November marks my 25th anniversary working towards financial independence. I hope others might benefit from the observations I gathered over an extended timeframe of perseverance.
I began adulthood with severe anxiety regarding finances.
I developed FIRE-type thinking before FIRE was a commonly understood philosophy. My thinking developed through personal experiences and later through forums such as these. FIRE thinking helped me to overcome an unhealthy fear of becoming destitute while accelerating other life goals that have brought peace, contentment, and happiness to everyday life.
This article documents that journey as a means to give back to a community which has given much to me. I hope it is informative, supportive, and motivating for everyone on their own journey. I will answer questions and offer additional perspective in the comments where possible.
This is a throw away account and certain milestones have been obfuscated to create some semblance of privacy and anonymity, though all financial figures quoted are accurate.
Outline
- About Me
- My FI Philosophy
- Milestones
- My Investment Philosophy
- My Expense Pattern
- My Evolving View Of FI
- Lessons & Observations
About Me
I achieved FI in 2017. I have no plans to RE.
I am mid-40s living in a HCOL area. Married with no kids as we prefer partying over parenting.
I grew up in upper lower class economic conditions around military bases. My parents struggled to save money outside of any retirement benefits afforded from their jobs. Frequently being unable to have the trips, food, clothes, and toys that the “other” kids had formed an indelible mark. There have been periods where I have had significant anxiety regarding financial safety.
I work in tech. My wife is an overworked, underpaid social worker.
My career began as a deeply indebted student and after graduation included jobs in training, engineering, product, executive leadership, startup CEO, investing, and governance.
I write a well-read technology blog and authored 3 books that are now irrelevant.
I travel extensively, sometimes for work, sometimes pleasure. I have visited 50 countries. I have a pilot’s license. I own 2 houses, a plane, 2 cars, and a boat.
My FI Philosophy
- Live Life Below My Means. I should always be saving money, regardless of what my income level is. As long as I earn a W2 income from a job, my monthly expenses should be (on average) at least 50% below the average after-tax income. This also means that it’s OK to increase my spend on quality of life as my means has increased, though it wasn’t until my 30s before I practiced this without stress. As you'll see, having this policy is easier to state than to always follow.
- FI Definition. Because of my youthful anxiety towards money, difficulty in determining what a viable number of years “in retirement” might be, and debates as to what constitutes a Safe Withdrawal Rate (SWR), I chose to shape a personal definition. For me, FI is the ability to generate enough income from non-W2 activities such that my annual rate of expenses is covered. Income generation can happen from rents, selling volatility, interest, or dividends. In other words, FI is when my net worth continues to grow with or without traditional W2 income. This philosophy may change one day – either because the net worth pool is large or the expected number of years before death materially shrinks.
- Eliminate Debt, Even If It Is An Economic Mistake. After having bought and sold five different homes, I came to realize that the mental stress of having debt outweighed its economic benefits. Starting sometime around 2018, I decided to eliminate all possible debt, even 2% mortgage debt. While the arbitrage of investment results would have yielded a better overall economic outcome by keeping the debt, that financial gain could never be large enough to compensate for the anxiety-neutralizing-feeling of being “debt free”. Whatever I owned was owned by me alone, and in the unlikely event I were to become unemployed or without income, the future of those assets was solely in my control and not in conjunction with a bank. I execute this policy on life assets, such as my primary home and automobile, and toy assets, such as my plane. This, of course, requires a person to have enough assets to cover the debt, and it took me 15 years to achieve this threshold.
- Invest To Beat The Market. If I am willing to devote more energy and research time than others (at the cost of fun, family time, etc), then I should be able to make smarter decisions that yield higher results. Split investments into those things which are liquid vs. illiquid. Try to keep most of my available cash in liquid investments. I prefer (and try) to earn equity in illiquid investments through time-based contributions, sweat equity, carried interest, or as a job benefit. This doesn’t always happen, and I have had to outlay cash for angel investments, as a limited partner in a VC fund, and stock purchases for companies I’ve run. Never let others manage our money as they lack incentives to behave as an owner. As you’ll see, lacking this wisdom once cost me $3M in my early career.
