Stop Your Limiting Beliefs About Wealth And Retirement

Despite highlighting four examples of people who are able to retire by 40, and providing very clear graphs that are mathematical tautologies on how to retire early, people still do not believe retiring by 40 is possible!  Do people really believe they can’t live off $39,000, $60,000, and $88,000 a year for 20 years until they are in their early 60′s and then live off other investments and Social Security?

Do people really believe that if they have $600,000, $900,000 and $1,400,000 in the bank today, they can’t make it last for even longer than 20 years?  I am absolutely shocked by early retirement naysayers who believe they need so much more.

I will happily bet any amount of money that I could live off $1,400,000 for the next 25 years, even here in expensive San Francisco.  I’m not talking about retiring by 25, 30, or even 35 like I recently did.  I’m talking about retiring after 18 years working while consistently saving 55%+ of your after tax income!

Building wealth is straight-forward.  It’s the psychology of wealth that fascinates me more than anything.  Why do people have limiting beliefs about themselves?  Is it due to low self-esteem, a lack of education, jealousy or delusion perhaps?  Is it the same reason why people are unhappy and bitter?  Let’s tackle some push-backs and see if we can get to the bottom of things.

UNDERSTANDING LIMITING BELIEFS AND HOW TO OVERCOME

In the following section, I’d like to highlight some of the push-backs from commenters on my “How To Retire Early And Never Have To Work Again” post.  You should feel free to read the comments yourself.

Complaint #1: Income assumptions are too high.  Despite highlighting three different types of income assumptions (Average Jane, Go-Getter Floyd, Talented Felicity), the main focus from dissenters is about Average Jane’s income!  There was no focus on Floyd or Felicity’s much higher income at all. It was comment after comment about how Average Jane’s income is too high.  Since when is starting off at $35,000, and making $80,000 after 10 years at the same company unbelievable?  Come on now.  Raise your standards!

Analysis: There is a lack of realization that average people can clearly make what Average Jane makes.  We’re not talking about software engineers graduating from MIT who start off at $80,000 at 22 years old and make $200,000 by 28 years old.  We’re not talking about Summa Cum Laude graduates we join strategic consulting firms with $65,000 base salaries and $15,000 year end bonuses their first year out.  Average Jane is a dedicated woman who worked hard for 10 straight years, got promoted along the way, and is doing OK at her sales job.  Her raises are not due to inflation, they are due to her performance and promotions.

Complaint #2: Inflation kills.  Yes, inflation is a powerful wealth zapper.  But guess what?  If inflation is out of control, your wages and your real assets are inflating out of control as well!  What do you think are the inputs accounting for the CPI and PPI figures?  There is a tight correlation with the 40 year chart of the 10-year yield and inflation.  Basically, the line has been going straight down.  If I wanted to include inflation in the picture, then I would equally assume a higher rate of wage inflation, and a higher rate of return on accumulated capital and investments.

Analysis:  The limiting belief here is that inflation is evil, which means we have to work longer than we want.  Inflation is neither good, nor evil.  It’s just a fact of economics in a world with a growing population and limited resources.  You can choose to go with inflation and buy real assets and invest accordingly, or you can choose to go against inflation and keep all your money in a 0.2% yielding savings account, rent forever, and be a price taker.  For savers, as inflation ticks up, so will interest rates.

Complaint #3: “It just can’t be done because I’m not there yet.”  Just because you can’t retire by 40, doesn’t mean that other people can’t retire early if they save 55% of their after tax income religiously for 18 years out of college.

Analysis: The limiting belief here is that this person believes he’s special.  He believes that since he is special, and since he’s not on track to retire by 40, he believes it’s absurd for someone his age to have $185,000 saved up in his tax-deferred retirement plan based on my savings guide.  The delusional person believes it’s impossible that other people age 30 can make $100,000 since it is so difficult to do, even though he makes $100,000 himself!  What a strange world we live in.

Complaint Bonus: “Why would you ever give up a $150,000 salary and retire early?”  One of the questions followed by a couple expletives from one dissenter on another site.  Clearly, the person does not make $150,000, nor has the person long enough to experience that there’s more to work than just money.  $150,000 is the median income for 29 year olds coming out of the Top 10 business schools.

Analysis: The limiting belief here is thinking he knows something he has not experienced yet.  It’s like someone teaching you how to be a millionaire, without being a millionaire themselves.  This person believes that a $150,000 income is so huge, it is inconceivable to ever give up.  If he ever made that kind of money, he would work forever!  For the older folks out there, we all know that priorities change.  Career and money might shift towards family, friends, and a more balanced lifestyle.  Furthermore, if you are making $150,000 or more for for a while, it’s easier to let that money go for things you cherish more.

