Living a life where work is optional, where you’re free from responsibility and you can choose what to do each day sounds like a dream. But is financial independence and retiring early really possible and, if so, how do you do it?
“The Escape Artist” Barney Whiter explains how he structured his life so that he could retire at 43, why he believes anyone with the right mindset can do the same, and the practical steps you can follow to get there.
He talks about the counter-cultural aspects of the financial independence movement, indicators that financial independence is right for you, and how to find happiness outside of consumption.
Barney Whiter of The Escape Artist
Twitter: The Escape Artist
Instagram: Barney Whiter
Barney Whiter writes the UK financial independence blog The Escape Artist, has a degree in economics, is a qualified chartered accountant, and had a 20-year career in corporate finance (reaching Partner / MD level). Barney is a former workaholic who now lives in Farnham, Surrey with his wife and three children where he spends his time writing, coaching and in the gym.
Barney saved hard and paid off his mortgage when he was 32, built up his investment portfolio, reached financial independence, and then quit his job in corporate finance in 2014 at the age of 43. He did this whilst being married and supporting a family with three kids and without winning the lottery, inheriting money or dealing drugs.
What you’ll learn in this episode
- [2:16] What life is like as an early retiree.
- [5:40] The philosophy behind the FIRE (Financial Independence, Retire Early) movement.
- [8:16] How much money you need to live off your investments.
- [12:30] Where to invest your money to reach financial independence.
- [14:20] Whether you should pay off your mortgage or invest your surplus income.
- [18:40] How to start learning about financial independence.
- [19:28] The practical first steps towards financial independence.
- [22:00] How the maths behind the FIRE movement works.
- [23:49] How to justify a frugal lifestyle.
- [29:51] Ways to find happiness without spending money.
- [32:02] The possibility for low earners to reach FIRE.
- [36:15] How to know you’ve reached financial independence.
- [40:18] The pros and cons of putting money into a pension.
- [43:46] The risks involved in pursuing financial independence.
- [46:55] How inflation is factored into the FIRE movement.
- [51:14] Indicators that the FIRE movement is right for you.
- [54:35] The difficulties of talking to your partner about quitting your job.
- [57:05] How to avoid scammers in the FIRE community.
Resources mentioned in this episode
Please note that some of these are affiliate links and we may get a small commission in the event that you make a purchase. This helps us to cover our expenses and is at no additional cost to you.
- Mr Money Mustache
- Your Money Or Your Life, Vicki Robin and Joe Dominguez
- The Millionaire Next Door, Thomas Stanley and William Danko
- Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable (the Trinity study)
- Episode 142: Relationships and careers: how to talk to your partner about career change – with Executive Coach Yosef Lynn
- Family Man
- Atomic Habits, James Clear
- Change Work Life Coaching
Episode 152: How ANYONE can become financially independent and retire early - with Barney Whiter of The Escape Artist
Jeremy Cline 0:00
How would you like to be work optional, with the freedom to do the work that you want when you want to do it? What sort of an income would you need to be work optional, and where would that income come from? And if you get there, how would you fill your time? Those are the questions we're answering in this week's episode. I'm Jeremy Cline, and this is Change Work Life.
Jeremy Cline 0:35
Hello, and welcome to Change Work Life, the podcast where we're all about beating the Sunday evening blues and enjoying Mondays again. If you want to know how you can enjoy a more satisfying and fulfilling working life, you're in the right place. For many of you, financial independence is probably synonymous with retirement. By the time you get to, say, your mid-60s, you'll hopefully have built up a pension pot which you can use to fund your retirement without the need for a job. But do you have to wait that long? Can you achieve financial independence and retire earlier, maybe much earlier than normal retirement age? And if so, how? That's exactly what my guest this week has done. Barney Whiter paid off his mortgage at the age of 32, and then quit his job at the age of 43, when he had built up an investment portfolio big enough not to need to work anymore. And he did this whilst supporting a family with three children. He now runs The Escape Artist at theescapeartist.me, where he publishes articles about how you can do this, too. Barney, welcome to the podcast.
Barney Whiter 1:44
Jeremy, hi, thanks for having me.
Jeremy Cline 1:46
So, I better start with the quick disclaimer, as we are going to be talking about financial stuff. This podcast does not constitute financial advice to anyone listening. I'm certainly not a financial advisor. Barney, I don't think you're a financial advisor either. But anyway, this is for education and entertainment purposes only. So, now that's out of the way. So, Barney, I gather it's been about eight years, give or take, since you quit your job. So, tell me what life looks like for you now.
Barney Whiter 2:16
So, life for me now is more balanced than it was. So, I spend a lot of time in the gym, I'm kind of a bit of a health maximalist these days, so I'm putting my health first. And then, I'm able to do enough work to kind of keep me out of mischief and occupied and engaged. And I've got, as you mentioned, three children, and they are still at the age where they want picking up from stations at sort of ridiculous times at night. So, I guess I'm living a much more balanced life than I was eight years ago when it was work, work, work, work, work, work, work.
Jeremy Cline 3:01
And if I understood, there is still a work element as such for you.
Barney Whiter 3:06
Yeah, as you mentioned, I write. So, I write The Escape Artist, and I do financial coaching for people, and I do a little bit of consulting work, some corporate finance advisory, which used to be my day job.
Jeremy Cline 3:20
What was it that got you into this whole thing? I mean, when did you kind of decide, oh, there's this thing, I could retire early, I'm going to aim for that?
