Invest early and often to ensure your financial goals are met!

Last week we posted “Don’t Make These Financial Mistakes on the Path to FIRE!“, our longest Two Sides of FI video to date. We had so much to say on the topic that even with splitting our edited footage into two parts (part 2 is now live as well!), it was still long. Why? It’s simple: none of us come into this world as personal finance wizards. We stumble through life making financial mistakes in assorted ways. Most of us make lots of them! That definitely turned out to be the case for us, and we enjoyed discussing our many misses along the way. I encourage you to check out the video!

The episode originally had much less of a clickbait-style title. But when we saw the early traffic wasn’t at our usual level, we amped up our marketing! As I suspect we all know well, humans are rather emotional creatures. Many people worry a lot about money, often for very good reasons. But even the more fortunate among us are no less emotional about cash. So our sensationalist headline did result in an uptick in views! Thinking about our conversation in this episode prompted me to write about a common issue that we discussed: wishing we’d saved more, earlier. Read on and avoid our mistakes…

Most of us get a slow start when it comes to saving and investing

Few of us had the knowledge and/or initiative to become big savers growing up – even if we had jobs throughout our teens, as Eric and I both did. As soon as we start earning money, we generally spend it. Sure, plenty of us start savings accounts – we did too. But humans aren’t born with a desire to save and invest. Generally, someone has to introduce us to the concept and convince us of its merit. Unless you’re from a wealthy family, that often doesn’t occur until your first “real job” after high school or college – and only if you’re fortunate enough to work somewhere with a retirement savings plan like a 401(k) or a 403(b).

Even if we do take advantage of those workplace plans, many of us fail to realize the merits of participating fully. How many among us have contributed to a retirement savings plan but didn’t save enough to achieve the full employer match? That’s equivalent to saying “no thanks!” to free money. Yes, I know it can be hard in those early years. As I whined about often early in my career, I was the lowest paid of all my college friends in my first job out of school. It can feel like a real struggle to meet all your obligations and save enough. But even if not right out of the gate, as soon as you can, it’s important to kick up the savings. It will yield huge leverage over time as I’ll share below. Not doing that soon enough is a common financial mistake – one often not realized for many years. A sobering fact: according to Vanguard, in 2020 the median 401(k) balance at age 65 was only $65K. That means half have saved less than that.

The best time to start is yesterday and the second best time is today

So you got a slow start – or haven’t invested at all. Is it too late now? As some will know, one of my favorite podcasts is The Money Guy Show. I’ve been listening to it (now I watch on YouTube) for 8 or 9 years. The title of this section is something I’ve heard hosts Bo and Brian say many times over the years. Sure, it’s best to start saving early (and often), but is it ever too late? Technically, no – but playing catch up becomes harder and harder over time. One of my favorites of the great free resources they have on their website is the Wealth Multiplier. It describes how much money you need to save and invest monthly to reach $1M by age 65. How big of a difference can a few years of savings make? Check out this snippet from their chart:

My favorite take-home from this picture is one they point out often: you have an 88X multiplier on your savings when you start at age 20. In other words, every dollar you invest at 20 can yield $88 by age 65. By comparison, at age 25 that multiplier is down to 44X, at 35 it is less than 13X, and just over 7X by age 40. Download the full table and you’ll see that it only gets worse from there. Translating that into monthly savings, you’ll agree there’s a huge difference between saving $95 vs. $780 each month comparing ages 20 and 40. Wow, right? Particularly for those who don’t love math, I think this image best shows the power of compound interest over time as compared to a graph.

Putting it in context

Eric and I both saved early on and took part in 401(k) plans and other savings vehicles over time. But neither of us would say we took full advantage of those plans in our earliest work years when the multiplier was huge. As we discussed, we did have some financial missteps, challenges, and setbacks along the way – I got divorced, we had student loans, my expenses went up due to relocation, we started families, etc. But even so, in hindsight we know we could have saved more, sooner. We didn’t prioritize saving as early as we could have. Neither of us fully investigated the investment options available to us in those early years. We are both fortunate to have gotten much smarter about things eventually, and benefitted from our career successes which enabled financial catch up. But things could have gone very differently if we hadn’t.

