The Current State of the Financial Independence Movement

0:02Catching up with a leading figure in the financial independence community this week on the Saturday Personal Finance Edition on the Molly Fool Hidden Gems Investing Podcast.

0:19I'm Robert Brokamp, though my nickname around here is Bros, and don't be surprised when you hear people call me that. And you know, we all want to eventually get to the point when work is optional. But some people may get a goal to get there much sooner, perhaps even by their 30s or 40s. And one fellow who knows an awful lot about how to do it is Brad Barrett. Brad is a CPA and the co-founder of the Choose FI website and the co-host of the Choose FI podcast. Brad, welcome back to the show. Oh, bro, it is so good to see you. It's been a number of years, so this is great. It's great to see you. It'll be great to catch up.

0:50You have been on the show a couple of times, but it's been a while. So as a refresher for newer listeners, give us the brief version of your financial independence story. Okay. So brief version. I graduated from college in 2001, which makes me pretty old at this point. I went to work for one of the biggest accounting firms in the world. I was a CPA, Arthur Anderson. Enron scandal happened. Arthur Anderson didn't exist nine months later. So craziest thing that had ever happened. And I realized how impermanent work could be, even when you go to work for what's the biggest and most acclaimed accounting firm in the world.

1:30So I just realized that at that young tender age, even though that was a bad thing that happened, it actually turned into something really positive because it made me realize I need to take matters into my own hands. And the only way that I knew how to do that at the time was to save money and just live below my means. And without any knowledge that other people were doing this, without any knowledge that there was an end point to saving, that there was some financial independence number, I just saved my money. And I basically just, like I said, live below my means for about 12 to 15 years. But while still living a normal middle-class life, I had two daughters, lived in a nice four bedroom house in a great part of Richmond, Virginia.

2:13But yet I was saving probably somewhere depending on the year. And again, you know, life intervenes, but 30 to 50 % of my income. And when you do that for an intermediate amount of time, there's no get rich quick scheme. But when you do that for an intermediate amount of time, you wake up and that money is compounded into something significant. So, you know, that was my kind of standard path to five. But then my journey got inextricably linked with entrepreneurship. And I built some websites around travel rewards, which are using credit card rewards points to travel. And that's a fun way to save money also, not on not having to spend many, many thousands of dollars a year on travel.

2:52And yeah, I started this podcast about a decade ago. So it's been it's been an interesting journey of chapters. So if I remember correctly, you gave your letter of resignation in 2015. and you were first on this show in 2018 and again in 2019. And back then, and maybe a few years beforehand, my impression was there were a lot of stories about the FIRE movement, FIRE standing for financial independence, retire early. I think to a certain degree, society was kind of fascinated by it. But nowadays, you don't hear quite as much as you used to. And like your podcast and website, many people seem to have dropped the RE and are focusing on the FI.

3:32So what would you say is the current state of sort of the financial independence universe? Yeah, I think people were equal parts fascinated and equal parts appalled by the FIRE acronym. And I think, frankly, that's why a lot of us, and Jonathan and I, my co-founder of Jeezevai, we realized this pretty early on, that the RE wasn't what we were aspiring towards. We were aspiring for something. We weren't running away from a life that we hated. We're trying to build a life that we loved. And I think the financial independence aspect of that is what's so important. So yeah, it's interesting. Because over the last decade, certainly probably since Mr.

4:15Money Mustache came around in the early, I think 2013 thereabouts. So we're coming up on 13, 14 years. The community worldwide has grown dramatically. So you don't hear as many stories about it. But honestly, I think it's because it's not as sensational anymore. It's much more mainstream to a degree about, okay, look, for most middle-class people, these are not people with silver spoons. These are not people making millions of dollars. For most middle-class people, there's precisely one way to get ahead financially, and it's to live below your means. And obviously, as Motley Fool knows, it's to invest wisely.

4:51And I think for a lot of us, that's low-cost, broad-based index funds. But of course, it can be individual stocks. It can be real estate. It can be whatever. But there's a pretty prescribed path. So it's not as sensational anymore. I think a lot of people have heard of financial independence. People have heard of our podcast. They've heard of Mr. Money Mustache. And even people like Ramit Sethi, who on the face of it seems to hate the fire community, but it's more clickbait than anything. He's of the same ilk. He really is. And even though I don't know that he would say that if you asked him, but I think it's that it's ubiquitous.

5:26It's everywhere. I mean, we have our own choose of high. We have 300 local groups in 300 cities across the world with people getting together in real life, hundreds of people in many of these chapters. And it's just an unofficial thing. But they're getting together and living lives that we used to be these kind of frugal weirdos. And we're not so weird anymore. That's the great thing. I think on a lot of levels, this is a fundamental truth of life is you're going to live paycheck to paycheck and be stressed all the time if you don't live below your means. It's actually pretty simple. And obviously to do this, you probably have to have an above average savings rate, especially when you consider that according to the Federal Reserve, the personal savings rate in the U.S.