Barney Whiter 3:30
I stumbled across the Mr. Money Mustache blog, which I found via a UK blog called Monevator. And that was kind of in 2013. And those two blogs were talking about financial independence and how much you need not to work again, et cetera. And I realised that everything they were talking about was what I'd done myself for the 15 or so years prior to that. And so, that's when I kind of realised financial independence was a thing, was a movement, was this sort of set of principles. But I guess, if you want to ask the question what set me on that path, that would take me like way back, to 1981, when my parents kind of got into a bit of trouble, because they just moved house and bought the biggest house they possibly could, and they leveraged themselves up to the eyeballs, with the biggest mortgage they could get, and then, that same year, interest rates went to 17%. So, that was a bit awkward. And they had to tighten the belt significantly. And it was fine as it turned out, we kind of got through it, but it was a bit of a nasty moment. And I took from that time the message that being in debt was scary, ultimately, you can lose your house and become homeless. And that kind of fear sort of stayed with me, and it spurred me on. And so, whilst everyone else was spending their money as soon as they got it when they were young, I was like, 'Yeah, I don't think I want to be in debt, I think I want to build up a safety cushion.' And so, that's kind of how I got started on the path back in the day.
Jeremy Cline 5:25
So, you described the movement, the financial independence movement, which I gather is also sometimes called the FIRE movement, so Financial Independence, Retire Early. Can you summarise what it means, what's the philosophy behind the movement?
Barney Whiter 5:40
Yeah, everyone's got a different take on it. My take is that financial independence is the situation where work is optional for you. So, you can therefore choose whether to work or not, and if so, what sort of work you do, how much work you do, what people you work with, what projects you take on, et cetera. Then, you've got the RE bit, which is Retire Early, I mean, I personally don't frame it that way, myself, I focus on the FI rather than the RE. And so, that's essentially what FIRE is, and the way I think about it in terms of how you get there, there's four pillars to financial independence and of pursuing financial independence. So, one is earn more money, two is spend less money, three is invest the difference wisely, and four is know how much is enough. And so, it's kind of like personal finance extreme, is how I think about it. So, it's like the Special Forces approach to personal finance.
Jeremy Cline 6:43
Okay, well, we'll definitely come on to those four pillars. I think, probably, one of the most important things I heard you say was about work being optional. So, this isn't necessarily about never working again and spending the next 40 years lying on the beach, which, frankly, sounds pretty dull, but it's about having the choice, having the option whether or not you work and what work you do.
Barney Whiter 7:08
Yeah. So, when I quit, I had no plan. I didn't have a new life lined up to replace my old one. And so, it kind of was a bit like retiring, where you go from full-time job to nothing. That's not what I suggest most people do. It's what I did myself, but it's not what I suggest most people do, because as it turns out, work provides a bunch of useful things to us, over and above just money. So, what does work provide for most people, some form of routine, structure, socialisation, challenge, feedback, validation, and ultimately, some form of meaning. And so, I think it's hard to just kind of rip that up without having an idea of what you're moving towards, as opposed to just what you're moving away from.
Jeremy Cline 8:06
I'd like to look at this through means of a case study, and it's a case study which listeners may well be familiar with, because I've used it a few times in the past. So, I've got my character, Tom, who's a 37-year-old lawyer, is married to Suzanne, and they've got a two-year-old daughter. Tom lives outside London but works in London for a big city law firm, and he's on a good track, so maybe partnership beckons. But he's, frankly, pretty dissatisfied, and he's not sure whether he wants to do this for, certainly not for the next 20 or 30 years, but he's starting to think in terms of, well, what could I do in the alternative. And so, he's now kind of heard of something called financial independence, and he's thinking, 'Ooh, that sounds interesting, having enough money where you can basically just do the work that you want, that sounds really interesting.' If we start at the end, for someone like Tom, and let's say that he and Suzanne, they've got a house, they've got a mortgage, they've got the usual trappings of middle class, once Tom has, quote, achieved, quote, financial independence, we can talk about what that means, and I'm sure the answer to this question is it depends, but what might it look like in terms of the assets he has, the expenditure he has, the income he has, all that kind of thing?
Barney Whiter 9:44
Well, in terms of... Okay, well, let's use an example with some very round numbers. So, let's say he manages to clear down his mortgage, and let's say he's got investments across the whole net worth, financial net worth, across the board, pension, ISA, and all the rest, savings accounts, et cetera, of a million pounds. Which for lawyers in London is doable, eminently doable. And then, the way those numbers would look is that, if you had a pot of a million pounds, the concept of the safe withdrawal rate suggests that you can spend a proportion of that every year and never run out of money. And so, the 4% rule of thumb is the most well-known, the most widely followed guidance point. And so, in that scenario, you could spend 40,000 pounds per year in year one, that's 4% of the million pot, and you could increase that with inflation over time, and that's almost certainly enough never to run out of money, even if you do never another day's work in Tom's life. And so, that's kind of financially what it might look like. And you can scale those numbers up, and you can scale those numbers down. And so, let's say that they didn't need 40,000 pounds a year to live on, let's say they only needed 20,000 pounds to live on. Well, that's great. That means that the pot required is only half a million, not a million. And so, those numbers can kind of be scaled up, it depends on your required level of spending. So, the way I kind of put this is, financial independence, getting financial independence is like running a marathon, but it's a marathon where you can bring the finishing line closer by reducing your lifestyle burn, by reducing your recurring cost base. And so, it doesn't matter how much you earn, there's plenty of lawyers in London that earn a million pounds a year, but if you're spending it, and you're not saving as much as possible, then you're not accumulating the pot, and you'll always be on that treadmill. And so, that's kind of pillar number two of financial independence, which is spend less. And so, the less that you need to spend, the easier it is to get financial independence.
Jeremy Cline 12:25
When you talk about this pot, I mean, leaving aside what it's in, whether it's pensions, ISAs or whatever, are you basically just talking about a portfolio of investments of the like which a financial advisor might recommend, so a mixture of funds, equities, bonds, gilts, all the usual sort of stuff, it's nothing particularly whizzy, or high risk.
