Note from Daily Trade Alert: This is the second article in an exclusive four-part series that reveals how Jason Fieber went from below broke at 27 years old to retired at 33. You can read Part 1 here. In today’s article, Jason discloses how he averaged a savings rate of well over 50% of his net income over the entire six-year stretch… he reveals how he built a lifestyle that was designed to save money… and he shares some of the unique strategies he used along the way. If you’re serious about fast-tracking your own retirement, consider following Jason’s lead…
They say you need money to make money. Can’t invest money you don’t have.
I used to spend money willy-nilly, much like most people do.
I spent without thought, conviction, or purpose.
In many ways, I was just following the herd. I was spending like everyone else does because I thought that was the right way to live.
And that’s really the crux of a lot of issues we have in society in general, but it’s also an impediment to being able to retire extremely early in life.
People often spend too much money, and they do so because they think it’ll make them happier.
They have this notion not because of any actual research paper or study that tells them this is so but rather because everyone else is doing it.
If seemingly everyone is living a certain way, that must be the only way to live.
Right?
Wrong.
In order to spend less, one must first realize the folly of spending so much money in the first place.
Once you have the proper mindset in place, you’ll have the power necessary to start controlling your spending.
Consumption is not a game where you automatically become more happy the more you consume. Money and happiness do not operate under a constant 1:1 ratio of one another, where the increase or decrease of the former results in the same exact change in the latter.
What I realized is that life can be a lot like a giant treadmill. Many of us are running faster and faster, yet we’re not getting anywhere.
So I decided to simply step off the treadmill and live differently.
I already discussed in the last article that one of the first things I did in my major life pivot was to move to Florida. And I did so because of the reasons I already laid out.
Once I got there, I did all I could to find a job as soon as possible.
This was late 2009. I was 27 years old.
I ended up doing the same thing I was doing in Michigan – working for a car dealership as a service advisor – but I was making just a bit more money.
However, making just a little more money wasn’t going to radically change my life.
I knew that I had to start gaining control over my financial situation.
So I added up all of my assets and all of my liabilities. Assets minus liabilities would tell me my net worth. Net worth is one’s total financial picture, or what they’re worth.
Well, my liabilities far outstripped my assets back then. I had student loan debt that added up to almost $30,000. And I only had about $7,000 in assets. As you can see, I was in rough shape.
As I noted in the last article, babies were worth more than I was.
It was an embarrassing exercise. But it was also freeing. And it emboldened me.
See, once you know where you’re at, you have a starting point.
There’s no way you can possibly get from one place to another unless you know where you’re at and where you’re going.
I knew I wanted to be free. I craved financial independence.
But I first had to know where I was.
The first thing I did was take that “big picture” look at my worth.
While knowing my net worth allowed me to gain a sense of direction, I had to then discover exactly, down to the penny, what I was spending.
After all, the only way I could put myself in a position to retire early was if my spending was somehow covered by income sources other than my full-time job.
Well, I couldn’t know how much I’d need without knowing what I was spending. And I couldn’t cut expenses if I didn’t figure out exactly where the waste was. Said another way, you can’t plug a leak in a bucket without knowing the location and size of the hole.
Unfortunately, I had many holes.
I was eating out all the time. I was living in an apartment that was nicer and larger than necessary. I had a car that was only a few years old.
Did I need all of this in my life? And was it making me happy?
I realized that the answer to both questions was a resounding no.
That’s because I was working to earn, earning to spend – a vicious circle that imprisoned me.
Worse yet, all that spending was for naught. I was spending money I didn’t really have to buy things that didn’t make me happy just to impress people I didn’t even know. It was silly.
What would make me happy was to be free. Free of a job that made me miserable. Free of expectations. Free of responsibilities I didn’t want. Free of this imprisonment.
I wanted to be free to be me.
And in order to be free, I needed the passive income necessary to cover my bills. I knew that I could invest money and generate passive income, but this required money. As such, this passive income needed to be built from my savings. You can’t invest money you don’t have.
So I started a budget.
This means recording everything. Every penny that came in. Every penny that left my pocket.
And I realized I was earning about $3,000 per month. I also saw I was spending about $2,500 per month.
Not terrible but not great.
In order to get ahead quickly, I had to create a substantial gap between the earning and spending.