6:06now is 3%. Most experts recommend that you should be saving 10 to 15%. I think a lot of people struggle to do that. You mentioned your savings rate. Is that about the range of the rates you see in the FI community, acknowledging that there's probably a lot of variability there? A lot of variability, for sure. Sure. And yeah, we're not like we're a very big tent community here. We're not. If you come in and your net worth is in the red and your savings rate is zero effectively or negative, you're not excommunicated. It's not like you're not welcome. Right. It's like we're all just trying to live better lives.

6:41I think that's that's the biggest thing. And you make changes one at a time. And it's amazing. Just like how how your investments compound. It's amazing how these little changes compound. So, um, but yeah, I mean, I think realistically to reach financial independence in that intermediate amount of time, which to me is 15, 20 years, like that, that's a pretty abbreviated, uh, career for most people. Most people would be thrilled obviously to have a 20 year career. Yeah. I mean, you're going to need to save 30 to 40 % of your income. So I think, yeah, that 30 to 50, I think is a, is, is a sweet spot.

7:15Now, again, that might be unrealistic for a lot of people who have fancy, expensive mortgages, have the big cars, but you can make changes over a period of time. So, yeah, I mean, I think you're going to see people in the sensational headlines, bro, of course, is that person saving 87 % of their income and they're living on rice and beans. You know, that's the nonsense. But realistically, these are mostly just normal middle class people who have just made a series of changes over many years to get to that point where they can save probably 30 to 50 % roughly. I say to save more, you have to spend less.

7:51And I think a lot of people conceive of folks in the FI movement as living in cardboard boxes and eating rice, but it's not true from what I have seen, but it does require making choices. And you've talked about this in terms of a term as being a valuist with your spending. Explain what you mean by that. Yeah, it's a funny term, but I've had it for about a decade now. A friend of mine who I met through our community, actually, that's the beautiful part, coined this. And yeah, it's spending on what you value, what you value critically, not on what society values. So it's not to say, and I hope people understand by now that pursuing financial independence is not about being a miser.

8:42It's not about living a bad life. I mean, who would sign up for that? Especially when you're talking, like I said, there's no get rich quick. So it's 10, 15, 20, 25 years. This is not an overnight thing. I don't think anybody would sign away 20 years of their lives to living miserly just so they can have maybe an extra decade or two of freedom. That seems like a bad bet to me. So for me, you have to understand there's finite resources, right? Every decision is made with finite resources. And I think a lot of us just go about life saying, hey, I earn$8 ,000 a month. I'm going to spend$8 ,000 a month and YOLO it, you know, or whatever nonsense terminology they use.

9:26And I just think that's a bad bet. So for me, it's all right. There are things that I value and I really do try to scrutinize every purchase. I don't just do things because that's what everybody else does. So cars for me are things that I value zero. I mean, bro, I was driving a 2003 Honda Civic through like 2019 until the doors stopped working essentially. And I'm driving a 2020 Hyundai Elantra now. I mean, this is that I got from Hertz rental car. So I mean, we're talking like ridiculous things, but yeah, I value my health significantly. and I spent, I just flew to Utah to get medical testing done, very specialized medical testing done.

10:10So it's not about, and that was just, just to get ahead, to get a baseline. There's nothing wrong, but I think that, that kind of illustrates, okay, here's somebody who's not spending five to$700 a month on cars. Who's not going out to eat all the time. I think my partner and I have lived in our place for about a year. I think we've gone out to eat three times and all three where it's either like chipotle or cava basically. So, and it's just because we really value cooking at home. We love cooking. We love healthy meals that we get to make. So it's not about being miserly. It's about really scrutinizing what you want to spend your money on because let's be honest with ourselves.

10:53You have to make decisions based on finite resources and understanding that the first thing for most people in the FI community, if financial independence is really important to you, The first line item is savings. So you have to deal with finite resources.

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12:45Sign up for exclusive access today, rippling.ai slash fool. You've talked on the show how you took your daughter on essentially a roller coaster road drip um which sounded like a lot of fun and you know i i thought recently about how my wife and i had a yard sale our kids are are mostly adults now our youngest is her last year in college and we got rid of a lot of junk and frankly a lot of stuff that we just looked at and like there were so many better ways we could have spent our money and some of it was gifts for the kids and We've already talked about how we're going to change this year's holidays based on like less stuff, more experiences, because we think at this point that'll be more valuable.

