A FIRE-Side Chat with ERN

A FIRE-Side Chat

Hello folks! I have something special for you today, a FIRE-side chat with Early Retirement Now! The FIRE-side chat is an interview series I’ve started to share the journey toward FIRE (Financial Independence Retiring Early) from others. I’m a believer that personal finance is personal and it is important to find our own path toward FIRE. I think hearing from others is a great way to help us formulate our own ideas and our own path.

So without further ado, let’s hear from ERN!

Introduction Questions:

First, tell me a little bit about yourself. Who you are and what’s your story?

Well, first of all, thanks for giving me the opportunity to chat with you today. I’m sitting here with a nice glass of Single Malt Scotch – Costco store brand, obviously! Since I don’t want to set off the smoke alarm in my condo – that would annoy the neighbors – I have to only imagine some fire crackling in the background.

Who am I? Currently, I prefer to stay anonymous, so I will reveal only very incomplete personal information. I’m Ern, or Big Ern, in my early 40s and I work in finance. I’m an economist by training and work for a large asset management company.

In case you didn’t know, I’m an immigrant. English is my second language, so if you find grammar errors in my ramblings here and elsewhere please bear with me. So far nobody has complained, so either folks haven’t noticed it yet or they are just really polite. I came to the U.S. in the 1990s to attend graduate school and knew from the first day I would stay here after school. It’s the land of opportunity, whether it’s for jobs or investment opportunities. I have since become a U.S. citizen and together with my wife (an immigrant, too!) and a young daughter we live our kind of American Dream: a comfortable and modest lifestyle and – hopefully before too long – a comfortable early retirement. I write on EarlyRetirementNow.com about our journey.

When did your interest in personal finance begin? Did your parents have an active role in your financial literacy growing up?

I grew up in a typical working class family. My parents were street-smart and frugal but lacked the formal education to either advance their own careers or invest particularly wisely. You could call them financially illiterate in that sense, so I got no specific advice on investing. But they had the foresight to point me in the right direction and instill the right values in me: get a good education and live below my means.

At what point did you learn about and begin your FIRE (Financial Independence Retiring Early) journey?

That was obviously a process with many stages. I dipped my toes into the world of finance when I was still in high school and bought my first equity mutual fund. In college, I saved some of the scholarship money and started trading equities. All that was mostly out of a genuine interest in economics and financial markets and my strong belief in free-market capitalism. The serious pursuit of FIRE came only in 2008 when I realized that the big pay raise I just got is best invested for rainy days.

FIRE Journey Questions:

Where are you currently on your path toward FIRE (Financial Independence Retiring Early)? Just starting, retired already, or somewhere in the middle?

Almost at the finish line! I’m serious enough about retirement that I started doing a lot of research on safe withdrawal rates and withdrawal strategies, see here. Currently, I’m still working and trying to top off our nest egg for another year or so. In early 2018, after the 2017 calendar year bonus lands in my account, I should be able to pull the plug. But there are still a lot of unknowns. How will the stock market evolve over the next year? Will our condo sell for a decent price? We plowed a good chunk of money into several new investment ventures over the last few years (private equity real estate) and they still have to show some evidence of panning out before I can rely on them. I would give it an 80% probability that we will retire in 2018!

If you are already in FIRE (Financial Independence Retiring Early), reflect on your path and if there were any things you would change if you had to do it again? Or conversely, what would you make sure you do again on your journey?

I probably wouldn’t change anything major. Before 2008, I might have been a little bit complacent in my previous job with savings rates of “only” 25-30%. If I had to start over again I would make sure to again stick to my two core principles: 1) Start early. There is almost no substitute. 2) don’t sweat volatility when young. Invest 100% in equities!

Tell me how you would consider your FIRE (Financial Independence Retiring Early) journey to be unique.

I was extremely lucky to finish both college and graduate school without any student loan debt. Zero. In fact, I even had a small nest egg after finishing school. Going to college in my home country, I got a quality education at a very low cost. I paid essentially no tuition and got a merit scholarship from my government to pay for living expenses. Since I lived with my parents at the time, I saved a good chunk of the money to build by first small nest egg.

Then I came to the U.S. for graduate school and to my amazement, I could get a Ph.D. in economics at a very highly ranked school without paying a cent for tuition because I worked for the department, teaching undergrads and assisting some the professors with their research. That paid me a small salary and waived the tuition. That was another lucky break.

