5 Strategies I Used to Reach Financial Independence—Before Turning 40


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Have you ever wondered if there’s a single number that will tell you when you’ve “made it” financially? There is one in fact: the “4% rule.”

The 4% rule is a rule of thumb used by most financial advisors that withdrawing a maximum of 4% of your portfolio per year will allow you to live indefinitely on your savings. The rule is based on 75 years of stock market history, and while there’s debate about what the exact percentage should be, flipping the rule around (1/.04) means that you need to save 25 times your annual spending to be “set for life.”

Ever since I learned about the 4% rule, I became determined to meet that benchmark, preferably before I turned 40. (Spoiler: I did). It’s not that I wanted to retire early and goof off for the rest of my life. I wanted to spend the second half of my life working on projects I believe in, rather than dealing with office politics and doing work I hated or wasn’t passionate about.

And that’s what I did. The week I turned 41, I quit my job to become a Bitcoin consultant and advocate. I could take a risk because I knew that I would never again need to work to live—a decade of planning, hard work, and sacrifices set me up for a life where I could focus my limited time on projects that I believed in.

Here are five ways I accomplished my financial goals:

1. Rent Instead of Buy

I held out on buying my first home as long as I could until Covid-19 forced my hand. While homeownership is great for a growing family, renting for nearly the first 20 years of my career was crucial to my financial success

The financial tradeoff of rent vs. buy is complicated. In short, over the long run, home prices merely keep up with inflation, while the stock market provides a 7 percent after-inflation return.

“In the last 125 years, US home prices have increased 3.2% per year before inflation and 0.3% after inflation,” explains financial advisor Chloe A. Moore, who adds homeownership comes with a lot of hidden costs.

One of those hidden costs is that homeownership makes it rather expensive to relocate for career opportunities, a cost I was able to avoid.

Apartment living as a young professional allowed me to focus on my career. Several times, I quit my work and moved across the country or the world without worrying about a home full of material possessions dragging me down. Within 10 years, I moved from Dallas to New York City to Shanghai to Atlanta to Denver. I never had to worry about mowing lawns, broken washers, or leaky roofs. It's possible to throw money at these problems, but avoiding the distraction allowed me to focus on growing my income instead.

2. Track Your Spending

You can't improve what you can't measure. It's essential to track your cash flow (both in and out) to improve your situation. I've tried dozens of apps to do this, but the key was tracking my finances using a tool like Personal Capital—a free tool that tracks your cash flow. The results speak for themselves: for the first 15 years of my career, I saved 4x my annual spend, or “burn rate.” After I began to track all my spending, it took me 6 more years to reach 25x, or the “4% rule” goal.
Note that tracking your spending is not the same as budgeting: I've never kept a budget because I consider it a terrible way to think about spending. Why not?
If something delivers more value to you than it's worth, you should pay for it. Who cares what you paid for it last month? Every few years, I will go out and spend a fortune on new work clothes, a computer, a new car, or a business investment. Who cares how much I spent on it the previous month or year?

What matters is not how your spending compares to the past, but how it compares to the next-best use. For example, before I spend $1000 on a new suit, I will calculate the value of saving that money. A thousand bucks invested over 30 years will be worth about $8000. Will I value spending $8000 when I'm 70 more than $1000 today?

Your timeline will be different—it depends on what percentage of your income is saved for retirement compared to upcoming major purchases. The point is that you should balance each potential purchase against the time-discounted value of the next-best purchase, whether that is an iPhone next month or a yacht 40 years from now. A financial tracking and investment planning tool makes this calculation much easier.

3. Single-Income Household

My family is a single-income, two-child family—my wife has been a parent and/or a student since we got married. While I once saw this as a disadvantage, I've come to see the benefits of a stay-at-home parent paired with an ambitious career.

The cash flow of a second income is easy to see, but the costs are not so obvious. Aside from higher taxes and work-related expenses, running a household with kids has a lot of overhead, and working parents usually have to throw money and stress at problems to stay afloat.