Milestones
| Year | Net Worth | Addl Illiquid Assets | W2 Income | Material Events |
|---|---|---|---|---|
| 1997 | -$95,685 | $- | $14,110 | Pizza Delivery |
| 1998 | -$88,299 | $- | $25,906 | Graduate Univ. |
| 1999 | $25,612 | $- | $104,155 | Footnote #1 |
| 2000 | $88,843 | $2,700,954 | $125,543 | Emp. Equity! :-) |
| 2001 | $247,777 | $800,056 | $232,223 | Dotcom Bust |
| 2002 | $294,994 | $- | $144,987 | Footnote #2 :-( |
| 2003 | $336,523 | $- | $283,847 | First Home Buy |
| 2004 | $384,258 | $- | $207,411 | Sold 1st Startup |
| 2005 | $436,189 | $15,000 | $138,845 | 1st Angel Investment |
| 2006 | $558,473 | $15,000 | $191,384 | 2nd Home Buy |
| 2007 | $614,038 | $15,000 | $204,448 | 3rd Home Buy |
| 2008 | $545,783 | $15,000 | $231,926 | |
| 2009 | $638,926 | $15,000 | $233,656 | Footnote #3 :-( |
| 2010 | $1,009,650 | $25,000 | $427,404 | |
| 2011 | $1,333,754 | $100,000 | $384,681 | Started 2nd Startup |
| 2012 | $1,637,200 | $104,000 | $89,187 | Became VC Scout |
| 2013 | $1,966,303 | $407,703 | $255,000 | |
| 2014 | $1,777,266 | $1,360,905 | $230,000 | Sold 1st Angel Investment! |
| 2015 | $2,313,846 | $5,786,086 | $243,750 | 1st VC Distribution :-) |
| 2016 | $2,638,612 | $5,210,121 | $368,622 | Startup Profitable :-) |
| 2017 | $6,422,053 | $6,162,527 | $802,590 | Startup Acquired :-) |
| 2018 | $6,514,291 | $7,805,654 | $452,129 | Paid Off Mortgages |
| 2019 | $8,202,434 | $9,895,887 | $561,954 | 3rd CEO Gig |
| 2020 | $8,079,164 | $6,466,506 | $801,151 | |
| 2021 | $7,414,909 | $10,658,321 | $998,761 | Footnote #4 :-( |
| 2022 | $10,318,719 | $9,457,050 | $1,065,001 | Strong Investment Returns |
Definitions:
- Net Worth: The value of all assets where I maintain liquidation control less all known or anticipated liabilities. The assets include fixed assets like my home, plane, and automobiles. While they are illiquid, the choice to effect a sale is within my control. The assets also include the net liquidating value of trading accounts, deferred compensation, 401K, IRAs, and checking accounts. The liabilities include any outstanding debts including mortgages and credit along with any future anticipated taxes that would be due from liquidating 401K, IRA or deferred compensation accounts.
- Additional Illiquid Assets: This is the mark-to-market (ie, my personal best guess) for the carrying value of additional assets for which I am entitled, but for which I have little control as to when or how they may become liquid. These include angel investments, the value of my shares of VC funds for which I am a limited partner, and carried interest for investments that were sourced as a VC scout. This value does not exclude anticipated taxes which is hard to calculate since some taxes are paid in advance of receiving distributions. It’s possible that the tax burden on the remaining distributions could be <20%. It’s possible that all these assets become worthless, but unlikely, as the $9.4M carrying value is spread across more than 3 dozen businesses and about half of those have already been sold or already profitable.
- W2 Income: The income received by my wife and I from our W2 jobs.
Footnotes:
- I had an amazing thing happen about 18 months after university. I was working as a grunt in a consulting firm that had some acquisition interest from a large publicly traded company who was making aggressive moves into an area of technology where I had been tasked. The acquisition was moving fast and the firm needed to produce certain deliverables in a week that would normally require months. I stepped up and found a way to deliver the assets. The consultancy got acquired for what was a great outcome for the founder. Without expectation, he surprised me one day and offered to pay off my remaining $80K in student loans. I was hired by the acquiring company as a domain specialist and they doubled my income to $70K. The feeling can only be described as elation followed by a long cry. It was a powerful lesson in what the value of hard, dedicated work can bring.