Strategizing FIRE Questions:

What has been your primary motivation to reach FIRE (Financial Independence Retiring Early)?

My motivation changed over time, of course. Early on, my goal was to have a million dollars at age 50. I just picked two round numbers. Ever since I moved to work for Wall Street I realized that a) a million bucks isn’t what it used to be and b) on Wall Street nobody has job security until age 50. So, moving from a relatively stable job to Wall Street, I knew I had to save more money to gather enough “F-you money” as we call it here in our circles. I got a big pay raise in 2008 and simply didn’t change my spending habits and increased my savings rate without feeling any pain.

What has been your greatest success in the “engineering” your life path or lifestyle? Or are you more of the “go with the flow” type?

Of course, one doesn’t rule out the other. I’m a go with the flow guy because I invest mostly in index funds and don’t even want to get into the stock-picking business. But I also try out new ideas, such as options trading or real estate funds. The jury is still out on the real estate investments, but I would argue that the options strategy has been a success so far and will be one of the cornerstones of generating passive income in retirement.

I can’t remember where I heard this first, but I hold dear the advice that it is important to “retire to” something rather than “retiring from” something. What will you be retiring to?

I have heard that phrase, too and couldn’t agree more. Working in Finance is great fun and exciting especially if equities are on a 7+ year bull run! So, it’s not that I’m trying to escape the world of finance – remember that I want to blog about (personal) finance well after my retirement date! So, needless to say, my motivation is to retire to a life of more travel, family time, volunteering, outdoor activities like hiking and skiing and all the other fun things that currently take a backseat to a busy corporate career.

What will your housing situation be like in retirement? Do you plan on moving to a low cost area, to the beach or mountains? Or will you become nomadic, traveling the world more freely?

We currently live in a very high-cost area, because that’s where the high-paying finance jobs are. Between the high housing costs and the crazy state tax rates here I don’t see a path to retiring here. So a change of venue will be on the horizon for us. Currently we’re eying a few different states with either no state tax or low enough state income tax rates. I could see myself either renting or buying a place, and all that depends on the exact housing market parameters (i.e. rental yield vs. mortgage interest) as wrote in a recent post.

Wealth Creation Questions:

Retiring early is quite an extraordinary feat…and requires some pretty extraordinary behaviors to rapidly create wealth. In your focus on wealth creation, do you tend to gravitate toward making more money or arresting expenses?

I have to admit, I was never that great at cutting costs and made up some of the deficits with earning a high income. In fact, one could argue that with my long career, no student debt and a bunch of other lucky breaks in life I should have piled up a much larger net worth by now.

What has been one of your biggest successes in either advancing your career to make more money or taking control on the expense side to progress on your journey toward FIRE (Financial Independence Retiring Early)?

I went from a relatively stable and safe job to join the asset management group of a large Wall Street firm. That was in 2008 when it was foreseeable that the finance industry will go through some trouble. That took some guts. The Lehman failure, the big drops in the stock market and a few rounds of layoffs later I still had a job. So, I must have done something right in making myself irreplaceable enough to dodge the various waves of layoffs. Taking that risk paid off. Well before the magic age of 50 I have accumulated way more than the magic $1,000,000 figure.

While controlling expenses are important, you still need to live and enjoy life. What is one or two of your favorite areas to spend money on?

I like to splurge on a few things. I have splurged on cars in the past, occasionally driving gas guzzlers with way too many cylinders (8! Gasp!), though I always bought them used and at steep discounts. Anything having to do with hiking or skiing, obviously. I don’t splurge so much on the equipment (my ski jacket and pants and 20+ years old and still serve me well!) but on the experiences. So, when I get the crazy idea to hike through the Grand Canyon, in one day, or head to the ski country for a long weekend, there is always a budget for it.

The Wrap-Up:

If you won the lottery or received a large inheritance to the tune of $1 million or so, what would you do with it and why?

Well, a million dollars is not what it used to be. But the good news is that I’m within a few $100k of my savings goal and that million bucks would put me over the goal line pretty easily. I would probably call it quits in 2017 instead of 2018. The fresh cash would obviously go towards equities, real estate investments and my options trading strategy to generate good, reliable passive income.

What is your favorite finance and non-finance related book, podcast, magazine, blog, etc and why?