I won’t go into all the details here, but there are many other aspects to consider on this topic, some of which we touched upon in the episode. There are a variety of different tools available for investing depending on the country in which you live; each of which has their tax benefits and other aspects to consider. In the US, these include Roth IRAs and Health Savings Accounts (HSA), just to name two. Particularly if you are early in your career or maybe even still in college, I encourage you to investigate these options. Roth IRAs in particular are a very powerful tool and are available to you as soon as you have earned income. Wisely, Eric has already gotten his working age kids into Roth plans!

But isn’t it difficult? I don’t know where to start!

Above all, don’t panic! This does not have to be complicated! If you have a workplace savings plan and are wondering how to get started, look into target-date mutual funds. These are simple and effective plans that run on autopilot. They have very low fees and auto-balance your portfolio between stocks and bonds relative to your age and time to retirement. And if a plan isn’t offered through work? Have a look at some of the Books listed on our Two Sides of FI website. In particular, I’d recommend The Simple Path to Wealth by JL Collins. This fast and easily digestible read is chock-full of investment guidance that you will understand immediately and can readily apply. It’s very popular for a good reason.

Now get out there and save! I wish you all the best in your financial journeys!

image credit: Photo by Tech Daily on Unsplash

Leveling up your career and your income – a key strategy!

episode thumbnail from YouTube channel, Two Sides of FI

All but the newest readers of this blog will know of my enthusiasm for the “Two Sides of FI” YouTube project on which I’ve been working lately. We now have two episodes available for viewing. Our most recent installation, “Two Careers, Two Paths to Financial Independence“, is really picking up steam in terms of views – it’s very exciting! Cutting our conversations down to ~30 minute episodes means we often end up with great content left on the editing room floor. That’s why movies have Deleted Scenes and Director’s Cuts, right? But how does this relate to telling you how to level up your career?

This episode concerned our career paths, which between my creative partner Eric and I, differed quite a bit. In my case, I undertook a strategy he termed “leveling up” my career. In my mind, it is really just working smartly (not merely harder!) to grow my income and my assets in order to achieve my goal of financial independence and early “retirement”. Since I couldn’t dive into all the details on the YouTube video, I’d like to share more about that with you here. Irrespective of your own path – FIRE or otherwise, I believe you will find something of use. If you haven’t yet watched the episode, I think you’ll find it good background to the rest of this post below:

You must establish and maintain a strong personal brand

This section won’t read like an obvious strategy to level up your career and income, and isn’t something we talked about in the video. Yet I believe this is the right starting place. Above all, you simply must work hard and do high quality work. Seems obvious, doesn’t it? Yet I think you’d agree that many of your coworkers miss the mark on this. Most industries – biotech was mine – are rather “small worlds” when it comes down to it. As such your reputation will always precede you, particularly in today’s connected world. Trust me, it’s easy to find out what kind of worker an applicant is via LinkedIn contacts you both share – most people do this homework, I assure you. I always strived to do high quality work, to be known as one willing to work hard to achieve the goals, and to be someone people could rely upon. As I result, I have gotten jobs that I wasn’t a strong candidate for on paper largely on the basis of my reputation. I bet some of you have as well. I got hired to build and run a customer support organization without ever having done so before. Hell, I’ve hired a couple of you because I knew what kind of talent you had, irrespective of whether you ticked all the boxes on a job description! This. happens. every. day. Make sure you’re on the right side of that equation in your own careers.

One strategy in establishing my brand was to find ways to be known; to “put myself out there”, and volunteer for opportunities that arose. I also asked for meetings with management where appropriate to propose new ideas or even role changes for myself. I saw needs and I formulated ways to improve things, or add capabilities I felt were absent. In the best case, they’ll agree with you – and voilá: You just created a new opportunity for yourself! Early in my career, I turned a lab role into a bioinformatics position for myself, gaining a nice office and support for coursework I wanted to take to advance my skills – just by making the case to my boss. That role didn’t even exist before I proposed it!

