Who wants to retire in their 20's, anyway?

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Yesterday we talked about starting young, not just as it applies to saving, but as it applies to accelerating your retirement plan.

Maybe you couldn’t find your WHY?

After all, who wants to think about retirement when they are still in their 20’s or even 30’s? Most are still thinking about their job!

Yet, as yesterday’s post showed, there are some good reasons for starting early. And, who wouldn’t want to retire early if their goals matched these from a recent survey of GenXfinance‘s readers:

How Do You Envision Your Ideal Retirement? 

Being a ‘Gen X’ PF site, we can probably assume that most of the respondents were younger than, say, me. But, it’s even more interesting to notice how each of the first three categories (where the majority of the votes fell) require MONEY and/or TIME:

1. Extensive Travel

Think about it, you can escape money to a greater of lesser degree if you are willing to travel frugally, work at least during some of your stopovers (haven’t you noticed how all the ‘servers’ in restaurants in vacations areas are young foreigners?) …

… but, you can’t escape the time element: this means that you have to be ‘retired’ from your day job.

2. Not going to work; just taking things one day at a time

Obviously, this means that you are retired from your day job … but, two things happen when this occurs:

i) Your income goes DOWN

ii) Your spending goes UP

For those who subscribe to the “75% of current income in retirement” theory, I ask this: have you ever tried spending time doing anything BESIDES WORKING that doesn’t COST money?

Think about it … it stopped me from cashing out when I was offered $4 mill. a few years before I eventually did cash out (for a helluva lot more!).

3. Doing volunteer or charity work

All [charity] work and no play makes Jack a dull boy … this is really 2. plus you are spending some of your time (perhaps a lot) giving back. This is a good thing … as well as the great work you are doing, you are spending less time … well … spending!

4. Other

If you scroll down the comments attached to GenXfinance’s post, you will see that most of the ‘other’-folk either mean not retiring at all (like the ‘pursuing a second career’ option) or involve a similar outflow of money and/or a similar savings-account-draining, non-income-earning amount of time.

But, they are all things that you will probably want to start whilst still young enough to enjoy them …

… which means starting to build a pretty damn large nest-egg pretty damn soon!

Let me know what (and how much by when) ‘retirement’ means to you?

What the Quality of Life Index means to you …

First LIVE show aired last night … thanks to all of those who joined us (!) … a few technical glitches … the host wasn’t exactly Jay Leno [I don’t have as many cars as Jay, either] … some great question and fantastic chatting. Same time next week, all?

Now, for today’s post

Today, I am reviewing – and adding to – an important concept recently introduced by mymoneyblog … a way of comparing wealth without resorting to meaningless concepts like Net Worth.

It’s a ratio that mymoneyblog has dubbed the Financial Freedom Ratio:

If someone tells you that they have a net worth of $1,000,000, you might be impressed. But what if they spent $150,000 per year? If they stopped working, the money wouldn’t last very long. However, if they only spent $15,000 per year, they might already be set for life. In other words, your income doesn’t matter. Your expenses do. It may be assumed that the two are related, but that is not necessarily true. We all have the power to disconnect the two.

I’m sure somebody somewhere has already coined this term, but until told otherwise I will call it the Financial Freedom Ratio (FFR):

Liquid Net Worth divided by Annual Expenses

By liquid, I simply mean you can sell it for cash while not affecting your expenses. (Don’t count your car if you need it for work).

I like the FFR because it is a way to compare two people who may be on different financial paths; I mean, who is better off?

The doctor who earns $250k per year (net) but spends $260k a year on mortgages, cars, vacations?


The veterinarian who earns $150k per year (net) but spends $110K and has paid off their house?

But, there is a problem, as mymoneyblog also points out:

For example, if you had $200,000 but only spent $20,000 per year you would have the FFR value of 10 as someone with $1,000,000 but spent $100,000 per year. This also calls into focus how important spending patterns are when talking about financial freedom.

You see, Ratios are dimensionless … they lose scale. Therefore, with the FFR a ‘hobo’ COULD conceivably have a better FFR than a multimillionaire!