- The dotcom boom and bust was another high and low time. The company that acquired me gave a nice pool of options. In the matter of a year, those options were worth nearly $4M at one point. It was intoxicating to watch the value increase nearly every day as the Nasdaq skyrocketed. I had cashed out some of the options when they were available, but most I did not. To make matters worse, I decided to exercise and hold a good chunk of the options which means that taxes were due on the paper profits. I ended up selling a bunch of options to pay those taxes to the tune of nearly $400K. At the time I was unaware of steps that I could take to protect the value of the options that were unvested or that insurance was available which could lock in their value. If I had known that I could spend 10-15% of the value of the options to lock in their value, I would have done it. But I was young and naïve and believing that stocks only go up. The company I was in had a public high of $98 and by the time the dotcom crash had settled they were down to $4. I was able to sell some of the options and netted a profit of around $300K and the government got to hold onto that $400K in early tax payments. It wouldn’t be until the financial crash in 2009 where I could finally reclaim most of these early tax payments to use as a deduction against income (see the next footnote).
- The financial crisis of 2008-2010 was a difficult time. I was sitting on three homes, had overpaid for the last home, and had mortgages on all three. When the housing crisis kicked in, I was nearly $750K under water across the three properties. You’ll note that my net worth somehow increased. I saved my bacon through research and a little help from the government. Turns out that if you can get a valid short sale offer in California then the bank will eat the losses on the underwater part of the mortgage. And further, Congress passed a law in 2008 or 2009 that allowed taxpayers to write off the loss for up to two years (the $750K mortgage write off is normally taxed as income). It effectively allowed me to sell two of the homes, walk away from the mortgages, and not owe any taxes. This turned into one boost to my net worth as I was starting to carry the losses against the net worth. The consequence was a massive hit to my credit which lasted 7 years. I had no plans to open new credit cards in that time frame, so felt like a good compromise. The other boost to the net worth was the final reconciliation of what happened in Footnote 2, where Congress allowed taxpayers to take any pre-paid taxes from previous years and to deduct 50% of what’s remaining each of the next two years. This dramatically reduced the income on which I owed taxes, gave me a huge refund for two years, and then boosted the net worth.
- While the stock market had one of its best years in a decade in 2021, it was one of my worst trading years at -21%. For reasons that will be described in future sections, most of my trading for IRAs and trading accounts (~85% of my liquid assets), are traded by selling volatility which is somewhat anti-correlated to buy-and-hold. Strong, unrelenting bull markets that have no price relief are difficult for this style of trading to do well and, thus, the performance hit. In spite of this negative performance, the year was a positive net worth year because of distributions from VC funds, the surprise sale of two angel investments, and a small secondary event (the opportunity to sell a portion of my equity) from the company for which I currently run.
My Investment Philosophy
Here are the cumulative returns across my investment accounts, 401K, and IRAs. These are all investments where I personally direct and control the nature of how the funds should be deployed.
| Year | Return | Material Events |
|---|---|---|
| 1997 | 0% | |
| 1998 | 0% | |
| 1999 | 17.8% | 401k |
| 2000 | 9.5% | |
| 2001 | (5.9%) | |
| 2002 | 1.4% | |
| 2003 | 7.8% | Open first trading account |
| 2004 | 5.9% | |
| 2005 | 16.2% | Hired money manager |
| 2006 | 12.9% | |
| 2007 | 14.2% | |
| 2008 | (32.1%) | Fired money manager |
| 2009 | 31.1% | |
| 2010 | 2.1% | |
| 2011 | 12.9% | Started volatility selling |
| 2012 | 24.39% | >80% of investable assets now in volatility selling |
| 2013 | 3.93% | |
| 2014 | (8.3%) | |
| 2015 | 57.5% | |
| 2016 | 24.04% | |
| 2017 | (.6%) | |
| 2018 | (.1%) | |
| 2019 | 32.7% | |
| 2020 | (2.8%) | |
| 2021 | (31.3%) | Horrible year for volatility selling |
| 2022 | 62.9% | Great year for volatility selling |
My investment philosophy has shifted over 25 years. My current approach, which was enacted in its fullest amount in 2012, involves:
- 401K. Maximize my participation and get any employer match. These funds go into a fairly conservative 2030 fund which is mostly bonds a little bit of stocks. This currently accounts for 8% of my liquid investable net worth.