Barney Whiter 12:53
Yeah. So, essentially, the way I look at the world is you've got the engine of your portfolio, which is, for me, equities. So, that's investments in the stock market. And the simplest way to do that is like a broad-based global low-cost index tracker fund. And so, that's the kind of cornerstone of my portfolio. And you can make investing very, very simple. A lot of people overcomplicate it, and they make it very, very difficult, but essentially, all you need is global equities low-cost tracker fund, plus some element of shock absorber, so typically, that's three to six months of cash in a bank account, maybe add some more bonds in there as well, if you want additional shock absorber and reduce the volatility in your portfolio. But that's it. That's all you need in your portfolio to do this. And so, there's other ways to skin the cat, a lot of people in the FIRE movement are into real estate or property, and that's fine, but that's more like having a second job. So, for my money, the most efficient way to invest in terms of risk-reward would be based around low-cost global equities tracker fund.
Jeremy Cline 14:12
I just want to pick up on something which is a point of detail, but it's quite an important and a big point, and that's about mortgages. So, most people clearly can't afford to buy a house without a mortgage, and I guess you kind of broadly got two options. You either prioritise paying off the mortgage, or you prioritise using the funds which you would otherwise use to pay off the mortgage to build up a pot. So, on the one hand, clear the mortgage, which reduces your monthly outgoings, on the other hand, put it into a pot which grows to a level whereby it's sufficient to cover your outgoings, including your mortgage. And one of the things I've always thought about with mortgages is, one of the questions I've always asked is whether it makes sense to pay it down, given that it's usually a fixed amount, it's being eroded over time with inflation. Now, as we speak, interest rates have gone up somewhat, so maybe the argument isn't as compelling as it used to be, because borrowing used to be really quite cheap, and maybe it's not quite so cheap now, but if Tom is in the horns of that dilemma, does he work towards clearing the mortgage or putting the money into something else where it might work a bit harder, how can Tom start to make that kind of decision?
Barney Whiter 15:44
It depends what his mortgage rate is. And so, let's say he's one of these people that locked in 1% at the bottom. To my way of thinking, he'd be much better to make the minimum payments on the mortgage and put the money to work, put his surplus cash flow to work in the stock market, where you might reasonably expect, I don't know, an 8% or maybe more annual average return, versus the cost of his mortgage, which might be 1%, 1.5%. So, which would you rather have, a 1% guaranteed return, which is what you get if you pay off the mortgage, or would you rather have an 8, 9, 10% return that comes with volatility and risk? And actuarially, I prefer that 8 or 9% expected return, rather than the 1% guaranteed return.
Jeremy Cline 16:45
Is there a rate at which that might reach a tipping point, where it's better to get the other way?
Barney Whiter 16:50
The long-term rate of return on the S&P 500 over the last 150 years is about 10%. So, I would argue that, if mortgage rates are 10%, you should kind of be putting all your money into paying off your mortgage, rather than putting it into equities. And you can kind of slide in scale there. So, as interest rates go up, it doesn't have to be all or nothing, right, so let's say you've got 100 pounds of surplus cash flow, that you have discretion whether to pay off the mortgage with it, or put it into global equities, maybe at 5% mortgage rate, you half and half it. At 1% mortgage rate, you probably stick it all in equities, or almost all of it in equities. If your mortgage rate is 10%, you should probably be paying off your mortgage with it.
Jeremy Cline 17:42
Certainly, I think most people listening to this podcast are sort of thinking, 'What, 10% mortgage, is that even possible?", but as you said, historically, it has been more than possible. But hopefully, we won't get to that level again.
Barney Whiter 17:53
I don't expect that we will, but I remember 15% interest rates for a day in the 90s, I remember 12% interest rates for a much longer period in the 90s, and as I said at the start, I remember 17% in 1981. And so, that stuff happened in the past, could happen again.
Jeremy Cline 18:14
So, I'm conscious that we've just dealt with a bit of detail, and I'd like to go back a little bit. So, Tom is hearing this, and he's thinking, 'Okay, so I'm actually quite well paid, this might be possible.' He's got no idea where to start, though. So, where is the best place for someone like Tom, who's only just heard of this, to start thinking about what might be possible?
Barney Whiter 18:41
Well, he could read, and there's a whole bunch of books that he could read, the two kind of classics, in my opinion, are, number one, Your Money or Your Life, and number two, The Millionaire Next Door. And those would be two great starting points to immerse himself in the idea that this is possible. And if he's a well-paid lawyer in London, it is possible.
Jeremy Cline 19:11
And practically, what's the first step for him? I mean, is it identifying his expenses, is it figuring out an amount, what practically can he do, if he's starting to think down this path?
Barney Whiter 19:25
Yeah, so I mean, very, very tangibly, and very practically, to get started, he could essentially, probably, take an axe to his expenditure. So, if he's like your average middle-class lawyer, who's doing well at a large London firm, his life is probably an exploding volcano of wastefulness in terms of his spending. And so, how do you address that? Well, one way you could just address that is to track everything you spend for a period, and bring conscious awareness to patterns of spending that have up to now being habitual or on autopilot. And so, let's say he spent three months literally tracking where every pound went, he might find that somewhat of an uncomfortable process and an unusual process, and his friends would probably not be doing that, but I would suggest he would find that a very valuable process and a very eye-opening process. And over time, he would realise that whole bunch of those essentials that he's spending on, those takeaways, those Netflix, those subscriptions, those soft furnishings, those electronic goods, he might realise that those are not needs, they're wants. The beauty of pillar number two, which is spending less, it is the one that you have the most control over, and you can get the quickest results on. So, essentially, I had a little career crisis when I was about 32, and I just realised that I didn't have the retraining fund that I wanted. And so, I had a period of what I call monk mode, where me, my wife and the children, we just stopped all voluntary spending for several months. And we absolutely slashed spending, down from a London, young professional, normal, and it's not normal, living in a complete affluent bubble, we slashed that, and I got my savings rate, the percentage of my post tax income, up to about two thirds. And the way the math works, and these numbers are going to sound crazy to people that are new to these concepts, but I'll say it anyway, access to truth, and they're factual, if you can save 50% of your post tax income, it takes you about 17 years to go from broke to never needing to work again. And this is an extreme edge case, but it illustrates the numbers quite nicely. If you can get that up to 75%, which most people can't, but it is possible for high earners, it only takes six or seven years to go from broke to financially independent. And so, that shows you how sensitive the math is to your percentage savings rate, and that shows you the power of frugality, and that shows you the power of not spending money on autopilot. But treating your money like it's your blood, it's not something you want leaking out of your life, unless there's a really, really good reason.