Earning more sounds sexy, but it’s not easy. And it’s not necessarily immediate. Moreover, we don’t totally control our earnings. I couldn’t just ask my boss for $10,000 more per year.
However, I can control my spending.
Spending is within our control.
Better yet, it’s immediate. A dollar I don’t spend is a dollar I save. And it’s an extra dollar I can invest. Furthermore, a dollar saved is actually better than a dollar earned, as it’s more favorable in regard to taxation. Plus, you don’t have to work harder for it.
So I started cutting excess fat over the course of the year.
Eating out less was one of the first changes I made. I became more familiar with my kitchen. Eating at home can be more satisfying and healthy in many ways, so I saw this as a positive change in many respects.
I also started to look into cheaper apartments. I knew if I could lower my housing costs, that would be extra money that would drop straight to my bottom line, allowing me excess capital to invest.
And I also developed a plan to sell my car. I was spending about $500 per month on my Pontiac G6. That included the car payment, insurance, gas, and the occasional repair.
But check this out: $500 per month compounded at 8% over 20 years is almost $300,000 (factoring out taxes and inflation). Yes, $300,000!
Was my car worth $300,000?
Absolutely not.
But we live in a car-oriented society. Public transportation is robust in only a few cities.
Does that mean I give up and just stick to owning and driving my car?
Nope. Time to get creative.
So I spent time looking into alternative methods of getting around.
Walking. Riding the bus. Using a bicycle.
I realized that there are a lot of options, once you open your mind.
Meanwhile, the rest of the budget was under attack. I became more ruthless the more time went on.
What I found is that the more I saved, the more I wanted to save.
It became this positive reinforcement where positive results gave me motivation to improve and experience even more positive results. It was this self-reinforcing loop of positivity and results.
Once 2011 took hold, I was in full swing.
No spending was considered sacred.
I moved to a cheaper and smaller apartment, saving hundreds of dollars per month in the process. I went from paying $610 in rent (for my half) to $450. Rent was cheaper right off the bat. And by downsizing, our utilities also dropped. I also found that it costs less to furnish a smaller place, which leads to less clutter and noise in my life.
I also sold my car in 2011. I went from spending $500 per month on transportation to about $40 per month. I started riding the bus – an ironic situation to be in, considering that I was working for a car dealership.
My food spending dropped significantly over the course of the year. Eating out became something reserved for special occasions. Food at home involved simple, healthy, and cheap dishes. And I started packing my lunch for work.
Oh, and I wasn’t just packing any food for work. I actually ate ramen noodles for about a year straight – every day for lunch at work. At $1 a package, I was essentially spending $1/week on lunch at work. Can’t do much better than that. I’d use very little of the included salt packages, in order to cut down on sodium. And I used to mentally pretend that I was eating something different every day. I used to joke that my lunch was spaghetti, pasta carbonara, or some other fancy pasta dish.
Housing, food, and transportation are what I call the “big three”.
These three budget categories usually represent the bulk of an individual’s spending.
The good news is that they can be controlled to a large degree. And I knew that if I focused on these three categories the most, the rest of my budget would be easy.
I also got rid of my expensive mobile phone plan, relying on a cheap VoIP service. Cable TV was also cut.
To give you a real-life example of what happened here, I spent $1,213 (on all expenses) in September 2011.
That’s right: ~$1,200. That’s real-life spending that I’m revealing from my historical reports.
So we’re talking less than half of what I was spending before I started aggressively cutting expenses.
That’s cheap rent, no car, watching the food spending, and limiting everything that could be limited.
Moreover, I was simultaneously working extremely hard at my day job. While cutting my expenses was well within my control, I also knew that if I could work hard and make more money at work, I’d be able to further create a larger gap between my earning and spending via the earning part of the equation.
So in that same month of September 2011, I earned $3,686 from work.
A nice little boost from where I started in early 2010.
What you can see here is a major gap between my income and expenses. In fact, my savings rate (savings/income) came in at just under 70% in September 2011.
Most Americans have a hard time saving just 5% of their income.
But here I was, saving almost 70% of my income.
And guess what? It wasn’t even that hard. Sure, some of these sacrifices may seem extreme to some people.
But you know what’s extreme to me?
Working your whole life for a job you don’t really want. Not being in control of your life is extreme to me.