Is there risk associated with this approach? You are likely creating more work for yourself, for starters. In addition, management may well disagree with your proposal and that won’t feel very good, particularly if you’ve put a lot of work/thought into it. But if they’re good leaders, they’ll respect your initiative and will be that much more likely to consider you for a future opportunity. If they judge you negatively or there are repercussions for your proposal, I would recommend looking for a new job. Don’t ever work with people who don’t value initiative or respect people who (reasonably) challenge the status quo!

“I figured out what annoys me about you. You’re not the most likable person at this company, but you are among the most liked. You get along with everyone and that makes me crazy…How do you do that?”

Those are the words that a particularly cantankerous colleague confronted me with one day at work. For the record, I am not liked by everyone. Frankly, I have firsthand knowledge that I annoy the crap out of some people. But it is true that I have always recognized that working well with others is a path to success. You never know when you will need help with something, right? When it comes time to recruit team members, don’t you want to be someone people want to work with? I’ve always tried to find ways to connect with people and to gain their respect – even if they don’t “like” or agree with me. I try to listen well and understand perspectives that differ from mine. I attempt to defuse conflict into productive discussion where possible, and work towards solutions. Again, this sounds obvious, but give some thought to how poorly some people do this. Make no mistake: you won’t – and don’t need to be friends with all your colleagues. That’s not the aim here. But strengthening your diplomacy skills is a key element of building leadership muscle.

Broadening your skills is essential for advancement

In many fields, it is easier and faster to advance in salary and title/level by changing companies as opposed to staying within a given company. While I do recommend and did practice this approach, truly leveling up your career takes more than that. One of the most impactful things I did was leave my familiar playground of science / R&D to take a product management role at the same company. The VP of R&D thought I was crazy to pursue this role and tried to talk me out of it. At that point, I’d spent the entirety of my then 12-year career as a scientist or R&D leader. He didn’t understand why I’d leave that path and “throw away my career” (his words) to join Marketing! I knew it was the right move. Sure, I could continue to ascend in R&D management and lead bigger teams. But for new and larger opportunities to open to me, I had to broaden my abilities – and here was a safe way to do it! I already had a good reputation at this company (see the first section above) and knew the technology well. That meant they’d be willing to take a chance with me in a first-time role; not so easy for an external candidate. I could always go back to R&D anyhow, right?

That role turned out to be an absolute game changer for me, and is a clear pivot point halfway through my career. In one of many small decisions that yielded big impacts, it was a simple lunchtime conversation with friends that inspired the courage for me to talk with the head of Marketing about the job. Learning product management filled in huge gaps in my knowledge, including many aspects of business and operations. I didn’t spend the money nor the time to earn an MBA (though having the company pay for this can be a good strategy), instead learning much of essential parts of that curriculum through on the job training! Through this role and ones that followed, I gained the breadth of experience to make me a viable candidate for senior management jobs that would come later.

This is just one example of how you must stretch yourself and leave your comfort zone to truly grow. I’ll be honest, there were some wholly uncomfortable times in that job. My peers in regional marketing had a lot more experience than I did. And as I was part of global marketing, our teams relied on each other for a variety of things. At times they took advantage of my inexperience, or even threw me under the bus when they had business downturns. But I wouldn’t change any of it! Through these challenging times, I grew tremendously. As part of that, I took advantage of a strong mentor from whom I could learn much. The skills I gained through working with him were of huge benefit then and later on, and opened new opportunities to me. They also taught me a lot about product development, project management, and so many other areas to which I wasn’t being exposed in my former R&D life.

Big gains come from aggressively pursuing and creating opportunities

By now you are hopefully understanding that a central element of my career leveling up strategy was a willingness to seek out work that would help me grow. Equally important to my aims of financial independence was increasing my responsibility level and therefore my income. To do this full, I feel you must be comfortable embracing change and be willing to take risks! Paraphrasing a comment in the video, I was rarely risk averse about work, because I’ve always felt that things would turn out well in the end so long as I worked hard and built up a good reputation. If a new role or company turned out not to be all I’d expected, I was willing to move on. Nothing is permanent and you can recover from temporary setbacks. I don’t mean to say I was unequivocally optimistic! I weighed the risks, considered my options, and went for things that I felt fit my aims.