Jeremy Cline 23:04
I can hear in my mind Tom and Suzanne letting out rather heavy sighs of their perhaps melancholy, as they contemplate this joyless life, where they're basically not allowed to spend any money, other than on the essentials. And Suzanne now perceives that she's going to have to cook dinner from scratch, using only the raw ingredients, nothing pre-prepared, because it's cheaper from the start, and then going, 'What's the point? What's the point in being miserable in this kind of lifestyle, just for the point of saving money in the future?' Help them out here.
Barney Whiter 23:50
It's like, which path of pain do you want to take? Because the path that Tom is currently on is not a pain-free life. I mean, it really, really, really is not. So, the hours that a 37-year-old, so if you're 37, you're either a new partner at a big law firm, or you're a senior associate, just trying to break into the partnership. And you'll be working brutal hours, absolutely brutal hours. And so, to be honest, Tom's not going to, Tom shouldn't have much time for spending, other people in his family might be doing his spending for him, but he will be too consumed by work. And that's fine, if he wants to carry on doing that until he's 50, 55, 60, he can carry on, and the money can keep leaking out of his life. But, I mean, I used to work with a lot of those lawyers, and the price that they pay in terms of their health is savage. And so, I'm not saying this is some sort of magic wand, this is some easy solution, but I think it's the better route, and I think that, you gave the example of having to cook for yourself, I bring you back to what I said earlier on, which is I'm a health maximalist, I want to cook for myself, I want to eat real food made from real ingredients. I don't trust restaurant food anymore. I don't trust processed food anymore. I don't want to put that stuff inside of me. And so, the more you kind of drill into this, the more that you realise that there's a lot of philosophy, and there's a lot of thinking that you have to do about what's important to you. And because, ultimately, it all boils down to your values, and the trade-offs that you're prepared to make. And so, for me, my highest value is freedom, and I'm prepared to put up with a lot, I was prepared to cut my spending and work long hours, et cetera, for a long time, because I put such a high value on freedom. So, is this path for everyone? No, it's not for everyone. And I think the biggest issue that Tom is going to have is his social milieu, his peer group. And so, when you spend as much time with lawyers as I have, you know that the law is not just a job, it becomes the identity of the people in it, and it's a gigantic status hierarchy. So, every law firm is a status hierarchy, it's a pyramid with a senior partner at the top and the sort of graduate intake at the bottom, and it funnels up to a narrow point at the top, and it's up or out, essentially. And so, there's no easy options there. There's no easy options there. If Tom is going to choose to pursue financial independence, at some point, he will be making a countercultural choice, a choice that's different from the other people in his social circle. And so, at that point, he'll have to ask himself, 'Well, do I have free will, am I a free agent, or do I just do what everyone around me does because that's what people do?'
Jeremy Cline 27:40
This is probably a mindset question as much as anything else, but how can Tom and Suzanne maintain the joy and the life satisfaction, even if they pursue this path? And I'm thinking particularly of the maxim that life is short. So, okay, Tom and Suzanne may have another 40, 50 years to live. On the other hand, I had a client recently, I did their will, he had pancreatic cancer, and having just moved to the UK from abroad to take up the position of CEO of this company, a year later, he got the diagnosis, and very shortly after that, he died. And so, people are going to think, 'Well, okay, yes, I may well live it until I'm 80, but on the other hand, I may drop dead when I'm 50, and not necessarily through overworks.'
Barney Whiter 28:36
Look at the stats. I mean, look at life expectancy in the West. Okay? The way the numbers work is, if you make it through the infant stage, and you don't manage to wrap your car around a lamppost, you're going to make it to 75-80. So, fine, I understand the question, because it's very hard-wired within us, based on our ancestral environment, to kind of live for the moment and discount the future, that's what humans do. But just look at the stats. You are almost certainly going to make it to 75-80. Now, I agree, I mean, if I had quit when I was, I quit my corporate job when I was 43, and I will concede, it would have been somewhat ironic if I then dropped dead at 44-45. That, with hindsight, would have turned out maybe to be a suboptimal life strategy. But look at the odds, you're probably going to make it to 80.
Jeremy Cline 29:42
Going back to, okay, yes, but there's got to be a way that you can still find enjoyment in this, even if it's a bit harder.
Barney Whiter 29:50
I reject the idea that spending equals happiness. I reject the idea that spending equals enjoyment. Not true. Not even close. Not even close. When I look back at all of my greatest moments, my proudest achievements, I didn't have a credit card in one hand.
Jeremy Cline 30:12
I think this goes back to what you were talking about intentionality and looking at what you spend your money on, and only spending money on things which either are essential, or which genuinely do bring you happiness.
Barney Whiter 30:26
Yeah, I mean, again, I spend, I spend a lot of time around people like Tom, and the reality of what would bring meaning in his life, probably, would be his health, spending some time with his family, spending some time with his new son or daughter, maybe a personal achievement like running a marathon, maybe a personal achievement like making partnership at his work. And all of those things are free. They're all free. They don't cost money.
