The Life Hack: How to retire now with way less savings

We’ve talked about how to get rich, and you’ve now been following some of my exploits leaving my job, creating an aspirational list, and putting together a daily life that hopefully serves me.  But what if I told you that I am working on another hack right now that if successful would have required me to save way less than what I did before embarking on this adventure outside the maze?  I know, your mind is blown like doc’s hair in Back to the Future, right?  Because saving is awesome but there is another lever that you can pull that can be equally empowering.  The hack that I am currently working on is to replace my working income with active incremental investment income (active triple i). 

Active Triple I

Let’s say that I had saved $1M but I actually needed $1.5M to be financially independent and cover my $60K in annual family expenses under the 4% rule (4% of $1M = $40K, while 4% of $1.5M = $60K). This means that I would need to make $20K more incrementally per year to be financially independent. BUT what if instead of a 4% return, I actively manage my money and I take $500K of this savings and buy five $100K rental properties and manage them myself. Because I am doing all the property management and some light maintenance myself, my return on these well chosen rentals (my labor included) is 14%. If I handicap this 14% return for risk similar to how the 4% rule handicaps average market returns from 7% down to 4% because of risk and inflation, then the 14% return becomes 8%*. Now I am making 8 – 4 = 4% more incrementally on this $500K or $20,000 per year.

 Sure I have to do turn overs once a year and do some maintenance but I just replaced a half million dollars in savings with a very modest change in my life and I didn’t even have to get a loan to do it.  If you are comfortable with more hustle (add value to properties and cashflow them) and/or risk (loans and margin), what would happen if you had 10 rental properties?  What about 100? What happens if your appreciation on these homes outpaces inflation because you wisely chose a growing area? 

How Much Can Active Triple I change your financial Picture?

The internet is loaded with people who have gone from debt to  never having to work again in 5 years or other such craziness: 

–Two teachers who achieved their financial independence in 5 years 

–A couple that set out to be financially independent in just 1500 days 

These of course are just some case studies but the lesson of active triple i is a powerful additional lever to get to financial independence.  I currently do this with real estate directly, as well as with real estate backed loans.  I know others who have done it with Air BnB, running a farmer’s market stand, creating and selling artwork, Uber, and other such side hustles.  The point here is that these things can change your model for financial independence dramatically or if you are already there, they can add a cushion and give you something interesting to do, a sense of accomplishment, and more.  When you do these things even though you don’t have to work, it just feels different and can be a lot of fun.  It is amazing how many “early retirement” people that I have met seem to end up engaging in a fun side hustle that ends up being even more lucrative than what got them to early retirement in the first place.  Sometimes it seems unfair how independence and freedom seem to create more of the same.  Like I said in a previous post, compound interest is the most powerful force in the universe be it in habits, knowledge, investing, or sport.   

*Note that this assumes similar % rate handicapping for risk of stocks and real estate.  An average stocks 7% return becomes 4% (43% less) and the same with real estate 14% becomes 8% (43% less). While this is imperfect to equate risk in real estate with stocks I would argue it is conservative as stocks are actually historically more volatile.