Financial Independence – Ultra Frugality vs a Balanced Strategy

This is a case study of two different approaches to financial independence.  Both approaches were successful, but one much more than the other.

A Tale of Two Men

On a lovely May afternoon, fifteen years ago, two young men graduated from the same university. These two men were very much alike. Both had been better than average students, both were outgoing and both had ambitious dreams for the future.

Recently, these two men returned to college for their 15th reunion.

They still had much in common.  Both were married with two children.  Both had gone to work for the same technology company after graduation as programmers.  Both had later quit after reaching financial independence.

But there was a difference.  One of the men resided with his family in a tiny apartment, living out his life in frugality, and wondering why he felt bored and unfulfilled.  The other was now running his own company and living his dream.

What Made The Difference

Have you ever wondered what makes this kind of difference in people's lives?  It isn't always intelligence, talent, or dedication.  It isn't that one person wants financial freedom and another doesn't.  They both achieved their goal of financial independence.

The difference lies in their strategy.  While one of the men achieved financial independence through pinching pennies by cutting out family vacations, never eating out, and being financially lean in other ways, the other man had a more balanced approach.  Although he was selectively frugal with his expenses and lived below his means, he also developed income streams early on that were in line with the life he wanted after he quit his day job.

 

The Blueprint of a Winning Strategy

Frugal Phil

The former man who focused on frugality was named Phil.

• Phil excelled in savings.  With a salary of $175k per year, he was able to live off of just $50k per year take-home, enabling him to save $6k per month.
• He used the Boglehead formula for investing, and earned an average of 7% per year before financial independence, adding $650k to his portfolio in compound interest.
• Phil did not create any income streams while working towards financial independence (FI).
• Five years after FI, he draws 3% per year to spend, or around $52,000.  He's still trying to decide what to do with his life.

Hustling Hayden

The latter man who took a balanced approach and focused on both savings and building a side business was named Hayden.

• Hayden did well saving money, but this alone would not have enabled him to quit his job in fifteen years.  His salary, like Phil's, was $175k per year.  He managed to live off of $85k take home, saving $3k per month.
• Hayden used the Boglehead formula for most of his savings, but reinvested $1k per month into growing his side business.  He added $215k to his portfolio in compound interest.
• Although he lost $10k the first year, and only gained $2k in year two, his business grew 1000% in year three when his online content finally gained traction.  By year ten he was bringing in $167k per year.  Over the fifteen years, he earned a total of $1.6M on his side business.
• Five years after FI, Hayden is now up to $250k per year in his online ventures.  He travels the world with his family, loving life.

Learn How To Create Your Own FI Strategy

If you want to learn more about financial independence strategy, start here:

How to Use this Game-Changing #FI Strategy Map Tool

Learn the Five Stages of Financial Freedom:

How to Blast Through the Five Stages of Financial Freedom