It's virtually impossible for both parents to fully dedicate themselves to a career without neglecting their children. Something has to give—either one parent will sacrifice their career, or both will have mediocre career progress. By focusing on parenting, my wife can let me focus on my career during the day, so I can support her needs as a student at night.

Furthermore, because we homeschool, we have very low childcare costs. We took our daughter out of an expensive Montessori school because we found that she learned better at home. Homeschooling is efficient financially and grants me the necessary mental space to focus on work each day.

Of course, if you both find a career rewarding, or don’t have children, your situation will be different. But don’t simply assume that two incomes are greater than one.

4. Side Hustles That Further a Career

I encourage “side hustles,” but many people get hustles that do more harm than good. The optimal function of a side hustle is not to earn a few extra dollars—it’s to grow your value proposition and train for a life of financial independence and entrepreneurship.

Many people get a side hustle that distracts rather than enhances their careers. Driving Uber at night or hosting Airbnb guests every night is unlikely to enhance your career unless your dream is to be a chauffeur or enter the hospitality industry. Same with being a jack-of-all-trades who takes whatever job he comes across.

Is your side hustle causing you to sleepwalk through the workday or work on your gigs from the office? Are you spending more money on tools and supplies for each new gig that you bring in? Are you growing as a professional and building a sustainable revenue stream with customers that come back to you, or are you doing random, one-off jobs? Are you giving up new projects at work, a promotion or a demanding new job for your side hustle? If so, it’s holding you back rather than helping you. If you’re truly seeking financial independence, you don’t need a little more spending money—you need to create opportunities for professional growth.

A good side hustle should help you to grow in your career or to explore a new one. You should come to the office excited to try out new ideas, not just tired from staying up all night working in an unrelated field. Side projects in your current field often allow you to be in charge of a small project and use the latest technology or techniques that are too risky or difficult to approve with your boss. I’ve used this trick to qualify for jobs that I couldn’t dream of otherwise.

It’s not just me, of course.

Countless other people have used side-hustles to ditch full-time jobs and launch new careers. Just ask Josh Elwood, who in 2021 quit his 60-hour a week job to pursue side-hustles full-time.

Three years after starting various side gigs, he was making $189,000 annually on a variety of revenue streams.

5. Invest Aggressively, but Patiently

After maximizing the spread between your income and your expenses, you need to leverage the magic of compound returns by investing it in the market.

There are as many opinions on investment strategies as there are investors. Yet most get below-average returns and most day traders lose money. Unless investing in the market is your full-time job, you will probably not beat the market. You may get lucky, but chances are that if you try timing the market, you will be guided by your emotions, and buy high and sell low.

“The proper temperament is far more important in successful investing than points of intellect,” the famed investor Warren Buffett has observed. “If you have a reasonable intellect and the right temperament, [you’ll likely] get very rich.”

The problem is most investors do not have the right temperament, which is why even the best money managers in the world can’t beat the market. So my suggestion is: just invest in the market. The whole market, not just the S&P 500. You can either invest in an index fund like VTI (USA) + VEU (not USA) or use a robo-trader that buys individual stocks (this can lower costs and save on taxes).

I use Personal Capital. I can’t speak for other robo-traders, but Personal Capital re-balances my portfolio not only by asset class, but also by market sector, so I’m positioned to benefit from growth in any industry. (By portfolio, I am referring to liquid securities and some real estate. I have other assets like business interests, but I’m trying to keep this advice universal.)

The Bottom Line

If there was a secret formula to six-pack abs, everyone would do it. But a chiseled body requires both knowledge and years of hard work, discipline, and sacrifice. That kind of dedication isn't for everyone.

The same is true of the goal of financial independence.

It takes both education and decades of discipline for exceptional financial success. The good news is that you don’t need luck, connections, or genius to achieve wealth. You just need to follow a few simple rules: an ambitious career, high savings rate, index investment strategy, and the patience to stay invested through volatile market cycles.



* This article was originally published here

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