. Things like legal and medical bills can take a huge toll on your finances, and you might find this strategy useful if you’re in that situation.
The other benefit is that your personal savings rate becomes less important the closer you get to traditional retirement age, but the risk is that you’re relying on government assistance, and the government can change policies. It’s possible that things will change such that you won’t have access to assistance at the age you thought you would.
The other drawback here is that you might stay in a job where you’re totally disengaged and unfulfilled, which affects your happiness in other areas of life.
2. 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 benefit to having portfolio income is that you can cut down your timeline to retirement by a lot.
For example, instead of working for 51 years, by saving 25, 50, or 75 percent of your income, you may find yourself working for only 32, 17, or 7 years, respectively.
The overall goal of this strategy is one most people looking to achieve FIRE are familiar with – to save 25x your annual spending. You can do this by growing your income, cutting expenses, and investing the difference wisely (which usually means in index funds).
3. Passive Income
With passive income, more often than not, people are referring to things like online businesses, authority websites, ecommerce sites, royalty income – things like that.
We talk a lot about generating passive income, so we’ll just note the characteristics that Michael talks about:
- 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
4. 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 might mean earning less money, but it generally means being more fulfilled by your work.
This strategy might not get you to financial independence, but you derive more joy and meaning from life because you can connect with the work that you’re doing.
In short, it’s half the FIRE equation because you’re using your time in a way that’s fulfilling.
Keep in mind that passions can change. What called to you at age 25 might not be what you feel called to do at age 30, which might result in a mid-life career change.
Additionally, because you’re not financially independent, you’re still trading time for money with this strategy. You’re working because you need the money.
Normally, when we hear the word ‘windfall,’ we think of something like inheritance money. But, as Michael says…
There are ways to actively practice the windfall strategy. One of those is growing and selling a business.
J.D. Roth is the example that comes to mind. He started and then sold Get Rich Slowly and became financially independent from the sale of that business.
Michael also mentions that you can practice this strategy by working for a startup, taking an offer for equity or ownership, and hoping that this pays off.
Both of these approaches are risky since you’re betting on the success of a company, and you can never be completely sure if a company will take off.
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 between the two of them 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.
Michael says that this strategy can work best for valuable employees.
The benefit to this strategy is that you have the opportunity to decompress, travel, and take time to figure out what inspires you. You also have time to learn new skills in case you want to make a change.
The drawback is that there’s a whole lot of opportunity cost. Not earning any income means you’re not investing and that you’re missing out on compounding returns.
You’ll also end up with a resume gap, and in some cases, risk your job security.
7. Gratitude Adjustment
Gratitude can be a really useful escape from the rat race – even just in the moment.
If you don’t think that any of the above strategies will work for you, you can always practice gratitude as a mini-escape.
When you’re feeling down about your situation, or thinking that retirement is way too far away, take note of how fortunate you are, or reconnect with your purpose in your work.
You want to reframe the situation to get a fresh perspective on it.
Overall, the biggest takeaway here is that escaping can come from achieving financial independence, but it doesn’t have to. You can take short breaks if you can’t take a full sabbatical. You can reframe your situation. You can reconnect to a greater purpose while still working your 9 to 5.
- 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
- Passion Income, from Montana Money Adventures
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