- IRA. Whenever I leave one job, I immediately rollover any 401K funds into a non-ROTH IRA. This accounts for 22% of my investable funds. The IRA trades by selling volatility through iron condors against broad-based indexes like NDX or SPX.
- Cash. I rotate my checking and emergency cash by investing into tbills, treasuries, and ibonds through Treasury Direct. This has yielded 0.2% to 5% depending upon how interest rates are fluctuating. I mostly do 8 week short term rollovers. It slows in the winter to make any cash needed for taxes available. This equates to 9% of my liquid investable assets.
- Brokerage. This is all of my other investable liquid assets. The brokerage trades by selling volatility through naked leveraged strangles in a portfolio margin account. This was a strategy that I developed a long time ago after spending dozens of weekends reading and learning about options. Selling volatility isn’t for the faint of heart, but if managed well you can reliably return 16% / year while assuming above average, but not “destroy you” risk. Over the years, I have tried to ‘tweak’ how I sell volatility to boost the returns and this generally has backfired. In 2020 during the down turn I decided to alter the approach in a way which would penalize me if the market were to climb aggressively. And, well, that is what it did for 18 months and I took it on the chin. Selling volatility is very good in soft down and flat markets, such as what we are experiencing in 2022. And, thus, it’s been a spectacular year of returns. While there are no guarantees of the future, I expect to moderate how volatility is sold so that I can more reliably return 15% / year with fewer massive up / down years: ie, lower returns with lower results volatility.
If you have done the math, I have 83% of my investable liquid assets in volatility, which is leveraged, and higher risk. It’s also generally anti-correlated to the stock market. In years that the market does well, volatility will not do as well. Why? A few reasons: a) My job and illiquid assets are heavily correlated to how the NASDAQ will perform with many factors beyond my control, b) volatility is a form of anti-correlation to most of my assets creating a blended return which (over time) adds to a combined net worth, c) I am a horrible public markets stock picker; almost every buy-and-hold bet I make doesn’t yield good results; selling volatility is an approach that allows me to not have to make a judgement on fair value or price of the index; therefore it is programmatic in what is needed rather than having to endlessly study 1000s of public market companies to make investment bets.
If 30-year treasuries ever breach 10% again like in the 70s, I will put everything I have into them and call it a day. No need to deal with selling volatility if that scenario plays out. Yes, inflation would be monstrous in that scenario, but it would be nice to know that a 10% rate of return is guaranteed for 30 years. And chances are the value of those debt instruments will increase over that time frame yielding a total return higher than 10%.
As mentioned previously, even if my expectation for selling volatility is 18% / year on average, then it would economically make sense to have a mortgage or HELOC on my properties, especially when their interest rate was <2%. The arbitrage on a $1M mortgage is over 15% / year and that is before you factor the mortgage interest tax deduction. In my 20s and 30s, this would have been a must-do imperative. Unfortunately, it took me 20 years to realize that the financial gain from the arbitrage doesn’t cover the mental stress of having debt with a creditor who takes a senior lien position.
My Expense Pattern
I’ve tried to structure my “run rate” expenses to comfortable sit below my after tax W2 income. Investment gains and other assets generally should not be sourced for funding the normal lifestyle of which I live. My wife and I are generally minimalists, though for the few things we own or experience, we are comfortable in purchasing a premium product or experience. This especially includes vacations, for which we will attempt to do one 4 week trip every few years, and a number of 5 day and 8 day trips each year.
I consider my “run rate” expenses to include mortgages, insurance, food, fuel, utilities, vacations, furniture, electronics, medical bills, clothes, jewelry. Generally, anything that we need to spend money on that isn’t considered an investment or necessary for us to live.
To better reflect the spending patterns, I am excluding any lump sum payments such as a down payment made for a mortgage. The reverse is also true, excluding any lump sum payment received when selling a home.