Jeremy Cline 31:10
We've talked about Tom's position as a lawyer in a city firm, and so, a very well-paid job, it has to be said. What about, let's say that Tom, he's still interested in this, but he also doesn't want to do this really for the next two years, he wants to change jobs. So, maybe he changes to something which he finds much more fulfilling, much more satisfying, but he's paid a lot less. Or maybe we're talking about someone else who is working in the public sector and not earning as much, or is working for a charity, or is a nurse or whatever it is, a certain thing where they love what they do, but they're not well-paid. Is financial independence even possible for them?
Barney Whiter 32:03
The less you earn, the more important the tools of financial independence are. So, if you're low paid, is it more or less important to be sensible with your money, to be frugal with your money and to not waste your money, to not get caught up competing with the Joneses, caught up in the trappings of consumerism? It's obviously, obviously, much more important. So, the non-consumerist mindset, which is kind of at the core of the ideas of FIRE, is even more important the less you earn. That's point one. Point two, you raise a really good point about is there a different kind of, is there a sort of happy middle ground, is there some sort of downshifting option for Tom, and you're absolutely right to ask that question, because if the framing is a binary framing, it's all or nothing, then that might be somewhat discouraging for Tom in your example, because let's say he's got to do 10 years of what he perceives to be extreme frugality. So, that's not for everyone. But what about if he could clear his mortgage and change career and change job and change his life and downshift, and suddenly have options? When I just cleared my mortgage, I actually looked at leaving finance, leaving the city, and just becoming a teacher. And it would have been an enormous pay cut for me, not just that it would have meant dropping down from the top of one status hierarchy, not the top, but you know, pretty high up of one status hierarchy, and going to the bottom and starting again, which is a somewhat daunting prospect. But financially, that would have worked. Because I paid off my mortgage, I could have gone and become an entry level schoolteacher. And that was a path that I pretty nearly took, actually, I spent quite a few days in the classroom, trying that on for size, just experiencing what it would be like to make such a radical career change. So, when you build up a pot of money, essentially what you're doing is you're creating what I call runway. So, runway is just the number of years that you could go without working. So, if you spend, just to make the numbers really simple, let's say your family spends 20,000 a year, if you've got a 60,000 pot, you've got three years of runway. And so, three years of runway gives you enough time to go and do a degree, for example, or do a retraining programme in the new career that you're moving to, it allows you, it gives you that safety net and that runway to change career. Because, this is what I do know, if Tom is taking all of the credit, taking all the debt, the consumer debt that's offered to him and maxing out his lifestyle, if he mistakenly thinks that spending equals happiness, and so he borrows in order to buy more stuff, then he's trapped in that world, he's trapped in that job forever. And that's a brutal place to be. That's a brutal place to be. Because ultimately, if you do a job just for the money, that you're starting to hate, it will eat away at your soul, and eventually, it will make you ill, sick, and maybe kill you.
Jeremy Cline 36:01
Let's go back to getting towards the end of the journey. How does Tom know that he's got there? How does he know that he has achieved financial independence?
Barney Whiter 36:15
That's the little bit of maths that I alluded to earlier. So, the inverse of the 4% safe withdrawal rate is the 25 times rule. And so, the 25 times rule is that you need 25 times your annual required spending as a pot, and that should mean that you are financially independent, never need to work again. So, if you spend 25,000 pounds a year, 25 times 25,000 is 625,000, so you need a pot of 625,000 to know that you've got enough. And again, you can scale those numbers up, or you can scale those numbers down, so if you spend 50,000 a year, you need a pot of one and a quarter million.
Jeremy Cline 37:06
And how often do you keep that under review? Because these things are never linear. I mean, you've just got cost of living, generally, you've got prices going up, you've got inflation, maybe in 10 years' time, Tom and Suzanne take the decision that it is in their child's best interest that they go to a private school, and so they start paying school fees. And they've looked at all the schools in the area, and they've considered that's the best decision. And so, suddenly, expenses have gone up, and then, Tom may look back at his assumptions and think, 'Oh, well, that's not enough.' So, is this something that you just have to keep regularly under review?
Barney Whiter 37:53
There you go, there's the lawyer mindset right there. And that kills the dreams of many a lawyer, that right there. So, private education is kind of a killer. And so, I'm not saying whether people should or shouldn't privately educate their children, I'm just saying that that makes the numbers really difficult. It makes the numbers really difficult. And for me, I was well paid, but my numbers would not have worked with private education for the kids, because, I mean, I had three kids, and you can engineer your life to get a world-class education for them for free, but that takes planning and thought for thought. I mean, it's no accident we live in the street that we live in, it just happens by not coincidence at all, to be in the catchment area for the best primary school in England. But yeah, private education is a killer.
Jeremy Cline 38:55
And I mean, the wider point leaving aside, whether it's private education, generally, cost of living going up, I mean, how often does Tom keep his target figure under review?
Barney Whiter 39:08
Probably all the time. If he's serious about it, it's a pretty, it's a somewhat obsessive sport. And so, the people that make it to financial independence that don't do it by accident, they're watching their numbers closely, they tend to be tracking their spending, they're focused on promotions, it's an optimisation problem, and it doesn't happen by chance, you kind of have to set everything up in your life to solve that goal and optimise for financial independence and ultimately, freedom and happiness. So, yeah, that does not happen by accident, and so most people on that path, I used to update my net worth spreadsheet every month and assess, you know, am I on track, or how am I doing every month.