13:30Yeah. Yeah, it's so true. I mean, you look around your house and we just recently went to an estate sale and it's, it's those kinds of things are, they're sobering, right? This is someone who, who unexpectedly passed and all of their stuff is basically worth nothing. and you then extrapolate to oh if all of their stuff is worth basically nothing all of my stuff is worth basically nothing right so like why am i accumulating this garbage and yeah i mean i just don't think i think if most people are honest with themselves they don't value the random tchotchkes that they have lying around their house it's just uh and that's not to say don't spend if you're into my friend of mine is into uh barbecuing he's from kansas city like he is the fancy traeger and probably more.

14:16He'd probably kick me for saying it's just a trigger now. And it's like, do that. If you're going to lovingly enjoy things, do it. But like, don't just waste money. And yeah, to your point. And yeah, I'm so impressed with how deep you dove on what I've been up to lately. And yeah, I've been doing these rollercoaster trips with my older daughter. And I think that's also like an interesting part about life is like, and having kids is really dive into the things that they're interested in. And like, I have this 18 year old daughter who it's kind of an odd thing to be a massive rollercoaster fan. They call themselves rollercoaster enthusiasts.

14:49But I mean, I probably know more about rollercoasters than anyone on earth who is not a certified rollercoaster enthusiast because I've listened to her talk about them for hundreds of hours. And we've went to, she's ridden, I think 222 different rollercoasters in the last five years. And most of those have been with me. And it's just, what a cool thing that we get to do. And yeah, I love that you're doing that with your family as well. Since you brought up tchotchkes, I'll remember another quote from one of your recent episodes. It was actually from one of your guests who's trying to do this in Los Angeles.

15:21And he said, essentially, we're in the era of peak crap. Which I think, you know what? That's true. And it probably applies too much to all the stuff in my garage and in my closet. Yeah. Peak crap. And they had a cool quote. They said, the alley will provide. Which is a little sensational for most of us. But the concept was everybody has so much stuff. They've reached peak crap, right? Like you can get stuff if you're willing to be a little bit smarter. And I think that's another one of the hallmarks, maybe of that valuest thing that you mentioned before, but also it's like, how can you live the same middle-class lifestyle as everybody else around you, but get wealthy at the same time?

16:02And it's really, it's not that hard. And it's a fun game. I know I've been up to the Motley Fool headquarters back in the day and played board games with David Gardner. And it's like living life like a board game, right? It's just like, oh, what are the little strategies that I can use? Like, hey, you shouldn't be spending. We probably talked about this in 2018 and 2019 when I was on your show. Like, you shouldn't be spending$100 a month on a phone anymore. You should be going. You should go to Mint Mobile. I have no affiliation with them to my knowledge. But go to Mint Mobile and spend$15 to$30 a month.

16:35Like that's simple. It's simple, right? Like you can buy all of things, all these things used. I know my daughter just found this on her own. She loves, she's a spender on clothes. She shops at Lululemon. She found a place called, I think Depop or something like that. And she's like, this is the greatest thing ever. I'm able to buy these basically new things just slightly used. The shorts are$15 instead of 79 or whatever. And it's like, oh, isn't that more fun? Isn't that just a fun way to go through life? It's like, how can you get the same stuff, but just pay a fraction? It's just, it makes life more interesting to me, bro.

17:11A common point that you make in that it doesn't necessarily require huge changes. It can be many small changes. And you frame it as a term, the aggregation of marginal gains. Explain what you mean by that. And you've given some examples, but are there some other ones you think people should know about? Yeah. Yeah. It's a framework that I think I heard reference to like the British Tour de France team way back in the day. And it was just, all right, what are these tiny little things that we can do that when we add them all together compounds into something extraordinary? And I know James Clear talked about this in his book, Atomic Habits as well.

17:53I can picture the visual. It's like a raise to the power of 365 or something. It's like, okay, what will this compound to? And I think with the British cycling team, it was even, hey, when you travel, when they travel, they bring their same pillows with them instead of being at the whim of what the hotel is. And if you if you know, if you're a side sleeper or stomach sleeper, you need a real thin pillow. If you're a back sleeper, you need a thick pillow. These things sound silly, but when you go through life, and this is not to have a negativity bias, but when you go through life looking for little things that you can improve one time that all of a sudden get better, and that's fixed forever.

18:33And then again, you start compounding these, like one, two, five of them a week over months and years and into decades, your life is radically transformed. It just simply is. So that's not just personal finance, though, obviously that's a real easy way. But health is a big thing that I've tried to change for the positive over the last, really, 15 years of my life. But it's accelerated more recently. And it's just, what are the little things you can do to make your health better? And I think one thing that a recent guest on my podcast talked about, and it was interesting how he linked health and financial independence.