The first and favorite (personal) finance book is “The Millionaire Next Door” which opened my eyes to the American millionaires’ lifestyle.

My favorite finance blogs are:

The Green Swan (obviously!)

Physician on FIRE

Rockstar Finance & Budgets are Sexy

FinanciaLibre

Think Save Retire

Plan.Invest.Escape

Amber Tree Leaves

Ten Factorial Rocks

The Retirement Manifesto

And I’m pretty sure I left out a few, but check my blogroll for a list of all fellow blogs I like to frequent!

What advice would you give to folks considering or just starting their journey toward FIRE (Financial Independence Retiring Early)?

Start early, take risks. OK, with risks I don’t mean dangerous habits like motorcycles and smoking. I mean well-compensated risks that drive up the expected returns. Don’t go crazy paying off debt while neglecting savings in high-return assets. Debt and leverage aren’t dirty words in the ERN household!

Finally, there isn’t one single blogger who knows it all. Don’t take any advice from me on frugality. Believe me, I’m not that good at it. Check out Mr. Money Mustache and the gang for some real expense hacking. But conversely, don’t believe everything you read on even the most trusted blogs either. I have seen some pretty nonsensical information on highly-regarded blogs: on safe withdrawal rates (nope, a 50% equity/50% bond portfolio will not last very long at a 5% withdrawal rate), on Robo-advisers (not worth the extra fee) and other topics. Use common sense and get a second (and third and fourth, etc.) opinion!

As a fellow blogger, where can I find you?

Find us at www.EarlyRetirementNow.com, Twitter handle @ErnRetireNow

 

Thanks for sitting down and chatting, ERN! I had a great time!

I hope you give ERN a follow and check out his blog, it’s always a good read. Look for more FIRE-Side chats to be featured here in the future. And if you are interested in a FIRE-Side chat yourself, give me a shout.

Thanks for taking a look!

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25 Comments

  1. Great interview! I also love the Millionaire Next Door. I first read it 10+ years ago and it really changed the way I viewed finances and wealth. It really introduced me to the concept of “stealth wealth” (although it didn’t use that term) and showed me that the trappings of the rich often aren’t signs of wealth at all.

    1. Thank you, ERN, you have a great story to share! I always like hearing success stories of such an early retirement! I look forward to continuing to follow your journey.

  2. ERN, First let me say I always enjoy reading your blog. It’s good to get a dosage of the math behind economics from time to time. You have great insight into the mathematical side of finance. I also enjoyed reading your story here. Have you given any thought to how your blog topics might change after retirement? Has your analysis on safe withdrawals changed your plans at all on part time versus complete retirement?

    1. Thanks, FTF!
      I am still planning for a full retirement from my current job but with the option of some small consulting gigs here and there. My wife is a nurse and also plans to keep her credentials “alive” by doing some temp work. Yes, my work on the SWR has clearly shown me the benefit of keeping some income stream, especially during the first 5 years of early retirement.
      Once in retirement, I might shift more to travel topics when we have more time for that. And I have been intrigued by the whole dividend growth investing philosphy.
      Cheers!

    1. Totally agree! I’ve loved the safe withdrawal rate series ERN put together. It’s an amazing reference with thoroughness that can’t be beat.

  3. “Don’t go crazy paying off debt while neglecting savings in high-return assets”

    This is so true. Before I was so worry about paying off my house early…early…..EARLY! But now, I’m focusing on saving more because I feel that money will work harder than my primary residence increasing in value and even if it does, I’m not planning on selling it anyway.

  4. Great read!!! I love to hear the background stories of all the great bloggers out there. I like that you shared your passion for cars and some of the mistakes you made along the way. Although it sounds like you’re doing pretty good if you’re ready for retirement next year 🙂

    1. Haha, thanks. True, I could have been more frugal and maybe chopped off 2-3 years from the accumulation phase. But some of the mistakes were good learning experiences. I can read as much Money Mustache as I want but I have to experience myself that some expensive material things are not that satisfying after all. Cheers!

  5. Nice interview. Where will you relocate? Our location is getting more expensive everyday, but I have no idea where to move to. It’s a big change.

    1. Ideally, a location with low or no state income taxes and a generally high quality of life. Washington state (though not Seattle = too expensive) or Arizona (Northern part of the state) would be on our short-list.

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