Military FIRE: Financial Independence, Retire Early | Military Money Manual Podcast Episode 24

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Military Money Manual Podcast Episode 24 Links

Outline of Episode 24: 

  • When to start thinking about FI
  • Advantages of a high savings rate 
  • Index funds vs. more “risky” investments
  • Why the first $100,000 seems difficult
  • Creating a gap fund by increasing your income and decreasing your expenses
  • Build the life you want and save for it 
  • The freedom that comes with FI and what happens when you get there
  • Asset allocations and percentages
  • Putting your FI plan on paper
  • Tips for research and book recommendations

Military Money Manual Podcast Episode 24 Transcript

[00:00:00] Spencer: Welcome to another episode of the Military Money Manual podcast. I'm your host Spencer, the founder of, and the author of the new book, The Military Money Manual, A Practical Guide to Financial Freedom. On today's podcast, it's part two of our chat about FI or financial independence.

I'm joined this week as I am every week by my good friend and co-host, Jamie. Jamie, how are you?

[00:00:31] Jamie: Hello. Hey. Doing well, Spencer. Thank you.

[00:00:34] Spencer: Good. So by the end of this episode, I hope that Jamie and I will be able to fully equip you to start your journey towards FI or you can be validated in your success so far and encouraged to keep going.

This will also serve as an introduction to FI. I think last week we got deep into the weeds with FI calculators or figuring out what's a good safe withdrawal rate. But this week we're going to break it down for an absolute beginner, and we'll do that with an email I actually received from one of my readers.

So before we get too far here, just a reminder if you're listening to this podcast, we would really appreciate it if you can leave us a 5-star review on Spotify or Apple Podcasts or wherever you're listening to us. It's really helpful for us to get feedback that we're actually doing well and providing a service.

And then it helps other people find the podcast as well. So if you got a second and you're not driving, please, or if you are driving, just pull over and give us a 5-star review right now. Spotify, Apple, thank you. As always before we're going to get into a lot of investment talk and we do this almost every week, but just a reminder, it's not intended to be investment advice.

It's for informational and entertainment purposes only. Be sure to do your own research and make your own informed decisions. Neither Jamie nor I are registered investment advisors, nor do we play them on TV or on this podcast. So past performance is no guarantee of future results, but we will talk about some investing strategies that we ourselves have implemented successfully on our own road to financial independence.

[00:02:17] Jamie: Yeah. Spencer, before we jump into that email, just let me do a real quick review of last week's 5 basics in the calculators we talked about. Remember whenever we say FI, that stands for financial independence, and that is simply when you have enough assets or passive income to cover your expenses.

FI is a very flexible concept or community, whatever you want to call it. You can retire early or you don't have to, you can cut back. You don't have to. It doesn't have to be living in a camper van. You can take a break from work and then jump back in. You can change your level of FI from lean to fat or regular and back and forth, for example.

Very, very flexible. We talked last week about how you need to aim for 25 times your annual expenses, not your income, but 25 times your annual expenses. That would be the first goal of achieving financial independence.

We talked about how FI is the ultimate goal for all other personal finance goals. Everything else is basically all geared toward getting the freedom that comes with financial independence. The last review is that your savings rate is the best way to increase your net worth. You can become financially independent within 10 to 20 years of starting. 

Okay, so now let's jump into our topic today starting with an email from Kyle. He sent in, “Hi Spencer. I'm also on active duty and looking to achieve financial independence, but I'm looking for guidance on how to do it sooner rather than later i.e when I’m 40, not 65.”

Some quick facts. He was just about to turn 30. He's an Air Force O-3, that's a captain with over 4 years of service, single with no dependents, and getting out of debt that year. “I'll contribute 8% of base pay into Roth TSP plus the match from the BRS. No other alternate streams of income besides my military paycheck. I'm planning to separate in the next 6 to 7 years and not staying in for the long haul.” 

He says, “All the financial books I've been reading suggest retirement to be the beginning of financially independent life,” and he just doesn't agree with that.