19:12And it was basically each of them, good health and solid personal finance, they both give you more years of freedom. And I just thought that was so beautiful and poignant that really like, I know I look at my parents' generation and my dad specifically. And it's like, when I'm his age, I want to have more freedom than he has health-wise. and he's made a lot of choices and I'm trying to make radically different choices. And I think when you start adding those together, like again, trying to optimize your sleep, trying to optimize your, even just getting out and walking, getting sunlight, like these tiny, tiny little things, not eating as many processed foods, cutting down on carbs, increasing protein.

19:57Like, you know, I could go on and on and on. We only have 20 minutes, but, uh, but nevertheless, it's like, how can you look for these little things and just start layering them on? And you'll be shocked and how it changes your life. Absolutely floored. There is a very close connection between personal wealth and physical health, right? There's some delayed gratification. You have to make some choices, giving up things that you may prefer to do, doing things you may not want to do. And it's always important then to think, well, why are you doing this? And you talk about this on your show a lot.

20:32The importance of identifying your why, you also frame it as, You know, what am I optimizing for? So given that, you know, a lot of people in the five community, what do you see as some of the common wise that get people to, to make these often less, uh, let's say fun decisions for some payoff later in life? Yeah. Yeah. It's interesting. And I do like your framing on that because, because yeah, like obviously in a perfect world, every, I mean, you could take that to the nth degree, right? If you want to really play out the fun decisions, but then we start getting into, into some dicey, dicey territory legally and, and otherwise.

21:10But, but yeah, I mean, we all have to make decisions with, with the future in mind in some regard. And I think, I think a lot of people look at, at life and it really gets into, gets pretty deep pretty quickly. And it's like, do I want to sign up for the societal contract? Is this serving me? Is working from 22, or potentially 18, but 22 if you went to college, to 67, all right, if I get maybe eight decades on this planet, nine if I'm really lucky, just signing up for 45 years of going to an office for eight plus hours, driving to and from, you know, this is a nine, 10 hour, 10 hour day minimum, if you only have a nine to five.

22:00Is signing up for that for 45 years really my best bet? I think for a lot of us, we look at it and we're like, I would love to find a better way to do this. I would love to have more years of freedom on my side of the ledger. And if that means, again, like using my framing of living a little bit below your means, but trying to look at life as a game and not sacrificing, not living a bad life, just being a little bit smarter. And that's going to get me a couple decades more freedom. Like that to me is a no brainer. So I know that was part of my why. I think a lot of people just, I think another, if I can go back to one of your very first questions about the fire was, I think it became such a caricature because I don't know anybody, anybody to one single person who's sitting on a beach and sipping umbrella drinks as they're like their goal of financial independence.

22:57Like it just, the people who have the ingenuity and the hard work and the foresight to reach FI, it's almost impossible to believe that they're just going to sit around idle. So these are people who, again, the aforementioned Fritz Gilbert, who I just talked to on the podcast, like him and his wife started a foundation for actually helping dogs, like building fences for dogs. I think they call it fences for Fido. Like what a cool thing. they get to spend more time with their grand their grandchildren i think he said he's 63 years old and and they were able to build out a gym a six-figure gym in their house like because they have financial freedom like that's wonderful a lot of people want to spend more time with their young kids and be there when their kids get off the bus every day that sure beats stuff doesn't it like bro i mean who in their right mind like when you actually put this on paper like where I'm talking about it's like who in their right mind would pick frivolous stuff or a fancier car over having years of freedom to spend with their kids or themselves or loved ones or doing important things in the community or just being able to explore all those hobbies and interests that they never had time to because they had to go to an office like that is the height of insanity I just I can't even fathom somebody arguing otherwise like it's it's totally implausible.

24:17It's just, I mean, Frank, you can hear like I get a little agitated about this because it's ridiculous on its face, but yet that's the normal culture. And our community is the counterculture. It's like, what bizarro upside down world are we living on?

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25:50Whether it's through unique interior finishes or custom wheel options, the ways to personalize your Range Rover Sport are nearly unlimited. Command attention and experience ultimate luxury in motion. Exclusive offers are available now. Explore further at RangeRover.com. to me one of the most compelling reasons for why everyone should be embracing the principles of the five movement is there's this dichotomy like you're pursuing it or you're not but the truth of the matter is we may not work as long as we would like to right the evidence is clear that the majority of people retire sooner than they expected sometimes for good reasons you know they bought nvidia earlier or something like that but sometimes for health reasons or job loss reasons and given the uncertainty for me of like how AI is going to change careers and career trajectories, I think it makes sense for all of us to arrange our finances, our spending, and our saving it away such that you'll be okay if you can't work until your 60s.