I’m very excited to introduce to you the second ever recorded interview on Financially Mint! Today’s guest is Barney from The Escape Artist, who has reached Financial Independence Brit style in the UK.
Listen to it here:
As with my previous interview with Jalpan, I’ve turned the interview into a blog post for those who can’t be bothered to listen – however I do recommend listening in if you can. I couldn’t catch every single one of Barney’s wise words in a thousand word blog post!
What we talk about in the interview:
- What is Financial Independence (FI)?
- Barney’s journey to FI
- The different paths to FI + what happens after
- How to get started in university
What is Financial Independence?
To quote directly from Barney:
‘Financial independence is the freedom to choose whether or not you want to work and what sort of work you want to do’
So really, it’s about freedom. And you get this freedom by saving as much money as possible, retiring early and then having the freedom to do what you want. It’s a goal, it’s a lifestyle, it’s a mentality. We go over how to achieve those later.
Barney explains that there are 4 big important parts to achieve FI:
- Earning as much money as possible
- Spending as little as possible
- Investing the difference
- Figuring out when you’ve got enough.
And it’s not what you think; FI is not about deprivation. It’s not about counting pennies, cutting coupons and never going out to a restaurant. It’s about being intentional with your life, consciously choosing what to do with your money.
So they key is saving a lot of money so you can retire early. But how do you know how much is enough? Here’s a pretty snazzy rule of thumb:
Grow your portfolio to 25 times your annual expenses. Once you’ve reached that, you’re at FI. Then, withdraw 4% of the FI pot every year and live off that.
The reasoning behind this is that your investment portfolio should hopefully grow at more than 4% per year on average, meaning if you withdraw 4% per year you’re still maintaining (and maybe even growing) your freedom fund. So to make sure you never run out of money and stay FI into the future, you want to aim for accumulating 25 times your annual expenses.
Example: If you’re spending £25,000 a year, you need £625,000 (£25,000 x 25) to never need work again.
That number’s pretty conservative: you may still earn some money after retiring, you may receive state benefits (e.g. pension), you may have some windfalls. But it’s still a pretty good rule of thumb to get an understanding of FI.
It’s important to understand that financial independence is something you go in for the long run; every year you save from your income so that you can retire early. However, we have an advantage: you can move the finish line closer. Every £ you cut from your annual spending, reduces the fund you need by £25.
More saving = closer to FI
Less spending = closer to FI
This is why FI is not just a goal, it’s a lifestyle.
Barney’s FI journey
So, of course, I had to ask how Barney did it.
Growing up with a fear of being poor and homeless, he knew he wanted a high paying job. An economics degree later, he gets a job in corporate finance working as an accountant earning a high salary – exactly what he wanted.
However, he realised it was a tragedy to earn good money and have nothing to show for it. If your money goes in as quickly as it goes out – what’s the point? (seriously, think about it). So Barney decided he wanted choices: to not have to work and to do what he wants. And that’s when he got started on his path to FI.
He started saving more than 50% of his income(!), lowering his spending and investing the difference. He discovered some awesome finance blogs (mine wasn’t born yet) and the 25 rule of thumb. He had a plan to retire early, and in 2014 he quit his job in his early 40s.
And to make it even more interesting, he created a blog: The Escape Artist. A funny and sarcastic personal finance blog that allows him to document his journey after FI, talk about the lessons learnt and spread the word of FI.
I found Barney’s story to be inspirational. First because he worked hard to get what he wanted: choices. Second because he achieved financial independence IN THE UK! Freedom, entrepreneurship, independence are a huge thing in the US (check out all these American personal finance blogs on these topics!), but not so much in the UK. You hear amazing stories of Americans achieving FI and living a great free life – but not many British ones. Barney proves that it is possible to retire early in the UK (as well as the rest of Europe, of course) and that makes me a little more proud to be British.
The different paths to FI
So I have to get a high paying job, save a lot and then I get to be free?
Well, not so much. Really, every person’s path to FI is different. However, Barney highlights the fact that there are two main ways to reach freedom:
- The long way: You earn a high income, save a lot and quit your job as early as you can so you then have the freedom to do what you want.
- The short way:: You skip the whole high income phase and go directly to doing what you love: getting a flexible part time that you enjoy and having the freedom to do what you want.
They both have pros and cons. Having a lot of money saved up means being more secure if something goes wrong. It also gives you time to figure what you want to do. However, you may have to sacrifice family, friends and your health on the way.
The short way will give you satisfaction, flexibility and freedom; and you’ll always have the possibility to increase your income. However, it’s more risky and you have to be sure you’re doing something you’ll always enjoy.
Barney uses an example:
You love Yoga and want to be a teacher
- You work as (say) a lawyer or an accountant, save a lot of money, retire and then become a yoga teacher
- You become a yoga teacher
Of course, the second path is great for people who know what they love doing and are ok with living on the risky side. If you don’t know what your ‘passion’ is, working a high income job will give you the time to figure it out once you retire. As you can see, it really depends on the person.
What you definitely shouldn’t do: getting a job that you just tolerate and never stashing the money.
