Before the end of 2020, both Mrs. FH and I plan to become financially independent in just 10 short years of working. This is a very aggressive timeline for most people, so we'd like to share our plan. We don't think it was very aggressive for us at all. By hacking our lives exploiting frugality throughout our lives, and playing the "life game" smartly, it was in fact unavoidable.
What was our overall life strategy that got us to this point? How did we hack the system every single step of the way? We didn't win any lotteries or have any unexpected inheritances. And no, using less toilet paper isn't the answer! Minimizing Starbucks lattés and fraps may have been involved though.
Our strategy was pretty straight-forward. We played the game by the book, and ended up in a pretty decent place. We worked hard (we mean this), focused on getting smarter everyday, kept our expenses low along the way, led minimalist lifestyles, and chose where we lived strategically. We didn't get too "lucky" at any point (beyond the usual baseline) so this means anyone can repeat what we did fairly reliably, give or take a few years.
High-School
- Throughout high-school, we worked hard at getting really good at math. Once you've mastered high-school + college level math, everything in life becomes 2-3x easier. Math is the only field you need to be good at these days to be able to learn almost any other field on your own. Both Mrs. FH and I were both above-average at math and we used that skill to our advantage to land really well-paying jobs. A highly analytical brain is very much still in demand in the American and global economy today.
- Once you get good at math, your brain becomes nimble enough to easily figure out pretty much any other high-paying related field such as computer science, actuarial science, corporate accounting, finance, engineering, statistics, data science, data analytics, software, etc. Couple these skills with even a wee bit of inter-personal, perhaps even some managerial skills, plus a willingness to move anywhere, and you're golden.
College
- We worked our butts off during college to attain professional degrees that were immediately useful and applicable in the real world, and that pay reasonably well (i.e. significantly higher than the median wage).
- We went to college in Canada, where education is heavily subsidized by the government, allowing us to graduate debt-free. It's really important to graduate debt-free so you don't end up wasting time and money repaying debt during your prime working years. Your prime working years (i.e. your 20s) should be your prime saving years, not your loan repayment years at the prime rate.
- Flash news: Americans can go to college in Canada too! And I know this because some of my friends in college were Americans. Sure, you don't get the absolute lowest fees because you will still have to pay the premium for international tuition, but it's still way cheaper than the good schools here in America, especially given the current exchange rate.
- We both worked non-minimum wage jobs in professional roles during our college years to make money to pay for tuition. We never took a full Summer off. We were non-stop studying or working for 5 years straight. It's incredible how much energy you can have between the ages of 18-23 if you don't consume any alcohol or drugs.
- We lived in a super low-cost city during college rather than attending college in an expensive high-cost city. This kept our non-tuition living expenses low which was important since our annual income was so low.
- We refused to take on super advanced degrees like a PhD because the ROI on such advanced degrees in the short term (including opportunity costs) is very low, possibly even negative. If you're only planning to work for 7-10 years in total, a PhD that could easily take you 5-7 years on its own, and isn't even guaranteed just isn't worth the effort and time. Do a PhD only if you're truly passionate about academic research and/or professorship, never for the money or social prestige.
Working & Saving
- Shortly after we graduated, we moved to a high cost of living city to start earning during our prime years. Our expenses were high but so were our absolute savings due to higher salaries.
- We should've invested those savings using some low-cost robo advisor like Wealthfront, but instead we just kept them in a low-interest savings account. Big mistake, but at least we were saving.
- We should've maxed out our 401(k) + IRA every single year, but we didn't. Again, big mistake, but at least we were saving elsewhere. Our tax-rate was also lowish during our early working years due to the lowish salaries. 401(k) Roth might've been a good idea at this time.
- In the beginning, as I just started to work, I (Mr. FH) was saving roughly $33k a year, but over time, with rapid promotions and raises, that quickly climbed to saving $50k year. These days, I save a clean $70k/year by having ensured that all my raises go straight to Wealthfront instead of inflating my lifestyle. I even stopped buying new clothes and random crap on Amazon to help me accelerate my savings rate.
- Our current combined net worth at this time from all this working is a sweet $425k (including equity in our home). In a little over 3 years, we project it'll be at $850k without any startup exits, bonuses, raises, or real-estate gains. $850k is the minimum balance needed for us to be financially independent in a high cost of living city (Vancouver, BC) assuming a 4% withdrawal rate, a 1.25 USD -> CAD exchange rate and a 10% overall tax rate. That's $850k * 4% * 1.25 * (1-10%) = $38k CAD per year, or $3167 CAD to spend after taxes each month. That's plenty of money to cover both rent and living expenses for us.
Our financial projections as of May 25th 2017. This shows a projection of our net worth over the next 5 years. The blue line is our actual net worth, while the green line is our forward projection of where we think we'll be if our lifestyle remains unchanged. The orange horizontal line is the required minimum goal for financial independence living in a moderately-priced suburb of Vancouver, BC, while the red line shows our ideal goal to give us tons of extra padding to account for recessions + market corrections.
In 3 years, Mr. FH (i.e. me) will be 33, and Mrs. FH will be 30. Combined, we will both be financially independent living in a beautiful city in Canada. The amazing thing is that Vancouver is not considered a cheap city by any means. We wish we could be moving to someplace even cheaper, but we have decided not to for a variety of personal reasons.
Follow our progress by tracking our net worth with us: https://www.frugalhackers.com/net-worth-tracker/
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There you have it friends, the recipe for financial independence in just 10 short years of working. No secrets. This is all there is to it. Work hard, study hard, get good grades, switch cities, switch companies every 2-3 years, live frugally, save a ton (70%+), invest that in the US stock market via index funds (VTSAX, VTI, VTSMX, S&P, etc.), marry someone with the same mindset, and that's it: you're all set.
Now you can go do something useful and fulfilling for the rest of your (hopefully long) life, not having to worry about money anymore. Be sure to exercise plenty and eat/drink healthily for these 10 years and beyond, otherwise all this money will be for nothing.