“I think financial independence can be achieved way sooner than the right plan. That's the purpose of my email. So the main point here is can you share how you're going to become financially independent by 40? I've read about stocks and diversified portfolios, maxing out your TSP contributions, and Dave Ramsey's baby steps. But again, they all point to retirement being the point in which we become financially independent. And honestly, I don't want to wait till I'm 65 to live that life. I want to have some mini retirements like the four Hour Work Week talks about to be my lifestyle. thanks in advance for your reply.”

So Spencer, what would you say to Kyle here? A lot to take in there.

[00:05:08] Spencer: So, I'll just walk through my initial response, and then I might go back into the email as well and break down some of the things he mentioned there. I think the biggest thing is he's on the right track. I mean, when you start asking these questions, when he wrote this email a couple of months ago and he was still in his twenties, but if you're in your twenties, you're thirties and you start asking these questions now, that's the perfect time to start doing it.

Because if you wait until you're in your 40s and 50s, you're not allowing compounding interest to go to work for you if you live a standard American life expectancy of 70 to 80 years. 

I don’t think there is any reason to wait to be FI until you're 65. Personally, my goal was 40, and based on our savings rate, we should be able to beat that goal. I started in earnest at age 25. That was back in 2012. That was when, to continue the metaphor, the spark was lit on my fire journey.

Jamie, do you have a specific age goal, or is it just a number in your head, and whenever you get there, you get there?

[00:06:31] Jamie: Both, I would say. So, 45 for us is what I'm looking for. I'm under contract for a little bit longer in the Air Force so I know my career is going to take me a little bit longer than what you're looking at.

So that plays in but I'm looking more like 45 as well. Any inheritance I get, I'm trying to do it without that. My wife and I, our plan worked. Everything we had set up and then any inheritance or any other windfalls like that are all just gravy on top. And not to rely on anything coming like that.

[00:07:03] Spencer: Yeah, I think that's a really good way to play it is don't count your chickens before they hatch. If you're expecting an inheritance or any windfall in the future, whether it's a bonus from work or if your spouse is going to go to work for a couple of years until you actually have that money in your pocket, don't start saving it or spending it.

Don't expect to have it until you actually have it. The other thing to consider, too, especially if you get a windfall, is there might be taxes involved. There might be fees for lawyers or sometimes it helps to hire a CPA or an investment advisor to help you put the money to work.

So when your beloved great aunt passes away and leaves you a million dollars don't go spending a million dollars straight away. Wait until the money's in your account. Even then, actually, on the Bogleheads’ forum or on the Wiki they have a really great breakdown of what to do with the windfall.

Maybe we should talk about that in a future podcast. We definitely should.

[00:08:08] Jamie: That is a really good breakdown of windfall planning. I've used that a couple of times this year.

So I just want to recap, Spencer, you're saying you started your FI journey basically at 25 and you're looking to accomplish it in anywhere between 9 to 15 years.

Pretty impressive. That's really awesome.

[00:08:29] Spencer: Thank you. Really, as I said in last week's episode, it's just math. You know, I have this chart in the book “working years of financial independence” under principal 6 “savings rate beats rate of return”.

If you look at 50% to 60%. So 60%, you're working about 12 years and at a 50% savings rate, you're working about 16 to 17 years. That's assuming a 6% rate of return. So if you get a better rate of return for that, I mean, if you look at the rates of return that I've had since I've been investing, Vanguard last year did 22% just with my two index funds, VTS, AX and VTIAX, Total International Stock Market and the Total Stock Market Fund. 

So all the savings you can plan that you're going to be making 7%, but if you happen to start your FI journey in 2011, well guess what? You had this massive tailwind of the greatest Bull Market in centuries pushing you essentially right to financial independence. 

So it's easy, but I caution people too, it's easy to feel like a genius when you're making these 20%, 30% returns every year just investing in index funds. To quote Barack Obama, “You didn't build that.” Sure you had the savings rate and you had the smarts to invest in the index funds, but you also had a lot of luck, too.  You could have started investing in 2000, or 2001 and you would've experienced 3 years of a down economy and then 10 years later you have to go through 2008, 2009, right?