For example: my FFR is 40 (purely based upon cash in the bank) – but, that doesn’t mean anything to you, until I also tell you one of the Scaling Numbers (either ‘liquid net worth’ OR ‘annual spending’ will do).

If we want to keep these numbers secret (the great benefit of the FFR), then we simply need to add some sort of Quality of Life Index:

Quality of LIfe Index

As long as the QLI is greater than 1, then I agree that the FFR is a great way to share ‘financial positions’ WITHOUT disclosing how much we actually have in the bank!

It is also a great way to determine if your are on track to your ideal retirement, rather than just settling for the personal finance blogger’s curse: you will save, and save, and save until you can retire on your current paltry salary …

… the QLI forces you to assess what you really need to be able to spend in retirement and then it, together with the FFR, doesn’t let you retire until you can get there!

The only problem?

It doesn’t tell you how to do it! So, you tell me … how will you do it??? 

My $7 Million Dollar Journey …

I am a little shy, which is one of the reasons why I write semi-anonymously. It’s also so that I can share specific (and, highly personal) financial information, so that you can travel a similar road, if you are so inclined …

But, some of you want to know where I came from? How is it that I could amass such a large amount ($7 million) in such a short time (7 years)?

Fair questions.

So it is for YOU that I humbly outline my $7million7year journey

I count my 7 years as starting in 1998:

By then I had resurrected a defunct family business as a sole proprietorship (I was $30k in debt and living off $50k a year) and started a new one that had real potential but was draining all the cash from the first business (and then some … combined the businesses were losing about $5k a month).

We owned our own home (well, the bank owned most of it) but had zero other investments.

I was what you would call “broke … with prospects”.


Since I had no idea how to fix the situation, I did what any self-respecting person would do: I lucked upon a book!

The book was called The E-Myth Revisited by Michael Gerber and I bought it to help me get out of the hole that I was in …

… not, the financial hole – I had NO idea that the book (or any book!) could help me with that – rather the personal hole (more like hell) that I was going through working in my businesses rather than on them.

[AJC: This will be the subject for another post, but I was the classic control-freak entrepreneur (I sure as hell didn’t feel like an ‘entreprenuer’ … I was just a guy seemingly out of his depth) trying to do EVERYTHING myself … therefore, achieving NOTHING]

No, the epiphany came when I did the very first exercise in that book (and, that’s why I suggest that EVERYBODY reads it … just for that chapter) and learned the most important lesson of my financial life:

My life wasn’t about my business (or my money) … my business was there to support my life.

You have NO idea how important that was to read … and, how scary it was when the book then went on to show me how to cost that life.

You see, I realized that for the life that I wanted … actually, needed … I had to be ‘wealthy’ [AJC: damn, why couldn’t I just ‘need’ to live on a kibbutz?!].

The problem was, I had no idea how to calculate wealthy.

Fortunately, soon after I happened to go to my first ever financial seminar, and the presenter told me two things (that I simply took on face value at the time) that changed my whole life’s financial outlook:

1. To live ‘wealthy’ (nice house, cars, schools, lots of travel … no work) you need at least $250,000 a year (1998 dollars) in passive income, and

2. You need to multily that number by 20 to determine the size of your nest egg.

There you have it … $5 million … my new (first!) goal … oh sh*t!

First, the problems:

i) My businesses were small / niche businesses with limited growth potential; I calculated that I would need almost 100% penetration of the largest business prospects available in order to achieve my new goal

ii) I had just LOST my second largest client, so now I was losing $300k a year!

iii) Year 2000 was approaching and my software was no longer supported nor was it Y2K compliant.


I got over the last problem by rewriting my software, which gave me the opportunity to fully internet-enable it … this enabled me to totally change by business model, and we (accidentally) ended up with one of the world’s first complete eLogistics systems.

All of a sudden, the business that was losing money MADE money and we added new clients (thus getting over the second-last problem) and soon became profitable.


However, as soon as we became profitable, I bought a building for over $1.25 million, on the advice of my accountant of all people … this was very scary because:

Business 1 + Business 2 + Building 1 = break-even again!

However, the businesses (now, both) started growing and soon became reasonably profitable … $10k – $20k a month by 2002 … I still only took $50k a year in salary.