I left what I would term “sure things” twice in my career, departing good roles at stable, respected, well-performing companies, to join start-ups. I could have spent the entirety of my career at either, as many people do. The benefits were great and they really took care of their employees. They were also admittedly kind of boring and I felt, pretty limited or at least programmatic in terms of career progression. In one of these companies, I was honored to be presented with a path through their talent management program, and the leadership roles for which I’d be eligible. I chose to leave that behind to join a scrappy startup down the road. Not only did that move eventually produce some nice income from stock options, I leveled up my skills hugely in the next five years there, along with my salary and title. Yes, I had to take a big risk to make this happen! In fact, that was my third start-up and the first that actually succeeded in any commercial sense. So it’s not like I had a lot of confidence it would pay off financially. But I was sure that I would learn a ton as I had from the others, and I could likely level up my salary and titles quickly as the company grew. This all came to pass! In my experience, start-ups are a great environment for learning, given the pace and there often being too few hands to get the work done.

Chasing opportunities isn’t all upside. At times, they can mean taking difficult decisions – moving away from family and friends, for example. I was once at a management offsite meeting when news emerged that a company leader was moving to a new role. My boss asked me: “Are you interested in his old job? If so, you should move quickly and throw your hat in the ring.” Did I want that? I really liked my current job and my team. Any hesitation soon passed. In a moment of clarity I realized I had an opportunity to negotiate something big. I was based in Connecticut at the time – far from a biotech mecca, and wanted to get to California eventually. Job opportunities were (and still are) so much more numerous there. It is also a highly competitive market! If I could get the company to move me there, it would be a big step in my leveling up strategy. I ducked out from cocktail hour to call my wife Lorri, who was supportive. We agreed it would be difficult to move away from so many people we cared about, but we knew we could always move back. So I told my boss plainly (after another martini for courage), “I’ll do it but I want X title, Y salary, and a paid move to CA”. He said he’d back me, and without hesitation walked over to the President of the corporation. He came back a few minutes later and told me they would go for it! Just like that, it was decided.

Seizing this opportunity by acting promptly and decisively – just as in other moments in my career, would allow me to level up my career, enabling so many things for my family as a result. Taking this position led me to the last few role changes in my career, along with big steps up in responsibility and my compensation. It absolutely accelerated my aims to retire early not to mention set my family on to the next exciting chapter in our lives. Admittedly it’s kind of crazy to me when I review these things in hindsight. Such a small moment in time, when managed properly, can lead to truly big things down the road! Why was I confident in being so bold? Quite honestly, I felt that I had little to lose. What’s the worst that could have happened? They’d say no, right? My hope is that in sharing this story and the other anecdotes with you, it might inspire some exciting change of your own. I’d love to hear about your experiences!

How much savings do YOU need to retire? There’s an app for that!

screenshot from EZ RetireCalc app

I’ve written previously about how to determine when you can retire – an article that I think is good background to this post. The key concept underlying this point is establishing when you have amassed sufficient funds to cover all your expenses for the period you will be retired without any income from the workplace. In other words, when you are financially independent (have achieved FI) and can “live off of your investments” for the remainder of your lifetime. So how do you find that number? It’s very easy to get confused by the many powerful yet complex retirement calculators and modeling tools that are out there – it definitely happened to me early on in my own journey. Thinking about this gave me an idea…

There ISN’T an app for that – until now!

I’ve certainly generated my share of spreadsheets for calculating retirement expenses as well as other financial modeling tools. I suspect some of you have as well. That said, I am aware that not everyone enjoys doing that or knows how to do so. In addition, a few people have asked me if there are simple apps available for this purpose. I looked and was surprised that I didn’t find one. Readers of this blog may know that improving my coding skills, specifically in the area of iOS apps (i.e. iPhone and iPad) is part of my plan in this next phase of my life. So I saw an opportunity – albeit one that was a little scary when I originally thought of it. Now that I have just enough experience with app coding to be dangerous, I thought it was time to take it on! Be not afeard, right???

So that is what this post is about: an introduction to my very simple, free-of-charge EZ RetireCalc app! If you have an iPhone, this link will let you download it. For those without an iPhone, fear not! I’ll share a link at the bottom of this post about how you can use a web tool instead. Please read on to get all the information you’ll need!