CONCLUSION

Limiting beliefs hurt your wealth creation goals.  Have the self-esteem and courage to believe in yourself and your wealth creation abilities!  Know that you can make more if you want to.  Know that you can save more of your after-tax income if you want to.  And if you don’t want to, then stop complaining because not wanting the optionality of retiring early is exactly what you want.  It feels better to spend your money now, and work for longer because you enjoy your job.

At the same time, stop believing you are anything special!  You can’t be delusional into thinking that you can retire early while not saving, investing, and building various income streams.  Please be rational with your thought process.  I write from experience, and I’m telling you the Average Jane’s of the world can live off a $600,000 nut now for the next 20 years because I know of an Average Jane who is doing just that.  I’m telling you that a Talented Felicity can live off a $1.4 million nut, because we’re having coffee in a couple weeks to catch up.

I make an unrealistic scenario in my post that we do NOTHING after the age of 40 until we begin to withdraw from our 401Ks and receive Social Security.  Instead, I’m sure many of us will have encore careers or pursue a passion that will likely make us some money.  I know I will.

Readers, why do you think there are so many non-believer in mathematical tautologies I’ve highlighted?  Do people have an illogical assumption that because they are not on track, others can’t be on track as well?

Regards,

Sam

Photo: Dragon Soup Dumplings, SD.

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    I think most people don’t believe because it doesn’t highlight their particular situation. Most people aren’t willing to make the sacrifices it takes to get where these examples are. I bet saving 55% of their income would be “impossible” to these people. I can understand their frustration with the salary numbers but at the same time the people in your example probably worked their butts off to get where they were and made smart decisions along the way. You have to be smart about your job choice to be able to get promoted from 35,000 to 80,000. Sitting in the same position and getting 2% raises will not get you there.

    • says

      “Complaint #3: “It just can’t be done because I’m not there yet.” Just because you can’t retire by 40, doesn’t mean that other people can’t retire early if they save 55% of their after tax income religiously for 18 years out of college.”

      A lot of things come down to choices. We choose our majors, occupations, side ventures etc. Sure, a lot of things are out of our control as well, but we at least have to have the BELIEF, otherwise nothing will ever happen.

  2. Bubba says

    I would say that having kids really sets back that goal. If you stay single and focused, work hard and are a little bit lucky, sure. Married w/ daycare or one spouse staying home, almost impossible. And that is they way the system wants it…

    • says

      Starting a daycare center might be a good business idea yeah? In Hong Kong, nannies cost $500 a month. Too bad two bedroom apartments in a good area cost $5,000 a month!

      One of the examples in my How To Retire early post is a single mom. But, she makes more than the median salary.

    • says

      We have two small children, ages 3 and 1, and they are both currently in daycare. We live off of about 50% of our income…..it can be done if you are willing to make sacrifices!!! We are 32 and will be mortgage free in 3.5 years.

  3. says

    Sam,

    I missed saying congrats before your retirement post balloned to nearly 200 comments, so I’ll get in early on this one. I for one, think it’s fantastic what you’ve been able to do. I’m about 4 years older than you and I wish I started saving big time before my 30′s. In my plan..I’m using the next decade to really build the “nut”. I am planning to be out by 50 (target 48) which will still be pretty good by normal standards. I think people who push back on this philosophy may not realize that some careers are significantly more years in practice than others (finance & engineering for example). One thing I think you might comment on..even though it doesn’t match your own model are kids and the impact they have on an early retirement plan. My calculations show that my 3 are driving the next decade of “nut building”. I’d be done otherwise as well. Great stuff.

    • says

      48 will be great! And I agree, if I had 3 kids, I’d be more inclined to work for another 5 years. I have budgeted $500,000 in my retirement for 1.5 kids. I wrote a post, and did some analysis on the cost of kids, and they seem to cost less than what everybody is freaking them out to be.

      The Cost Of Raising Kinds Is Cheaper Than You Think!” – Would love to get your perspective as a mom of course!

      Oh btw, this post isn’t a response to my post announcing my retirement. It’s a response to the criticism my “How To Retire Early” post got.

  4. greg says

    I think your points are very common issues and I agree with your criticisms. But among a lot of people I know — who tend to be out of school within the past 3 years — I see at most abstract knowledge of the powers of compounding. The engineers are more aware of the nature of things, but have never really put in numbers to figure out what the constants actually make the curve look like.