Jeremy Cline 40:06
Another point of detail, but again, something which I think is quite an important one, is the question of where the pots are. And I'm thinking in particular of pensions. So, Tom's 37, maybe he's had 15 years of savings, and he's put some of that into tax efficient savings accounts, in the UK, there's ISAs, but he's listened to people like our mutual acquaintance, Pete Matthew, and has put quite a lot of money into a pension. And so, now, he's looking at this and thinking, 'Well, my pension is definitely on track for achieving this kind of sum that I might need to achieve financial independence, but I can't access that until I'm 55, 57, whatever the age might be. If my goal is to stop working by the time I'm 45-50, were I to go back in the time machine, should I've just not bothered with the pension and put it in a different pot instead?'
Barney Whiter 41:13
So, pensions are very valuable, and they are the most tax efficient form of investment wrapper. And so, pensions are definitely going to form part of the toolkit, but essentially, what you're going to need to do, if you, let's say, in the sort of extreme case, in my case, I quit at 43, I needed to not only have 25 times my annual required spending, so that's test one, test two is, can you bridge the gap to your pension. And so, if I can access my pension at age 55, and I, quote, retire when I'm 43, I need to be able to fund 12 years from outside of my pension pot. So, that means I need enough in ISA or tax unsheltered to be able to bridge the gap and live off until I get to the point when the pension becomes accessible.
Jeremy Cline 42:14
So, I guess here, then, you've got potentially options, so you've either got an ISA pot which satisfies your 4% or whatever for that 12-year period, or maybe it is a pot that you can, you can drain it, and at the end of 12 years, you will have nothing in there, but you know that then your pension pot will take over. So, I guess there's quite an exercise here to balance up just what you've got and what you can do with it.
Barney Whiter 42:45
Money is fungible, and you can drain individual pots. So, you kind of nailed it there. You don't have to run a 4% withdrawal rate on the individual pots, like your ISA, you can just drain the thing down to zero, as long as you've got enough to bridge the gap to when your pension comes payable. And then, you've got state pension, and then you've got any additional income that you choose to bring in by doing some work post financial independence.
Jeremy Cline 43:22
So, let's say that Tom does everything, quotes, right. So, he reduces his spending, he saves between 50 and 70% of his income. And so, he's done everything which FIRE common sense suggests that he should be doing in order to achieve financial independence. What are the risks? Where can it go wrong?
Barney Whiter 43:48
I don't think it can go wrong, in the sense that having a big pot of money is always a good thing. So, let's say he accumulates this big freedom fund. Well, to me, that's an unambiguous positive. Now, that doesn't compel him to quit his job. He can continue, if he wants to stay at the law firm, great, if he wants to go and become a schoolteacher, great, if he has some other idea for what he wants to do with his life, that's great. It's always better to have a pot of money. It's just always better to have a pot of money. No one's ever been able to persuade me that it's better to be poor than rich.
Jeremy Cline 44:43
Okay, so accepting that, but if he's getting to a stage where he wants to put a certain amount of reliance on this, so maybe his perfect lifestyle is travelling for six months of the year or whatever, and not earning an income during that time, and he's comfortable on the assumptions that he's made, that his pot will be big enough to fund that sort of lifestyle, but then, I don't know, you get a stock market crash, you get a cost of living crisis, something like that. Are those things real risks, or are they just things that happen, are they things that Tom can protect himself against?
Barney Whiter 45:28
Yeah, so they're real risk, but they're all kind of priced in to the concept of the safe withdrawal rate. So, the idea of the safe withdrawal rate, essentially, relies upon a century and a half of back testing of past investment returns and saying, you know, what would you have been able to withdraw from a portfolio, for example, during the Great Depression in the 30s, in the US, and still not run out of money in retirement, over, let's say, a 30-year period, or a 40-year period, or whatever. Are there risks, there's risks in everything in life. So, if I cross the road, I might get run over. If I leave the house, I might get hit by lightning. If I don't leave the house, the house might fall on my head and crush me to death. I reject the idea that there's a route out there that doesn't have risk. It's just not a thing. It's just not a thing. To my simple mind, it's less risky to have a big pot of money in life than it is to have not a big pot of money.
Jeremy Cline 46:43
Just on that, the back testing of the 4%, is it linear, or is it an average?
Barney Whiter 46:50
So, the 4%, so let's go back to the number, the super round number example, Tom retires with a million-pound pot, he's using a 4% withdrawal rate, so he's going to spend 40,000 pounds a year in year one, and then he's going to increase that in line with inflation. So, if inflation is 5% in year one, he's going to spend 42,000 in year two. So, again, the math kind of factors in cost-of-living adjustments, and it factors in inflation on a kind of actuarial basis.
Jeremy Cline 47:33
And so, is that something that he would then expect to be able to do and to rely on, so he will be able to withdraw an inflation adjusted 40,000 amount each year, or might there be years where he kind of looks at the investment performance and think, 'Hmm, I'm not sure whether I should take out the full amount this year'?
Barney Whiter 47:56
Based on the historical back testing, he should be able to weather, so if he's running the 4% withdrawal rate, then the kind of classic landmark study on this is the Trinity study that was updated, and in that, the survival rate for a 50-50 portfolio, 50% equities, 50% bonds, was 96%, and the survival rate for a 75-25 portfolio was 100%. In other words, there's never been a period of American history when a 75-25 portfolio would not have survived and funded the retirement period. A lot of back testing has been done to get to that, what looks like a very crude sort of rule of thumb number. But to your point, would it feel very comfortable, because history does not determine the future, right? So, the past may not give 100% guarantee to the future. What doesn't give 100% guarantee for the future? So, Tom might choose to dial down his spending and maybe go out and do some part-time work in order to flex his numbers and in order to give himself more margin of safety. And that's an entirely reasonable and normal thing to do. So, let's say someone quit at the start of 2022. Essentially, they would have been quitting at, the global stock market peaked, I think, on the third of January or fourth of January 2022, so if that's when they quit work, they're quitting right at the top. And so, there's this kind of concern that, 'Oh, am I going to, was the stock market artificially high, am I spending too much, am I at risk of what's called sequence of returns risk?' where you essentially have to sell too many units in the early years to fund your lifestyle. How do you mitigate that, by dialling down your spending or by dialling up your other sources of income or by changing your asset allocation. So, there's lots of ways that you can adjust the dials to further mitigate sequence of returns risk and essentially investment performance risk.