And the stock market was essentially flat for that entire time. Don't count your chickens before they hatch and don't think that you're a smarter investor than you actually are.

[00:10:38] Jamie: We’ve had such a good run recently that it's easy to get sucked into thinking that we're going to just continue to have this forever, right?

I have no crystal ball, but my guess is that it's going to not keep up at this pace forever. So right now, if you are getting great gains, that's awesome, but you have to be prepared for the months where it's flatter, or maybe it might even be negative again. Statistically speaking, we will see more of those years in our lifetime.

it just is very, very likely to happen. 

I had a friend text me today, his Roth IRA at Schwab is set up for 2045 target retirement and his account was up 32% last year in just an easy target retirement fund. No work, no day trading. Incredible, incredible year. If you weren't getting above, maybe I'll say 20 or close on the S&P 500, or above, you probably should reevaluate what you're doing if you're trying to beat the stock market and you may have lost big-time compared to index fund investing this year, right?

[00:11:44] Spencer: That's one of the big takeaways from like The Little Book of Common Sense Investing by Jack Bogle is that every year you just don't meet the average, right? The average return last year, if you were in an index fund, was 20% to 30%. So, if you are doing a different investing strategy than that, every year that you miss out on those gains you’ve got to think, “Why do I think that I'm smarter than the market?”

That’s one of the main arguments that I have for investing in index funds is at this point in my life, I recognize that I'm not smarter than the market. I also recognize I don't have the time to spend researching and doing my own investment allocation. I think it's harder too, for me, if I don't beat the market I have no one to blame but myself.

Whereas if I just invest in the S&P 500 or a totally US stock market fund, it does what it does, and I literally have no control over it. 

[00:12:46] Jamie: Control what you can and don't worry about the rest. Right? That's another good quote from the book. 

So, we'd like to talk about how saving the first $100,000 is the hardest.

For our listeners who are either at negative net worth or just starting out, why is the first $100,000 so hard? Then why do you pick up so much momentum after that point? If you have any tips to get them through that first $100,000 difficult period. What do you think?

[00:13:15] Spencer: I think the first $100,000 is difficult for two reasons. One is, especially if you're coming out of debt, you might have to break some habits and you might have to change a lot of behaviors and lifestyle things that may have served you in the past. Right? I mean, going to college, I needed to borrow money.

Now I could have gone to a much cheaper school and looking back, maybe I would tell you if I had a time machine, I could tell my previous, my younger self, “Hey, just go to a state school, you know? After you graduate, nobody cares where you went to school. All they care about is that you have a degree.”

They often don't even care that you have a degree. Right? So I think that there are habits and behavior changes that are necessary to get from a negative or a zero net worth to a hundred thousand. 

The other is compounding interest. It's just when once you hit that $100,000, if the stock market, like last year, I think it was 28%. Okay, so $100,000. Let's say you started the year with $100,000 dollars, 28%. At the end of the year, you're ending up with $128,000. So you're already, a quarter of the way to your next $100,000 and you didn't even do anything. That doesn't even consider if you threw $6,000 into your Roth IRA, $6,000 into your spouse's Roth IRA, and maybe you maxed out your TSP as well.

Those are the two things that I think make the first $100,000 the hardest. I've talked to a lot of guys and seen a lot of articles online, people who talk about this, but the time between every $100,000 gets compressed.

So if maybe it took you 10 years to get to your first $100,000, it might only take you 4 years to get to your next, and then 2 years and then 1 year, and they keep compressing and all of a sudden, you know, it's insane. As you know, housing prices aren't what they used to be, but I remember when I was growing up, you could buy a house for a hundred thousand dollars or maybe a condo or something.

Right. Now, once your money snowball starts rolling and you're adding $100,000, you're adding basically a house to your net worth every year. That's pretty awesome right there.

[00:15:35] Jamie: Yes. The momentum definitely picks up big time. We've experienced that as well, so I definitely, definitely can validate that.