    So while you have great points, I might personally consider the first step to be actually showing somebody how to set up a spreadsheet and understand what the numbers mean and the assumptions behind them; not doing that may be the root cause of a lot of misunderstandings.

    • says

      Hi Greg,

      In the “How To Retire Early” post, I do have four charts that make it easy for people to see the power of compounding, without even compounding! It’s just savings.

      I do not believe people cannot understand the power of compounding and savings. It’s as easy as understanding that if you do not drink water, you will die.

      S

      • says

        I sorta agree with Greg. I used to be one of those people who didn’t truly understand the power of compounding. I mean I understood it in an abstract way but until I… as Greg puts it… pulled out a spreadsheet and played with the numbers I didn’t understand what the curve really looked like.. therefore what I needed to do to grow my savings optimally. Now instead of giving my money over to financial planners, I manage all my funds by myself. I get a much better rate of return without the expenses. Now I realize that other people are both afraid to manage their own money and trust themselves to do their own calculations. Which I think causes people to act like they aren’t in control of their own finances… self limiting belief? What seems to help break through that is both reading more about finances and pulling out a spreadsheet to put it to practice.

  5. says

    Seriously your how to retire early was one of the paradigm changers for me. Of course, I thought, no way, I’m too broke to do this, but then I realized I’m already saving 40% of my take home (if you believe in funny math like I do and see debt payment as savings) regular pay and 100% of my side ventures. My goal is to save more than 50% but in order to do that I need to earn a lot more than I do now! It’s unlikely that I’ll be able to retire in 9 years, but it isn’t out of this world to save as much money as possible.

    • says

      Paying down debt is like savings for sure, b/c let’s say you are now 100% debt free, you’re money you would have gone to pay down debt just goes into savings.

      I do believe that once you pay down debt, and keep at saving for 18 years, you will be free to do what you wish. And if you find something else you like to do before 18 years and 50%+ after tax savings, then go for it like I have done!

  6. says

    There may be several reasons! Most of us do not test ourselves to find our limits. Another is they have not done it, therefore it cannot be done syndrome! Last, they are less focused on the goal and are unwilling to do what is necessary to reach it.

    For example, I am unwilling to save 50% of my after tax income like you did. I am and was married and had different priorities. My advantage was I place a priority on savings and lived on less than many people. The bottom line is you really have to want it to make it happen.

    • says

      Larry, you did beautifully to some up my post. I do like the “They have not done it, therefore it cannot be done” syndrom as I write in Complaint #3.

      We are rational, and if we want it, we will more than likely make it so. It’s what we prioritize that matters.

  7. says

    Honestly I am probably among them. If I would have 900,000 today in the bank I would not retire.
    Three specific reasons:
    - Inflation , i.e. even with good returns you unlikely to cover inflation on the capital
    - Low market returns + high risk in the high yield investments.
    - After 10 years at home you will become unemployable.

    If you would have $9 million I would consider to do only part work and the other part spent in my garden looking after the roses ; -)

    • says

      Would you really do nothing for 10 years after you retired though?

      It also depends on how old you are. I realize $900,000 isn’t a lot of money for some, but it still is a lot of money for many, and one can easily move elsewhere and make $900,000 last a lifetime.

      S

  8. myself says

    @krantcents
    I must agree with the statement that people don’t try to test the waters.

    I am reminded of 2 times when I tested the waters, literally on just a whim. Employer added retirement account to the possibilities, so i just pushed it right away to 5%, which was slightly above what the company matched. My take-home paycheck actually increased (no, there was not an increase in income for 4-5 months before or after).
    About 6-7 years later working at a different employer, I only had retirement at a minimum for employer match of 4%. Then I went “crazy”, and moved it up to 10% over a 3 month period of time (2% of that was due to the lowering of SS taxes for employees). I am currently looking to bump that up even higher to get closer to the max for 401k withdrawals if I am so blessed.

  9. says

    Well I guess most people are not willing to make sacrifices to meet their financial goals in life. Another factor would be kids and the inevitable expenses that come along with it. Life isn’t just what it used to be 20 to 30 years ago. However I do believe that when there’s a will, there’s a way!

  10. says

    I completely agree with you on the fact that most people that I tell I am planning to retire at 42 (20 years in the workforce is enough for me!) say it’s impossible. They are the naysayers – they bring up inflation, kids college tuition, and the fact that I must need millions of dollars to do it.