By way of introduction, let’s talk about what this app is, and is not:

The EZ RetireCalc app is:

  • a simple tool that lets you input two pieces of information and from those, estimates the amount of assets needed to consider yourself financially independent (FI)
  • a straightforward starting point for your own retirement journey. There will be more work to do but this tool should help provoke thought and action on your part!
  • for Apple iPhone – sorry, I don’t presently know how to code for other platforms
  • for use as an educational and entertainment source, and is not investment advice

The EZ RetireCalc app is not:

  • a detailed retirement modeler that considers other sources of income like Social Security, pension, etc. There are other much more detailed tools out there for that purpose
  • a tool for examining asset allocation, considering the tax advantages of particular account types, or one that lets you model your success rate vs. various rates of return in the market
  • fancy, beautiful, or likely to win any design awards nor earn stacks of 5-star reviews
  • a substitute for talking with a financial advisor, tax professional, or others who are important to consult regarding any financial decisions

How to get started with the EZ RetireCalc app

There are just a few simple screens in this app – “EZ” is in the name, right? The first view you encounter helps you get started – either by reading some brief instructions, diving in with the calculator, or reviewing your past results. Selecting “I’m ready to go!” brings you to the calculator. This screen is where you will input two values: “Monthly Budget” and “Withdrawal Rate”. Slider widgets are used to select a value for each. There is also another link to the instructions here via the button in the top-right of this screen. After you choose the two values, tapping the “Calculate” button will take you to the third page, which summarizes the results. You will find a “Need help?” button below “Calculate”. Tapping that will open a browser window that will bring you to this blog post for easy reference in the future. Lastly, the “Save results” button on this page will allow you to record the output to a table. Here, you can view all saved results as well as delete any that you no longer want to retain on your phone.

So, how do you select a Monthly Budget and Withdrawal Rate? Let’s dive in!

Monthly Budget

Budgeting comes up frequently in this blog – particularly as part of describing my pre-FIRE preparation. That is because determining your monthly retirement budget is an essential part of figuring out how much you need to save. The value you want to enter using this first slider is “what will my anticipated monthly expenses be when I leave the workplace?”. In other words, how much money will you need each month in year one of retirement to cover all of your obligations: bills, mortgage or rent, insurance – everything. Yes, this includes the fun stuff like travel, dining out, etc as well. It also needs to include sufficient buffer for life’s unexpected turns, like out-of-pocket medical bills, pet emergencies, home maintenance, and so on. I use sinking funds in my own budget to account for these expenses. Give some real thought to this number. This is only an estimate for now, but doing a really good job with this estimate pays off down the road when you look back at how your retirement budget is working out!

If you’re already budgeting today, you have a big leg up on coming up with this number! If you are not, you will need to do a bit more work to come to a reasonable estimate. The more that you base this number on actual data (i.e. what you are spending now), the better off you will be. If you will move to a new area in retirement, be sure to adjust your expenses accordingly. If your retirement date is farther out, modeling inflation over time is an important thing to consider in setting this number – many will assume 3% inflation annually, even if this is an overestimate. It’s better to err conservatively here, right?

Withdrawal Rate

The second value you need to enter is a bit trickier and warrants some explanation. That is, what is your expected annual withdrawal rate as a percentage of your total assets. That includes cash, retirement savings, brokerage accounts, etc. Many people considering FIRE start with the “Four Percent Rule”, which originates from the so-called “Trinity study”. In brief, this states that if your annual spending (i.e. twelve times the “Monthly Budget” you enter) is no more than 4% of what you have saved, your funds will last through your retirement period. The truth is more complicated since the rule has some assumptions built in. For example, the Trinity study contemplates a 30-year retirement period – too short for what many are aiming to do in early retirement. At the end of the day, it all comes down to calculating your safe withdrawal rate (SWR), which by extension will lead you to how much savings you need to start with. If you save enough, you can withdraw your monthly budget from your assets each year without running out of money before you die. 