Jeremy Cline 50:37
It's been clear from our conversation that this is a very involved lifestyle, should you wish to pursue it. There's a lot to think about, potentially, a lot of changes to make, a lot of self-reflection on what you want, a lot of work on your own finances, that kind of thing. If someone's assessing whether or not this is for them, are there any indicators as to whether someone is particularly well-suited to pursuing this or, counter to that, someone who's not particularly well-suited to it?
Barney Whiter 51:15
That's a great question. Essentially, the type of person that is suited to this is somewhat independently minded, possibly somewhat bloody-minded, possibly somewhat of an introvert. In other words, someone that doesn't feel the need to be always doing what their peer group is doing, doesn't always feel the need to be out with other people doing what society deems is normal for high-income people, i.e., spending money. So yeah, financial independence definitely attracts people of above average intelligence, above average income, above average resilience stickability, if that's even a word, and people that are thoughtful. Like what is my highest value, what are the trade-offs that I want to make in life in order to optimise for the one life I have?
Jeremy Cline 52:23
That goes back to what you were saying about it being a countercultural choice, really, it's not doing what everyone else is doing.
Barney Whiter 52:31
The world is set up to get people to spend their money. I mean, that's how the entire shebang is set up. That is, every time you walk, if you just walked through central London, how many adverts are you going to see? In every shop window, every billboard, signs everywhere, outdoor advertising everywhere, you look down at your phone, at YouTube, whatever, ads come in between the songs, we're bombarded with marketing messages. And so, for you to put that aside and tune all of that out, that's a countercultural thing. Now, everyone thinks that they're resistant to advertising, but they're not. It's ridiculous. It's ridiculous to think that. Companies are not spending billions and billions of dollars on advertising, marketing, just because they're kind, and they want to keep marketing people in work. They're doing it because it works. And so, yeah, you're going to have to turn off autopilot, become intentional, and decide what's really important to you.
Jeremy Cline 53:44
I only want to touch on this briefly, because I'm sure we could probably go on for another hour if we went into depth from this, and I've also got a podcast episode which is all about discussing changes with one's spouse or significant other. Because Tom may start diving into this, he may start listening to podcasts, he may sign up for your email newsletter, and he's starting to get quite enthusiastic about this. And then, he has a conversation with Suzanne, already, he's 10 pages ahead of her, and Suzanne looks at him and thinks that he is absolutely mad. There is no way that she's interested in this. But the people who you've worked with, if you've come across it, how have people successfully navigated that?
Barney Whiter 54:37
You can't not come across it. That's not a thing. That's just not a thing. So, have I seen this before? Well, only on every single coaching client I've ever spoken to, which is hundreds and hundreds and hundreds of people. Yeah. So, it's a really big deal. It's a really big deal. And so, I still remember the conversation, The Conversation, in uppercase T, uppercase C, I remember The Conversation with my wife, when I said to her, 'Do you know what? I think I've got enough, and I think I'm going to quit.' And I was genuinely, I was genuinely kind of somewhat nervous about how that conversation would go. Bless her, she took it in, just to get an astride, kind of without blinking, probably because she thought I would never actually have the balls to carry through on my thread. So, I understand, I mean, I don't make light of that at all, it's a big change. Now, obviously, the superior solution is to have been thinking about this earlier, and you've talked about it as a couple, not on your first date, but you know, from a relatively early point, when you're kind of realising that you're going to be together for a long time. And so, just knowing about this stuff is most of the battle. So, if you know about these concepts, and you know it's something that you're interested in, well, then, knowledge is power, and you can be introducing, you can be having these discussions, introducing these concepts, talking about with your other half, because that's utterly essential.
Jeremy Cline 56:24
I am a big fan of personal development and learning. So, whether it's podcasts, courses, coaching, that kind of thing. But I would imagine that this is an area where a criticism could be levelled that there are people who make more money from selling courses about how to achieve financial independence, rather than actually achieving financial independence themselves. How can someone like Tom, if he is serious about this and wants to learn more, avoid that kind of, I'll call it a scam, for want of a better word?
Barney Whiter 57:08
I mean, I can't go on YouTube without being deluged with scams. I mean, it's just like every single advert is trade your options, trade your way to financial freedom, property trade your way to financial independence, buy my course, follow my proven track record for beating the market, da-da-da, and so on, and so on, and so on, and so on. And so, yeah, I mean, essentially, there is that, I mean, there is that kind of super scammy end, but that's like a different universe. And so, they share this, people will use the same terms, I say financial freedom, a scammer will say financial freedom, but we operate in different universes. And the beauty of the financial independence movement is that the information is freely available, it's hiding in plain sight, you just have to know where to look. And so, I mentioned the book, Your Money or Your Life. You can go on Amazon and buy a second-hand copy of that for three quid probably, or you can go and borrow it from the local library for free. I don't make any money from that. There you go, free alpha, right there.
Jeremy Cline 58:30
If it has ever happened, I'm sure it's entirely unwarranted, but has anyone ever accused you of effectively being a scam artist in terms of what you're selling?