    I am well on track for retiring at 42 (age 33 now) and will be able to generate enough income from investments to cover expenses by that time. I could potentially retire even earlier if I find more ways to reduce my expenses or increase my salary.

    Bottom line: if you have low expenses so you can save and invest to build your nest egg and in turn have that nest egg cover your low expenses, then this *is* possible.

    • says

      20 years… that was basically my goal as well… 18-20 years…. but after 13 years, I decided to take the leap of faith b/c I discovered something new. You never know! But, so long as you have a good framework in place, a lot is possible!

      Good luck!

  11. says

    Early retirement is hard to imagine for me at this point, as life is quite busy with the parenting shuffle, but I do see light at the end of the tunnel.

    The key is in having multiple income sources, and cutting your expenses to the point where your streams of income can cover them. Once you get there, retirement accounts can balloon quickly.

  12. says

    The issue is that some people, if they saw such a ‘big’ number as $1,500,000 would assume that it could be business as usual and nothing would change, in fact they might even start making worse decisions. They’d still be good even when the number crept down and went down further, and maybe if they’re lucky after it crossed down into six figures, there’d still be a lot of time left and habits would change, but not likely, and instead the money would go faster and faster as interest income would diminish rapidly. If you’re responsible and knowledgeable about your money and costs and budgeting, yes, you can do it with that amount, but for the ‘average’ person, it’s probably not feasible.

    • says

      The thing is, the “average” person doesn’t need $1.5 million! That is the point of the “How To Retire Early” post with the Average Janes of the world. $600,000-$900,000 after 18 years is just fine.

  13. says

    If someone earns $150,000 or more, and it is not passive, you better believe that he or she works their butt off. Probably average 80 hr weeks. THIS is why he would retire at 40 although making the “high” income. I’m with you Sam.

  14. says

    In my opinion its all about choices. Whether you make 50k or 100k saving 50% is still saving half of your salary. People will complain but its about making the sacrifices in order to get where you want to be. Sometime things will work and sometime they won’t but you have to try. I have several friends that are more then willing to spend 3k on a HD flat panel tv, ipads, iphones, etc. But mention 401k or savings and the conversation goes dead. Will we all retire at 35 or 40 no, but for the most part its not what everyone WANTS or are WILLING to do in the first place. Don’t knock what someone else is willing to do or sacrifice simply because you don’t want to is my opinion.

  15. says

    I hear complaint #3 all the time at work when we talk about retirement and how I think I’ll be retired around the age of 40. They don’t understand the idea of making sacrifices (not even big sacrifices) at a young age can compound to much bigger returns later on in life. They are all about new cars every 3 years and I’m about buying a quality used car and driving it into the ground. Meanwhile they are spending $20-30k every couple years while I spend 10 and save the rest. I don’t think they are wrong in doing that, it’s just not up high on my priority list. Those types of sacrifices is why I’ll be debt-free in a couple of years and why I’ll (hopefully) be retired somewhere around 40. Really loving your posts lately. They are inspiring me to make bigger sacrifices and changing for the better.

    • says

      It really is a dumb complaint. Driving a new car every 3 years is up to them, but they shouldn’t complain if they don’t have that extra disposable income.

      It’s all about priority as you say! Different for different folks.

  16. says

    You’ve covered quite a bit of the things that I was looking for. Even though I haven’t started contributing to retirement (I don’t want to retire-period) but I believe life can get in the way of that. But it is good to be able to review some of the things that can be limiting beliefs or problems for those individuals getting prepared to retire.

        • says

          Got it. Well, we all have to start somewhere. I did McDonald’s for $3.25 an hour!

          Just try putting 10% of your gross pay check aside every time you get one. The good thing about earning less is that you are used to living on less! Just don’t let the lifestyle inflation get a hold of you too much.

  17. says

    It comes down to priorities for me. I don’t mind working, I actually enjoy my job for now. We wanted a house, and really sacrificed to get ourselves in here. Also, we now have a little one at home, and my wife is at home as well. Early retirement is a great motivator, but for me it’s hard to see past just getting my income to a place where we’re not just barely making it. I am investing a measly 3% right now, but would love to get to 50%. I am unwilling to sell my home, so i need to increase my income 100% to save that amount. Which would put me over $120k a year.

    Actually, that’s not unreasonable within 5 years, I believe. If I pursue business online, grow my tax practice on the side, and kep stricing for raises/promotions, I think that’s doable. it’s kind of cool to write it out that way. Now I need to reverse engineer this goal into a detailed action plan….Hmmmmm….maybe a new post coming soon….