My historical tax rate has been ~32% across federal and state taxes after netting out any credits and deductions. I’ve been generally tax inefficient during my income years as I’ve always seen that the steps necessary to lower the tax rate meaningfully were too much of an inconvenience to warrant the potential gains. I expect our effective tax rate to inch towards 38% in the coming years.
| Year | Expenses | % W2 Income | Comments |
|---|---|---|---|
| 1997 | $12,555 | 89% | College years |
| 1998 | $22,194 | 86% | |
| 1999 | $42,904 | 41% | |
| 2000 | $47,777 | 38% | |
| 2001 | $41,150 | 18% | |
| 2002 | $55,208 | 38% | |
| 2003 | $106,086 | 37% | Mortgages add up |
| 2004 | $139,899 | 67% | |
| 2005 | $84,790 | 61% | |
| 2006 | $72,874 | 38% | |
| 2007 | $106,163 | 52% | |
| 2008 | $118,023 | 51% | |
| 2009 | $104,085 | 45% | |
| 2010 | $192,593 | 45% | Expensive vacations |
| 2011 | $190,074 | 49% | |
| 2012 | $168,302 | 189% | $0 startup salary for 6 months. |
| 2013 | $180,788 | 71% | 4 intl vacations |
| 2014 | $155,078 | 67% | |
| 2015 | $188,987 | 78% | |
| 2016 | $185,309 | 50% | |
| 2017 | $201,109 | 25% | Lifestyle creep |
| 2018 | $267,725 | 59% | Pilot training is expensive |
| 2019 | $204,598 | 36% | Paid off mortgages |
| 2020 | $97,512 | 12% | COVID lock down == little spend |
| 2021 | $134,398 | 13% | Paid off plane mortgage |
| 2022 | $167,189 | 16% |
My Work History
I only consistently made $250K of W2 income starting in 2016. At this time, my net worth was $2.6M with another $5.2M in illiquid assets. Our average income over those previous 16 years was $235K with 8 years making less than $200K. While $200K is a very generous income and above the average of most people, my key point is that the combined net worth of $7.8M is far above the $3.8M in taxable income earned over that same period.
A persistent, hard working family that chooses to spend below their earnings that intelligently invests their savings is able to build significant worth beyond the limits of what their job provides.
Like the stock market, my career has its ups and downs.
Interestingly, it’s marked by a number of short stints interspersed among long stints. I’ve worked in large publicly traded companies and as employee #1 in a startup. In my 25-year working career, the longest period of not having a W2 paying job has been 3 months.
I have only maintained a single W2 paying job at one time. I am, however, allowed to simultaneously angel invest, be a VC scout, sit on boards, and consult for companies across the tech ecosystem while I perform my primary function as employee. All of these additional activities help to build my portfolio of additional illiquid assets. I am earning sweat equity rather than having to outlay significant cash to build these positions.
| Period | Role | Comments |
|---|---|---|
| 1997-2003 | Engineer, Tech Expert | Joined 15-person startup, acquired by public company after 12 months, multiple geeky roles at the acquirer. |
| 2003-2004 | CEO | Ran a 10-person consulting company specializing in geekery. Fire sale acquisition by another consulting company & I was not hired. |
| 2004 | Product | Joined a hot data startup to run product. Culture fail as the founder was a jerk. Quit after 1 week. This company eventually sold 2 years later for $900M! It would have been a big payday. No regrets, though. |
| 2005-2011 | Product | Mid-sized, fast growing public company. |
| 2011 | Product | VP @ very large public company. Reported to famous visionary. Resigned after 3 months (famous person was a jerk). Offered $1M / yr to stay and declined. No regrets, though. |
| 2011-2017 | CEO | Started tech company. Sold to a large public company. Almost bankrupt 3 times before finding fit, growing revenues, and becoming profitable. |
| 2017-2019 | GM | Ran $100M business unit that included my startup for the company that acquired us. |
| 2019-2022 | CEO | Hired as CEO of private company. 500 employees, profitable, setting sights on $100M in revs. |
My Evolving View Of Financial Independence
While young, my view of financial worth was measured by net worth. “Will I ever be worth 1 MILLION dollars?!?”, as if that number held a magical quality that, if achieved, suddenly made one financially well-off. The day I became a millionaire was anti-climatic other than the entertainment value of seeing two commas on my tracking sheet. And that financial milestone was quickly discarded in favor of achieving the next million because I didn’t feel safe / stable / protected with just having one. And then the next one, and next one after that.