Barney Whiter 58:40
All the time. Dude, I write on the internet. That's a normal day, someone telling me I'm a scammer. Yeah, so yeah, one of the things about writing a blog, so back in, FIRE kind of had a moment in 2018, 2019, and so there was a very, very strange period in my life, where I appeared in all of the newspapers, I was on TV, I was on the radio, and as a result, I got my 15 minutes of fame. And it was brutal. I don't recommend it at all. So, if you've ever been written up on the Daily Mail about this guy achieved financial independence and retired at 40, whatever, if you read the comments section, it's brutal. It's absolutely brutal. So, yes, I have been accused of being a scammer a million times.
Jeremy Cline 59:41
Yeah, I question anyone who reads the comments section on an article in the Daily Mail website, but that's a different story. Before we finish, is there anything that we haven't covered, that you kind of said, 'Oh, but you haven't said this to Tom or you haven't said that', is there anything, any final thoughts which we should cover just before we wrap up?
Barney Whiter 1:00:04
Well, here would be my kind of fun, non-threatening gateway into this world for Tom. Right? Because we're recording this in the run up to Christmas. And one of my kind of favourite Christmas movies, not really a Christmas movie, but it's got a Christmassy vibe to it, is the movie Family Man. And I would recommend that Tom and Suzanne watch that film together over the holiday period. So, I think it was made in 2000, if I'm right, it's got Nicolas Cage and Tea Leone who star in it. And it's just a wonderful, wonderful film, about the two different lives that you could have, one the kind of optimising for status and work and position and seniority and the trappings, versus a more simple life, more family life, family-orientated life, a more frugal life, a more intentional life. And that film just wonderfully, wonderfully, wonderfully illustrates the two different paths. So, that would kind of be, that's kind of one of my favourite movies, and it's just a wonderful movie for a couple like Tom and Suzanne to watch.
Jeremy Cline 1:01:34
Barney, this has been an absolutely fantastic introduction to this whole concept of financial independence. I'm very grateful for you coming on and sharing your knowledge. You've already mentioned a few books, you just mentioned a film, any other particularly valuable tools or resources which the listeners, if they're interested, might check out?
Barney Whiter 1:01:52
There's just a tonne of information out. So, I mentioned Mr. Money Mustache blog, American, the excellent, there's the Monevator blog in the UK, very, very good free resource on investing, with a kind of financial independence tilt to it. My top three books are, one, Your Money or Your Life, number two is The Millionaire Next Door, number three, I would put on there Atomic Habits, which is just the book that I wish I'd written. Yeah, and I mentioned the film. So, you've got blogs, you've got books, you've got a film, what more do you want, guys?
Jeremy Cline 1:02:30
And if anyone wants to get a hold of you, sign up for your email newsletter, get in contact, what's the best place that they can do that?
Barney Whiter 1:02:37
My website is www dot the escape artist, all one word, dot me. So, www.theescapeartist.me.
Jeremy Cline 1:02:49
I'll put a link to that in the show notes. Barney, what more can I say other than thank you so much for coming on the podcast.
Barney Whiter 1:02:55
My pleasure. Thanks for having me.
Jeremy Cline 1:02:57
Okay, hope you enjoyed the interview with Barney Whiter. Well, that was some thought-provoking stuff. I guess my first thought is that Barney highlights that it is possible to do things against the way we've always been taught, particularly if you're of a certain generation. If I look at my parents and those other people that I was growing up with, certainly adults that I was growing up with, I was brought up to believe that the way you did things was, you got a job, you worked for 40 years, and then you retired. What Barney was saying, and what he has demonstrated with his own life, is that it doesn't have to be that way. But I bet if you talk to other people about this, a lot of them are going to stare at you and go, 'No, don't be silly. That's just not possible, is it?' And that highlights what Barney was saying about this being kind of like a countercultural choice, you have to go against the grain if this is the path you want to follow. I also found the financial principles on which Barney was basing his approach to be, well, quite reassuring. I mean, it really isn't rocket science. He goes back to investing first principles, where you take a sum of money each month, and you invest it, and you do that regularly every month, and over the long term, it grows. Now, maybe if you do want to be in a position where you're work optional, you've got to do that to a certain extreme level, where you put a significant proportion of your income in investments every month. But if you're not in a tremendous hurry, but you would like to build up a pot, be it for retirement or whatever, then it is quite a simple way of doing it. So, a bit of a different approach, I'd love to hear from you, let me know what you thought of Barney's approach, let me know what you thought of the whole financial independence idea. I'd be really interested to know what you think. Whether you think it's possible, whether it's something that you're interested in, just drop me a line, you can use the contact form on my website, that's at changeworklife.com/contact. You'll find the show notes page for this episode on the website at changeworklife.com/152, that's changeworklife.com/152, and there you'll find a summary of everything we've talked about and links to the resources which Barney mentioned, as well as a full transcript. What Barney was talking about in this interview, or at least the end result of financial independence, is certainly quite seductive. But the question is, is it right for you? How would you feel about pursuing this as a, if you like, career option? Would you be happy going through the process? Would you be happy even if you got to the point where you were financially independent? As Barney said, this isn't a path for everyone, but you can do some work on yourself to figure out whether it might be for you, and if it is for you, how you can do it in a way which plays to your strengths and aligns with your own values. And that's something I can help you with. As part of my coaching, I can help you to figure out whether this really is a path that you'd like to follow, and if so, how you could put systems in place and how you could do it in a way which is true to you, so that, frankly, you can't actually fail at it. If that sounds like it might be interesting, then take a look at changeworklife.com/coaching, that's changeworklife.com/coaching, where you can find out a bit more about what I do, and also, you can book a free 30-minute introductory coaching call with me. That website again, that's changeworklife.com/coaching. In two weeks' time, we'll have another great interview for you, so make sure you have subscribed to the show, in Apple Podcasts, there should be a little plus button, or whichever podcast app you use, there's going to be somewhere subscribing to the show, so make sure you do that, so you never miss an episode, and I can't wait to see you in two weeks' time. Cheers. Bye.
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