    Thanks Sam.

  18. Larious says

    I think what it comes down to is lack of self-esteem and belief in oneself.

    Those who believe in themselves are the ones who are the post successful!

  19. says

    As you’ve said, managing money is not that hard. It’s all about consistently saving over 50% for 10-15 years, and let that money work for you. The reason people resist is due to stereotypical belief that early retirement is a risky decision. May be that our government wants people to believe that they shouldn’t retire. :)

  20. says

    Most people got trapped into their inflated lifestyle and couldn’t cut back. If most people can save 50% of their income, then a lot more people will be able to retire by 40! Once you quit, you can work just a little to generate a small income to help out with the bills. It’s much better than being stressed out all the time.

  21. Darwin's Money says

    People take a lot of liberties with the word “retirement” as you’ve pointed out before. I view retirement as not just quitting the conventional white collar job, but also not actually needing any additional income – ever, aside from what I’ve already acquired. If I have to freelance, consult, take side gigs or whatever in retirement, then it’s not really retirement to me. Due some life choices like 3 kids, trying to put them all through school, etc., an early retirement isn’t on the horizon. Plus, what would I do with all that free time?! Probably …. work!

    • says

      I just spoke to a friend who has 3 kids and is moving to NYC. He said it costs $35,000 a year EACH to send to private school. That’s $105,000 in after tax money, hence ~$180,000 of gross income is going towards education every year for 18 years. Yowza.

  22. says

    I am under 40, and through several years of overtime work as a freelancer, have enough built up that I can ‘retire’ today.

    I would have to leave NYC and move somewhere like upstate New York to a local community, but I’ve done things like that before and am able to do it.
    Or, I could rent a 1-BR house on the water in the Carribbean, live in style in Buenos Aires, and/or buy a house in southeast Asia. Believe me, I have worked out the numbers.

    But I choose to continue working. Why? Because of three reasons: One, my job is a large account pre-sales role, and I am learning things. Two, the extra income allows me to enjoy travel and educational opportunities that otherwise I would not be able to do. Three, I am putting away extra cash that whenever I say “I’m done,” I’ll have more at my disposal.

    I do however look for quantum leaps.. this incremental stuff has been my fallback plan. Taking an entrepreneurial risk that really works out.. that is where my heart has been. I just don’t know what I want to do (yet).

    Sam: I would offer that you not reference that “How to retire early and never have to work again” article, as it is not exactly your best. For one thing, there are no case studies of anybody ever doing this; for another, it is unrealistic to expect somebody to go through 20+20 years of life with no romance, no vacations, and no family; and lastly, it violates your core value of basing everything you write on personal experience. I am coming to really like your writing, but IMO that post does not help build your brand.

    • says

      Jason,

      I am living my article of how to retire early. There is no better proof I can give than my own life. Is my life not personal experience?

      The charts from the article show simple mathematical tautologies. Choose to follow or not. It’s up to the reader.

      Nobody is saying don’t have romance, vacations, and no family. Did you read the examples?

      Look out for an upcoming article on a 3 week vacation to Europe. That encapsulates vacations, family, romance, and personal experience.

      I’d love to read more about your story.

      S

      • says

        Are you really living off of, and burning your principle? If you make no money from any entrepreneurial pursuits whatsoever, will the money last until 60 years old? And do you really think Social Security will still be around to kick in at that time.

        Those mathematical tautologies are theoretical not proven. They’re like varying % compounded growth charts that mutual fund salespeople show.. they look great on paper but don’t work out as planned.

        Then there is the example I pointed out in the post comments: health insurance. It ain’t cheap. COBRA does not last for 20 years. And it’s usually late 30s/early 40s when real problems start to appear.

        I do see value in the article as how to give yourself cost-of-living seed capital when starting a business, but in my experience, both personal and from watching others, entrepreneurs burn through seed capital much faster than financial projections predict in advance. Which is a lack of self discipline true, or…more often, lack of experience in entrepreneurial failures are typically quite costly.

        The other disclaimer that is needed is this will only work for those who are committed to being an entrepreneur. Not everybody who “retires” wants to do this. My mother just retired, and she spends her days creating photo albums for family members. She has no desire at all, to go into business.

        My purpose for writing these is not to be disrespectful. I am just thinking about the effect it is going to have on others. I just see it as a very fine tightrope line, and unless it is followed exactly, it can cause more harm than good.