Net worth is not a good way to quantify your financial independence.
I’m familiar with the 4% SWR, and it’s always struck me as a challenging measure of whether someone has the financial means to retire early. There are too many challenges: how long do you live, changing macro conditions, unknowns about social safety nets, and so on. But even worse, the 4% SWR is a model where, generally, your net worth is likely to decline over those years depending upon how the investment portfolio performs.
As a way to deal with this anxiety, I’ve shifted my definition of financial independence to be defined by my ability to continue living my current lifestyle through gains made from investable assets. For 2023, this limited view would generate ~$600K (after netting taxes) for spending against a lifestyle run rate which is effectively $200K.
Selling volatility has a lot of risk associated since it is leveraged. A financial independence definition that depends upon leveraged risk introduces some peace of mind issues. This is the definition I currently use in order to claim that I am financially independent.
However, I also track a definition of financial independence that is virtually risk free: FI is when my run rate of life expenses is below the interest that can be earned from buying 30-year treasuries. At 4% yield this would generate ~$190K after taxes. The net after tax payments would benefit from not having state income tax and our family being in a lower average tax bracket. With my life expenses under $200K due to a lack of mortgage, I am currently bumping along on this threshold. Half of my annual expenses are vacations and luxury items (plane maintenance is not cheap) which could easily be eliminated if we decided we wanted to retire early and spend well under the interest generated threshold.
But we won’t.
We will probably carry on because we love our work. As our investable assets increase, we will allow lifestyle creep wine, vacations, and hobbies over the coming years.
Lessons and Observations
- Perseverance Yields Results. Having a long history of steady savings can lead to big outcomes. While the sale of my company did create a boost in my wealth, the benefit of compounding savings over decades has lead to a greater contribution to the overall wealth. I’ve never been one to chase quick profits or fads (crypto, though I do own $2K of Bitcoin), and instead see that the professional and technology skills that I can acquire through self-study and life experiences pay larger dividends than with gambling investments.
- Always Have A Project. Whether it’s becoming an expert in a new technology, learning the nuances of how strategic business development is orchestrated, or earning a pilot’s license, having 2-3 ongoing passion projects creates contentment, builds worldly skills, and opens work / financial opportunities that I was not seeking or aware of.
- Culturally Fail Fast. I’ve been in 4 work scenarios where there was a culture mismatch. Either the people around were unpleasant or there was a limited interest in peers to socially connect. Get out of those situations as fast as possible, within days if necessary. I’ve been fortunate to listen to my inner voice and the longest I was in an unpleasant environment was 9 months. In two of these fail fast scenarios, had I stayed for more than 4 years, I would have earned more than $5M in each scenario. They were economic mistakes but like successes.
- Peace Of Mind Matters More Than Profit. It took me the better part of my young adulthood, but I sleep peacefully by structuring my finances and earnings in such a way where I have the maximal peace of mind given my risk tolerance. The things that eat at me would be consistently having expenses above my income and a financial independence strategy that required my net worth to decline due to withdrawals.
- Over Sacrificing Will Sabotage Important Relationships. Being aggressive in your career and sacrificing time with family, friends, and lovers hasn’t created enough of leapfrog in my FI journey that warrants the cost (often sabotage) that will come to those relationships. I was a relentless worker in my early years. Now I am a wise worker with a structured balance between work and play.
- Maintain A War Time Mindset With Investing. Invest assuming that your worst-case nightmare scenario will happen. With this mindset, every investment has risk mitigations (both in my mindset and structurally). By thinking this way, you will be prepared emotionally and skill wise to act when negative scenarios occur. I used to be apprehensive about selling volatility with reasonable risk. It requires me to do things such as selling naked calls. Most traders hear the oft repeated words, "naked calls have unlimited loss potential!" and immediately run for the hills. I worked for months to avoid ever having a naked call go in the money as that would be the nightmare. Well, one time it happened, they were in the money, and I was frozen. But the nightmare was much worse in my dreams, learned how to trade out of it, and recognized that trading as if everything was always in the money made everything easier to absorb. So that is how I invest and trade - it's war time, nothing will go right, and have a plan for every possible contingency.
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