Our Net Worth was now the equity we had built up in our home and office property, plus whatever residual value our businesses had; probably $1 mill. to $2 mill. In fact, an overseas listed company made us a $2 million offer for Business 2, but we rejected it (at that time) … so, our Net Worth could have been as high as $3 Million if we sold, or if somebody else would ever offer us the same.

When it comes to businesses, do you ever know your true Net Worth until you sell?


We made it all the way to $7 million over the period of 2003 to 2005 simply by:

1. Repeating the process: generating profits in the business, and

2. Retaining as much of the businesses’ profits as required to maintain the businesses and grow, and

3. Ploughing as much as possible into real-estate, and

4. Keeping a lid on personal spending and maintaining zero-personal (i.e. consumer) debt other than the house [AJC: which, as I mentioned before, we eventually paid off … not that I would recommend this strategy any more … see an upcoming post for more on this].

But, we did pump as much as we could back into the business and bought a number of smaller, residential investment properties (one condo @ bought 2003 for $145k now worth about $300k, one quadruplex bought 2005 for $1 million now worth $1.75 million, and paid off our own home eventually sold for $800k, plus the office building recently sold for $2.5 million).

If you think about it, these are the EXACT SAME STEPS that every PF blogger writes about (debt free, save, reinvest) … I just multiplied the scale and was VERY CLEAR on my cashout $ and time.

But what about my opening comment:

I deliberately chose a provocative title for my blog … whilst partially true, I chose it … well … because it sounded good!

Why only “partially true”?

Well, I did make it to $7 million in the seven years between 1998 and 2005 –  and, by then, my other assets probably had Net Equity of: Business # 1 ($2 million … $1.5 million in cash + whatever value the business could sell for); Home # 1 ($650k); Office ($1.25 million); Residential investments ($1 million).

So, that period sets the scene for our [more than] $7 million 7 year journey, made the good old fashioned way (grow an income stream or two, live frugally within reason, and invest, invest, invest) … and, provides many of the lessons that I had to learn the hard way, but you no longer need to.

But, ‘partially true’ because my journey has an unexpected (but, pleasantly surprising) postscript …

2006 – 2008

I had totally miscalculated the earning potential of my two existing businesses [AJC: actually, three, by then I had started a small training company with a partner, Business # 3]: post year-2000 reengineering, Business # 2 on its own was now capable of producing (and did) $1,000,000 a year net earnings (2006), almost all reinvested in some unexpected new ‘opportunities’:

You see, way back in 2002 I still didn’t know the potential of the new eLogistics-driven business model, yet I still had a $5 million bird to catch …

… so I had already put in train a parallel set of actions that saw me close a deal in 2004 to open two overseas offices (commencing in 2005) – both as ‘no money down’ joint ventures – unfortunately, there went my profits (yet again):

Business # 1 + Business # 2 + Business # 3 + Business # 4 + Business # 5 + Properties # 1 thru’ 4 = Break-Even again!

I was still only taking a $50k salary … my wife still had to work … don’t I EVER get to spend anything??!!

Finally, I sold something: Business # 2 in 2006 for more than 3 times what I was offered in 2002.

… and, the next 3 years sets the scene for an unbelieveable set of negotiations, opportunities, and manoueverings tied to Business # 4 and Business # 5 (which was the reason why we moved to the USA) selling both after only 2 years of operation, more than doubling our net worth again …

… and, funding properties # 4 ($2 mill … paid cash) and # 5 ($4mill. … churned #4 + paid cash) as well as now being able to fund my retirement at age 49.

I kept Business # 1 as well as Business # 5 (although, I soon plan to ‘gift’ my share in that one to my hard-working partner): they both run well and profitably in another country, with separate staff in separate locations, and without me … Michael Gerber taught me how – and why – to do that, too!

But, this period is not the subject of this blog:

Whilst entertaining – and, it might teach you a trick or two about negotiating (I sure as hell learned something!) and/or running a business ‘hands free’ – it hardly counts as Personal Finance, so I might just save the details of that story for ‘the one-day book’ 🙂