        • says

          Jason,

          I can easily live off the $7,000 a month in gross income from my passive income stream and not touch principle forever. Even in expensive SF, living off $84,000 a year in gross income per person is relatively easy.

          My charts have no growth over inflation for return. If you want to debate, then you should debate how I’m so conservative. Imagine what the charts look like if I put in just a 5% compounded return over inflation?

          Insurance costs $200-$1,000 a month max for someone in their 30s and 40s.

          You don’t need to be an entrepreneur once retired. You can take up a relaxing job working 10-20 hours doing something you truly enjoy doing to provide income.

          I 100% DO NOT believe encouraging people to save, work hard, and be prudent with their finances will do more harm than good. We must have different values. I’m guessing there is something about your finances that is disturbing you to object to saving and working hard. Are your numbers not inline with my charts?

          You’ve given me motivation to prove you wrong that I can live off $7,000 a month AND grow that income stream and have a great life in retirement.

          PLEASE open up and share with me your financial situation so I can get a better idea where you are coming from.

          thx,

          Sam

        • says

          Hi Sam.

          Okay I will open up.

          Growing up, neither of my parents had a financial clue. My dad kept squandering opportunity after opportunity (he got a big chunk of stock in a company he helped build, and spent it on a bigger house, a vacation to Disney World & a houseful of Ethan Allen furniture; similar stories; my pop died a few years ago and had $1,500 in his checking that was it), and my mother was a part time secretary who was quite math-uninclined.

          I didn’t put my first $100 into any investments until I was age 30, and didn’t start seriously until 32. Most of my 20s were spent playing original music, and pouring sweat equity into one startup or another.. things that paid little but could have hit the jackpot. And on more than one occasion, I came close! But that is another story; in the end, nothing cashed out.

          For the past 5-10 years I have worked as a full-time employee and as a freelancer, making sure to make more than I spent, and putting everything into 1) debt reduction, and 2) my pool of investments. The book, The Richest Man in Babylon, truly changed my life. I am now at the point where my net worth is into six figures, income is good, and I really have no sense of financial pressure whatsoever. I can ‘retire’ to Bali or Thailand or upstate New York and live off of my investment returns, if I choose. I choose not to, but it’s good to know the option is there.

          So that’s my story. I could record a 60-minute audio, or write an ebook about my story. And I may. But what does my story have to do with this thread? There are two aspects I would like to address.

          1) The blog post title: stop limiting beliefs about wealth and retirement.

          I have long thought that I cannot wait until I no longer need to worry about money…… so that I can start making money. It is similar to when I found out I graduated college: after the pressure of going to school was over, I could start learning. I was a very C student who started reading 50-70 books per year. The hunger was back. So it is with finances.. “having” to go to a job, a client, etc., drains me creatively. But I have (and regularly come up with) more business ideas, that are better mousetraps or new paradigms, than anybody I know. But I don’t have the time, network, or confidence to make them a reality. The lack of confidence comes from having had so many failures in the past, and not knowing what caused them to be failures (I feel I would just be repeating the same mistakes again). This is MY limiting belief.. also my plea for help; if you can help me through it I will be extremely grateful.

          2) Our friendly little debate. :) There’s a saying from Matrix Reloaded, “You do not truly know someone until you fight them.” I don’t go around picking fights, but when I find something worth fighting for, I stay with it. I am curious if you will also stay with it, or if you’ll run away and stick your head in the sand (as sooo many do).

          First: Internet marketing is not passive income, it is business income. There is a big difference. And it is just a reality that the majority of people who go into internet marketing fail at it. How many personal finance blogs are out there, and of those, how many are actually making money?

          The people making money on the internet are those who teach internet marketing courses… and get paid whether or not their customers succeed or not. It’s a big pyramid scheme, pay-to-play, much like MLM. It has been this way for decades: people who promote direct-to-customer products and services usually don’t succeed; but people who offer courses on how to promote products and services cash out big. And the people who offer such courses…just let their students fail, take their money and not care, because they have 4-5 testimonials from the few who succeeded, so they can continue marketing their courses to bring in more people.

          Second: I have no doubt you can live on $7k per month. And I have nothing against saving, working hard and being prudent. You twisted my words, and your “guess” about my situation is wrong.

          What I DO have a problem with is that the numbers in your how-to-retire-early post don’t add up. For one thing, health insurance is not insignificant. It costs a LOT once somebody gets to the 50-65 age range..and your math charts do not take this into consideration.