So I suppose it’s all a matter of perspective.
On top of the hard work at my day job, I started side hustling as well.
I started a financial blog in early 2011, which was designed to show the world that a middle-class guy at a middle-class job earning a middle-class salary could achieve financial independence at a young age and essentially be in a position to retire decades faster than most people.
This blog allowed me to regularly collect my thoughts. It also kept me motivated and honest, as I didn’t want to disappoint my readers with terrible saving/spending decisions. Furthermore, my writing started to earn me a small income.
As time went on, the blog became extremely popular. And my writing income started to approach what I was making at my day job, so I quit my job and focused on my writing.
Not only was there the blogging, I also wrote a best-selling book. And I was freelance writing.
Basically, I was working extremely hard. Perhaps harder than I was in the auto industry. But it was enjoyable work, which is a totally different dynamic.
On top of this writing income, all that saving and investing started to work on my behalf.
See, money can work harder than I ever could. It works 24/7. Never sleeps. Never gets tired.
And so the money I was saving all these years was being invested in high-quality dividend growth stocks (which I’ll go over next time). These stocks were paying me growing dividends, which means my investments were generating an income all by themselves. That’s on top of everything else!
However, I didn’t let lifestyle inflation creep up on me. I didn’t start spending vast sums of money simply because I was earning more. Just because you can spend money, it doesn’t mean you should.
If we fast-forward to June 2015, I earned $6,245 from all of my writing activities. And I also earned $657 in dividend income that month. That’s a total of $6,902 in income for me.
Meanwhile, I spent $1,915 that month.
More than I was spending back in late 2011, but a good chunk of that spending was directly related to business expenses necessary to support my high income. In addition, I had some extraordinary expenses that included a vet bill and the replacement of some kitchen gear that month.
My core personal living expenses that month were under $1,200.
Nonetheless, I saved approximately 70% of my net income once more.
So even though I was spending a little more, I was making a lot more.
But this was only possible by keeping my spending in check. There are a lot of people out there that make six-figure incomes, yet they’ll spend everything they’ve got (and then some). Controlling your spending is absolutely vital to being able to retire early in life.
I was still living in the same small apartment that I moved to back in 2011. I was still living without a car. I was still watching my food spending as I concentrated on the “big three”. And I wasn’t wasting one penny that could otherwise be saved and invested.
It always occurred to me that my income could oscillate wildly.
And there was no guarantee that the income would persist. Anything can happen.
However, by controlling my spending, I didn’t need to worry.
I could sleep well at night knowing that I could earn much less and still get by just fine.
And you can also see here what was happening with the investing.
All that prior saving was starting to work on my behalf.
Old money was turning into new money. And new money was turning into future money. It’s really amazing stuff.
But let’s just consider the savings of June 2015 for a moment.
I saved $4,987 that month. If you compound that at 8% for 20 years (again, ignoring inflation and taxes), that’s over $24,500. We’re talking just one month of savings. One month!
Now just imagine what can happen if you repeat that over and over again.
Let’s say you can save this much for just one year. Just one year of your life.
If you can save that much money every month for 12 months in a row and never again save a dime, it turns into almost $300,000 after 20 years.
Imagine now what’s possible if you can save a high percentage of your net income for years on end.
The possibilities are almost unlimited. And so is the potential freedom!
Even today, not much has changed.
Although I could easily afford to live a pretty luxurious lifestyle, I still own no car. I still live in a very modest apartment. And I’m still thoughtful about finding value and purpose in every penny I spend.
My core personal living expenses are currently hovering around $900 per month. That’s rent, food, transportation, and all the essentials.
Meanwhile, my passive dividend income is hovering around $1,000 per month.
That’s right. My passive income pays for my essential basic bills.
I’m essentially retired in my early 30s, decades before most people.
I haven’t worked at a traditional day job in more than two years. I’m living the life of my dreams.
And I think you can live the life of your dreams, too.
But living well below your means so as to generate the capital necessary to invest and build passive income is absolutely necessary to making that happen.
In Part 3 of this series, I go over how I invested all of this excess capital.
If you consider how hard I worked for every penny, and how frugal I am, you’ll know that I invest my money very carefully only after much thought and deliberation. And I picked the strategy I use because I believe it’s the best way to buy financial freedom at a young age.
— Jason Fieber