If you’re living paycheck to paycheck at a job you’re ‘just ok’ with, you’re literally wasting your life. You’re earning money, it’s all disappearing, and you’re not enjoying yourself. As we said before, it’s a tragedy – what’s the point? If you don’t enjoy your job but you’re earning good money, FI gives you motivation to keep going: ‘only have to work x number of years until I’m free!’
This is why FI is a lifestyle: you adapt a mentality of ‘my life is not all about working for the sake of working’. It’s about finding freedom to do what I want.
Since I have not reached the glorious land of FI, I asked Barney what exactly happens once you reach your freedom. He put pretty eloquently: that’s the ultimate question.
WTF do I do with my life?
Once you reach FI, you don’t have to go to work to survive. The opportunities open up and you get onto the journey of discovery – you look for that thing that gets you up in the morning. It could be taking care of your family, it could traveling the world, it could be blogging, it could be starting up a new business, it could even be staying in bed all day watching Netflix. You’re free: you get to do what you want.
How to start in university
FI does kind of sound like the world of rainbows and unicorns which only the elite can get to. But really, it’s not. It’s reality, and people like Barney and plenty of other bloggers have achieved it. In fact, you can get started on it now, in university.
And remember, the sooner you get started, the sooner you can retire early!
(since this post, my attitude has slightly changed and I now understand that financial independence is supposed to be a backup – not the main goal. Your main goal is finding a career that fits you best and allows you to enjoy your work. For more info check out the Adulting section 😉)
Here are Barney’s steps to getting prepared in university:
- DON’T GET DEEP INTO DEBT
Student loans and consumer debt, keep it under control and don’t be stupid.
- Get into good financial habits
As students, we’re known for living on a shoestring budget and as cheap as possible – so now’s the time to get good habits: cooking instead of eating out, house parties instead of clubs, not buying coffee everyday, etc
- Start saving
Barney regrets not taking a job in university. The money you earn from a job will help you deal with debt and will get you started on that FI nest egg. Start saving as soon as possible.
- Avoid the trap of lifestyle inflation.
We all know many students go a little crazy once they start earning good money at their job. They get a nice paycheck, and then they’re like ‘how about I spend it all?’. Nope, it’s a trap. You do that every month and you’ll never reach freedom. A tragedy.
Once you understand the steps above, it’s time to take action and start working towards FI.
You lower your spending, you may even increase your income (although remember as a student your priority is your degree), and then you save. How do you start saving? Another snazzy rule of thumb:
Pay Yourself First: I call it the 15% rule, but it’s the same thing: as soon as you get paid, calculate 15% of your income and save it. Literally – the same day the money arrives in your bank account, send it off to be invested. This means you’re forced to live on your reduced budget and you don’t have to worry about saving.
Start with 15% and then go higher once you know what you’re doing – remember how Barney reached 50%! Crazy.
So once you have your 15%, what do you do with it? Yes, we’re saving it, but we want the money to increase in value and not get eaten away with inflation. So we invest in the stock market, which has returned an average of 10% per year in the US over the past century.
You don’t need to know every detail of the stock market, you don’t need to be a financial analyst, you don’t need to be up to date with the news. Barney recommends (as does almost anyone with financial experience): index funds. They are your key to building your FI nest egg (here’s a guide to understanding index funds). Not only will you be saving money but your money will be working for you, earning some sweet interest.
Kate, an 18 year old saves £15,000 over 7 years and invests it into a low cost tracker index fund with a 10% return every year. Even with no further saving after age 25 those £15,000 will turn into a million pounds at age 65.
So, as you can see, the sooner you start the better. Which is why I’m always encouraging students to invest as soon as possible. Compound interest is your friend.
And it’s all on autopilot: you set up a direct debit of 15% of your paycheck and off it goes to your investment platform. No need to worry about the market or how volatile it is. Get on with life, your money is working for you.
And as you keep investing, lowering your spending and working on your goals, you’ll get better at it. Your experience and knowledge increases, and that’s when things get exciting: if you’re able to save two thirds of your annual income you could be financially independent in 10 years. Imagine that? An 18 year old could work hard until the age of 28, and then: they’re free. It still blows my mind.
A huge part of FI is educating yourself financially and understanding what you’re getting yourself into. Here are some great resources we mentioned in the interview:
- Life changing books: a page on Barney’s website
- Your Money or Your Life by Vicki Robin: a book about the fact that if you’re working for someone your entire life, you’re prioritising money over your life.
- The Millionaire Next Door by Thomas Stanley: the fact that millionaires don’t look like what we believe them to be. You might even have one next door.
- Mr Money Moustache: pioneer blog in the FI community
- Monevator: blog with tons of investing advice
- ChooseFI: American podcast all about the FI lifestyle (recommend to binge listen to them)
And then Barney said something that kinda hit me as a personal finance blogger:
Personal finance in general is not about clipping coupons, getting discounts, controlling every penny that goes in and out.
Educating yourself about money and managing your finances is not about never buying Starbucks, not going to fancy restaurants and never going on trips.
No, that’s just a distraction. Personal finance is about finding happiness. And as corny as that sounds, it’s true: managing your money effectively and reaching financial independence is about breaking the link between money and happiness.
You realise that it’s not spending more money that will make you happier, it’s being free and having choices that will.
It’s living as a free range human.
Here’s a cool infographic on how to get started on your path to FI in university! Would love it if you pin and share it!