I’ve stated that the truth is more complicated – so how can we simplify it? First of all, I’m not here to say “don’t use the 4% rule”. Many in the FIRE community are very happy with it and I’m not trying to change their minds. My risk tolerance is lower than many of them, and that’s perfectly fine. To that end, if you are on the FIRE train and aspire to retire early, many believe a more conservative SWR (3.5% is common; this is my own number) is appropriate. If you are retiring in your 60s, 4% is arguably too low in many people’s estimation. In addition, if you expect to have other income – pension, Social Security, rental unit profits, etc. you can model a lower % withdrawal and therefore wouldn’t need as much in savings vs. those who won’t have those sources of income. For myself, I choose to assume no other income to make my model that much “safer” i.e. conservative. The good news is that this app makes it easy to model multiple scenarios and compare your results.

In the app instructions, I linked several good resources on the topic of selecting a withdrawal rate. One I’d highly recommend is from a recent Money Guy Show episode where they share their thoughts on this topic, including using a simple SWR table by age of retirement. Here’s a direct link to that section, though I’d suggest the whole episode (“9 Secrets to Having a Successful Retirement!”) is worthwhile! If you really want to go deep on the topic of withdrawal rate, I’ve got your covered! Early Retirement Now is a great blog and is perhaps most famous for Big ERN’s exhaustive series on Sequence of Return Risk (SRR) and withdrawal rate. I won’t pull any punches: a 40+-part series (!) is not for the faint of heart. But reading it over time took me from extreme anxiety about what my SWR should be to a position of informed confidence. This is highly recommended for the financial nerds among us! It is not required reading to use this app. If you’re considering early retirement, have a look at what 3.5%withdrawal rate yields and go from there.

Drumroll, please…the results!

After you choose your two values and press “Calculate” you are brought to the results page. Here you will find a summary of the two values you selected, plus the answer to the big question: how much would you need to save? If you want to save a copy of the results to Photos on your device, tap the share button at the top-right of the screen. Please note that the first time you run the app and try to save, iOS will ask you for permission to save to your Photos. Alternatively, the same share button will allow you to print your results or share them via Messages or social media apps you may have installed on your device. If you want to change values to try another scenario, tap the “Back” button at the top-left.

I suspect people will have one of several reactions to the results page: the number is in line with your expectations, a feeling of sticker shock because the number is higher than you thought it would be, or best of all, a surprise that you are closer to that number than you realized you were. Above all, don’t panic! If you’re among the shocked, I hope this motivates you to consider how to achieve your goals sooner. Perhaps it causes you to reconsider your current spending and saving, or causes you to think about budgeting to assess your true needs in more detail. As some will recall, I have found that the power of budgeting is all about making expenses visible so you can make intelligent decisions – like increasing your savings so you can retire sooner!

For some this may cause you to ask deeper questions: What would the impact be of Social Security on my retirement finances? What does this look like if I model in part-time work in retirement? The list is endless. There are myriad tools out there to model that level of detail. I can’t say I’ve assessed them all, as I certainly haven’t. One that I find particularly powerful yet easy to use is New Retirement (I receive no benefit from mentioning it! I just like it). But there are plenty of others. It might also cause you to talk with a financial advisor, which is certainly a reasonable course of action. Just ensure you select one having a fiduciary obligation to their clients.

But what if I don’t have an iPhone? I want that app!

OK so you are an Android user or don’t have any smartphone. Fret not! Here’s another option for you: I have made a simple web tool with the same functionality as the app, using Google Spreadsheets. Click this link for access to that and it will open in a web browser. If you would like to save a copy to your own Google Drive, select “File”, then “make a copy” in the menu bar at the top of the screen. Then you can name it whatever you like and save it in your Drive. Of course you can also just take a screenshot, print it out, or whatever you like.

In conclusion

This was certainly a useful exercise for me, and I hope I also produced something useful for you. I’m more confident about developing very simple apps at this point though I’m still spending time each day continuing my learning. I’m definitely going to keep that up!

Irrespective of what you do next, I hope this information provides you with a useful jumping off point. I suspect it may provoke conversations with your partner, friends, or family members. Perhaps it will cause you do dig into budgeting, or otherwise further investigate your current finances? Whatever comes next for you, I wish you all the best in your journey. Should you have any questions about the app or want to propose improvements to it, I’d love to hear from you.