What are some immediate steps that you would have Kyle take in response to this email or someone in a similar boat where they're interested in FI starting their journey.

[00:15:54] Spencer: Yeah, he talked about how he was an O-3 at six years of service, single with no dependents.

He's going to be out of debt this year. So I think that's the perfect place to be to start your FI journey. That was about when I paid off my debt, was about the six-year mark after entering the service and I was already a captain, but he doesn’t have dependents, and he's about to be debt free.

He said he's contributing 8% of his base pay to Roth TSP. I know that's not maxing it cause I've done the math. If you google “military BRS TSP match”, you can see the article I've posted that's got the chart that breaks down every pay grade, time in service, and how much you have to contribute to the TSP to max it out by the end of the year.

I think for him it'd probably be about 25%, maybe 30% as a 6-year O-3. That's the first initial step right there, start maxing out your Roth TSP. So for 2022, it's going to be $20,500 per year. He didn't mention a Roth IRA in his email. 

So again, right there, start contributing to that, that's $6,000 a year. And then you can always pull out contributions to a Roth IRA anytime you want penalty-free. So, a lot of people talk about building up a gap fund to get you if you retire early, let's say at age 40 or 45, right?

Then you can’t access your retirement funds until 59 ½  for the TSP, 401ks, IRAs, and Roth IRAs. For Roth IRAs, you can pull out the contributions because you've already paid the tax on them and you can pull the contributions whenever you want. So, right there, let's say you worked from 20 to 45, that's 25 years of $6,000 a year is $150,000.

That's a pretty big gap fund right there. If your lifestyle's $50,000 a year, that's three years of income right there. That doesn't even consider that it's going to keep growing as well. So I think that's a big opportunity that he's missing right there by not maxing out his Roth IRA.

Then he also talked about, you know, “I don't have any alternate streams of income” besides the Department of Defense, besides his Air Force job. If FI is a driving goal for him, then he needs to start thinking about how are you going to have additional sources of income.

Whether it's in real estate, whether it's starting some side hustle. I know lots of guys, I don't know personally lots of guys, but I've read lots of military guys got into drop shipping and fulfilled by Amazon a couple of years ago. Now obviously every time you hear about somebody being successful in that they're probably trying to sell you some course, so watch out.

I think there are lots of missed opportunities. He didn't mention his TSP maxing that out, his IRA maxing that out. He's still got taxable brokerage accounts he can throw money in. 

Another thing that he needs to be thinking about is what life does he want? What lifestyle does he want? How much does he want to travel? Where do you want to go out to eat all the time? Do you want a food delivery service that drops off groceries every week for you so that you can cook at home? 

Build the life you want and then save for it.

That's something I talk about in the book a lot on the journey to financial independence you should not be miserable, you should not be unhappy, because if you are, you're going to be that when you get to be financially independent. So if your life sucks at the moment because you're saving so much, stop saving so much and go spend some money to make yourself happier.

If spending money doesn't make you happy, well something must make you happy, right?  Whether it's reading a good book, going for a walk, exercising, start doing those things. For me and my wife, one thing that we decided last year was to spend more money on health this year.

Whether that's gym memberships, or ordering supplies from Amazon to support those various gym memberships. For instance, I'm building a home gym and that's costing a couple of thousand dollars. So, that's an investment in my future health and well-being, is it financially optimal? Maybe, maybe not, you know? But the point is to us, you know, health and having a healthy lifestyle is more important than whatever $3,000 invested for 40 years at 7% return would be, right?

[00:20:46] Jamie: There's got to be a balance there.

You hear people talk a lot about opportunity cost. I'm going to go on a $10,000 vacation. Well, actually you should put that in a calculator and see what that $10,000 would do for you in 40 years of investing at 7%. It was like, okay, got it, but there may be a time and place for that. Maybe if it's, do I need a brand new car at some point, but you have to do some stuff? What makes you happy? What makes your life better? We talked about before how I pay for lawn service now, because after reading Die With Zero, I got no life joy out of mowing my lawn.