          You do not have the proper effective tax rate. A few years ago I had an income of $82,000, and my effective tax rate was 31%. Your charts show that $80k has an 18-20% tax rate. This difference adds up. You need to figure in the complete tax picture (social and state taxes).

          Investment totals fluctuate wildly. Even now with US Treasuries. Somebody could have a $600k nest egg, quit their job, feel comfortable, and then six months later their nest egg value drops to $400k. Are they going to dollar-cost-average out, during this low swing?

          Also, you are not going to follow the plan you laid out in your post. You are living off of business income, while preserving your principle. This is very different from what you say to do in your post.

          Investment rate of return…yes, true you were conservative. Although inflation is much higher than the Fed reports, when you add housing and energy. But I’ll give you a point here.

          It’s been a long post, and thank you for reading. You give very good general advice. But when you give a specific plan and leave out critical parts which sink the whole plan, then the net result of your advice can be a disservice. And that’s my point. That’s why I’m engaging in this.

          • says

            Thanks for opening up Jason! Gives me a much better perspective of where you’re coming from. Some responses:

            * Once you have more money than you really need, that is when you will no longer have doubts about money. I don’t know your NW, but shoot for $1 million then since you said you are in the six figures.

            * Everybody who argues with this post is at the low end, or not in the ball park with my charts. Given you said you weren’t serious about money until age 32, I’m assuming this is the case with you.

            * Nobody said internet marketing is passive income. Read “Achieving Financial Freedom One Income Slice At A Time” to see my passive income and various other income. I made my money before having this blog. Let me say it in another way, I made my millions before I started Financial Samurai.

            * Would it please you better if I just live off my $7,000 a month in passive income, and save all other various incomes? All it is is semantics. I’m free to do whatever I want, whenever I want. If it pleases you to live off my $7,000 in passive income to be considered retired, I’ll do that fo you to make you happy.

            * As for my quality of work not being the best, sorry. I welcome criticism. But with criticism, there needs to be back up. Hence, send me your latest quality of work. Also, how about matching me post for post for the next 6 months. Ready for a challenge? I don’t criticize you.

            * I am so sorry you pay a 31% effective tax rate on $82,000. Even with zero deductions, your highest federal marginal tax rate is 25% for income 35K to 85K, and 10% and 15% less than that. Your effective tax rate is indeed under 20%. Add on 8% state tax and you are still at 28%.

            * I truly do understand how it’s easier to criticize others and say they are wrong. I did that in middle school, and stopped when I got into the 9th grade b/c I realized nobody was going to save me or make me happy or rich. My “hunger” as you wrote started when I was 13-14 years old b/c I saw poverty all around me growing up. I didn’t want to cock things up, so I did well, got a scholarship, went to a good school and graduated with options. Your hunger just came 10 years after mine.

            Thanks and keep the criticism coming, but back it up!

        • says

          Hey. for some reason I’m able to “Reply” to your last message so it’s appearing like this.

          So you threw down the gauntlet. Allow me a few days to choose whether or not to commit to this. If I’m pissed off enough, I’ll certainly do it. Otherwise, I have to look at if this is a worthy challenge, to grow me as a person. If I do it, I’ll do it fully.

          For now, a few things:

          - $1 million net worth will probably take another 5-7 years.

          - I am a little bit shy of the low end, in your “how much should people have saved” post. So you’re right.. I started a few years late due to earlier life choices (which I can’t regret).

          - re: my passive income, I stand corrected.. you did describe the difference between passive income sources and active income sources. Re-reading that post, it really is a great post.

          - My replies have nothing to do with your $7k in monthly passive income. If you can live your life how you want, more power to you.

          - re: effective tax rate, you are still leaving out the social taxes. Which is another 7.5%, and by your own admission re: state tax, makes the effective tax rate for $80k far, far above 20%.

          - I never criticize or say something is wrong, without being able to back it up. In this case… I HAVE backed my claims. My words are not vague, or hurtful. I am not putting you down as a person. It’s not as if I am saying, “dude, the quality of your writing is not the best.” In fact, I have been rather complimentary about your writing (such compliments from me are sincere but rare). I DO, however, feel this one post, which you seem to be promoting as your flagship advice/program for people to follow, has serious gaps–which can wreck havoc on somebody’s financial life, if this person takes on this program and is not aware of the gaps. And yes, I have backed up my reasoning.

          • says

            Excellent Jason! I wrote posts from 5:15am to 7am before I had to go to work, and after 9:30pm for 3 years. Lots of hard work, lots of fun, and now I’m retired. To me it was worth it. I went to business school for 3 years from 8am to 6pm on Saturdays, while working 60 hour weeks. It was hard work, lots of fun, several tickets, but I learned a lot, made new friends, and increased my income afterward. It was worth it! We do what we want, because we love to do it.

            On taxes, take your total taxes from your W2 and divide by your total income (not AGI). If you are still at the 31% mark, then I am sorry. Please consult with an accountant, buy a home, start a business, or do something else, b/c that is a lot of taxes for that income level.

            I LOVE criticism, b/c it makes me better and gives me a lot of motivation. Don’t stop!

            Looking forward to you going toe-to-toe with me on all posts for six months. Or, you can just relax and critique my work. It’s all good!

            Thanks,

            Sam

  23. says

    Hey Sam! This is my first time visiting your blog, and this post really resonated with me! I’m what I consider to be pretty young (25) but I have a knack for saving and budgeting. I have a lot of student loan debt along with my husband, but we have a plan of action and a goal to conquer it. I think the core of the problem that you are writing about here isn’t that people don’t understand the simple math – It’s that many have lost sight of what’s important. If someone doesn’t believe that they can live on X amount per year during retirement, then perhaps they simply want too much. Retirement isn’t about having all the amenities in the world. It’s about having freedom! Why work when you don’t have to? Why plug away at a job just to make $150,000 a year and not have the ability to do what you want? I’m with you! I can live on very little. I always find though that I am the minority in that regard, especially among people my age.

    • says

      Hi Cat, welcome to my site! How’d you find my small space on the web?

      Good for you for not losing sight of the freedom goal!

      As we grow older, material things and stuff I’ve found tend to fade from our priorities.

      • says

        Hey Sam – Hmmm I’m not sure how I found your site haha! I think I might have seen you comment on another personal finance blog and thinking financial samurai was a bad ass name, I had to come and take a look! Thanks for the great advice. :)

  24. says

    Terrific article and a great read. As a woman who got married in the late 1960′s I can tell you a lot of things about limiting your beliefs including how people around you can set up limits and barriers. Those who you think are friends often are the ones who stand between you and growing your own self esteem. I started investing in the early 1970′s after losing my husband early in my marriage. Everyone told me that a woman could not handle finances and investing let alone a household and raise kids on her own. I was so shaken I put my money with brokers who promptly lost half of my money which I had received from my husband’s life insurance. It was the 1960′s so the insurance was just $40,000. The brokers told me no one is making money because it is a bear market. I took what was left and went and found a mentor who turned me towards options as a way to hedge my capital. I took his concepts and established many of my own strategies which have grown my capital ( a woman’s portfolio LOL) many times over. Long story short, I have done well and learned that self esteem and barriers can be many and complex. In the end you have to trust in yourself and your own abilities to realize the only limits out there are those you are placing on yourself.
    Teddi Knight

    • says

      Fantastic insight. Friends and their barriers are erected b/c the friends are too afraid to go for glory themselves.

      Good work on building that lucrative portfolio and living life on your own terms!

  25. says

    Believing that you can achieve something, like working for 20 years saving >50% of your income and then be able to retire, is the most important step to making it a reality.

  26. says

    I find this article very interesting. I too think it is possible to find finanical freedom much earlier than we are being sold. Yes sold!! People who have had the discipline to to save 25 to 50 % of their incomes for 15 to 20 years know the truth about how little they can get by on. Me…I’m 52 with a net worth of 2.5M. I have no debt of any kind. I currently live on 50k per year without any problem.
    I do what I want when I want. I take no pleasure in pursuing more wealth to purchase more crap.
    I think the ones who feel they need far more are the same people who lease the expensive automobiles and wear the fancy Rolex.

    Tip of the day……..GET OUT OF DEBT!

  27. HyvyVan says

    Good morning…i am at 46 now..i was able to save $1,300,000.00 after i consistently working 2 jobs since 2000..Before that i was working 1 1/2 full time jobs..
    Well, right after the High school in 88…i Joint US Army for 4 yrs..It was the best experience after all..
    Now I am looking forward to retire at age 50….Your financial articles sounding really great..
    I believed that i can comfortable retire with that $$ in South East Asia..
    However, I dont see i can retire with a good life here in the Silicon Valley , California with that amt of the saving…
    Well, After working nearly 20 yrs in two jobs..It is finally kind of burn me out..
    However, I enjoy my works….Life is good ..i have no complain..Excepting only 5 hrs of sleep per day..Some times are only 4 hrs per day..

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