It took me two and a half, three hours. That's crazy. In summertime in Alabama, I was having to cut it every other weekend. So it was like 6 hours a month. I'm like, “you mean I can pay someone $55 every other week to do this? Done.” We also spent several thousand dollars on health and wellness equipment this year.

I have never before had more consistent workout routines and health goal progress than we have since spent that money. So Right. Great investment overall. The healthier I am, the more sound I think, the better decisions I make, and the better parent I am. So it's not always just about the math and sometimes if you get really into FI or you're a personality like me sometimes where you learn about a topic and you're all in and almost borderline obsessive like my poor son is as well.

You have to be careful and you have to have balance. Hopefully, your spouse or a good friend can do that for you if you can't do it yourself.

[00:22:28] Spencer: Yeah, Ramit Sethi, he wrote, I Will Teach You to Be Rich. He has the same website as well. But one of the things he talks about is living outside the spreadsheet, right?

Once you've solved for X, right? Once you realize, okay, it's going to take me this long to become FI, saving this much money, then just set that aside, automate the whole system and then just go live your life

If you can't do that, I would go talk to a therapist. We have come to the same conclusion. As much as I make fun of you for all your spreadsheets, I still keep a spreadsheet. I still update my net worth every month.

At one point last year, I thought, Why do I do that? The numbers go up, the numbers go down. It doesn't matter. So I thought I'm going to take a break. I'm not going to update my net worth for 6 months. At the end of the 6 months I realized, you know what?

It’s kind of cathartic. I don’t even know if that is a word, but I’m going to look it up. But catharsis. That’s what I'm going for.

It did help me to have the knowledge of, okay, this is where my money's at. This is how we're doing, my wife and I financially. Just once a month.

It takes me 10 minutes to log into all my accounts. I guess it's good too, right? If I see one account that's way off I can check and see what happened here. Was money transferred out? Was I hacked? Did you actually go

[00:24:33] Jamie: Did you actually go six months? You did it?

[00:24:36] Spencer: I don't think I did. I think I got to like 2 or 3 months.

[00:24:41] Jamie: Okay. When you first start out and, like I said, a little obsessive, I was checking weekly like, “oh, it went up $20” and then I would go grocery shopping. Oh, it went down $100. No value added to that at all. 

[00:24:59] Spencer: I think a lot of people, especially in the FI community, I've noticed that they do struggle to live outside the spreadsheet. It might be those are the people who post a lot online that are obsessive and they calculate they're worth millions of dollars, but they still calculate their net worth down to the pennies.

If you think about that for a second, in a single second in the stock market your net worth probably goes up and down thousands of dollars, but you're still calculating your net worth down to the penny. It's a bit silly.

[00:25:39] Jamie: There's gotta be something more than that.

One other idea for Kyle I wanted to mention was cranking up the savings rate. We talked last week a lot about savings rate, which is the percentage of your income that you put towards your savings goals, to dumb it down. If he can take the money he was paying towards debt and just take that money, if he doesn't need the emotional victory of spending a little bit more, just take that $550 payment or whatever you were making and put it straight towards your savings goals. That's going to rapidly increase your savings rate. Hopefully, you can find more. 

One of the best things you can do to increase your savings rate is to pay yourself first every month, no matter what.

Pay yourself first, your savings goals, and then if there’s a deficit, you figure out a way to get more income and that would be the best way to go about it. So that'd be something he should look at as well as how to crank up the savings rate. 

[00:26:35] Spencer: Yeah, I think attacking it from both sides is very powerful, right?

Analyzing your budget, seeing where you're spending money, where you're not getting value from, and then trimming those things. Then at the same time, looking to see, do I have stuff around the house? This is if you're just starting out on your journey, this can be really powerful.

Just looking around your house and being like, “Okay, what can I sell? What can I get rid of?” Look up Marie Condo. If you're touching something and it's not bringing you joy, then why is it taking up your space? 

I think attacking it from both sides, both increasing your income, decreasing your expenses, and then really saving that gap. A lot of people don’t realize how much money they make until they go through this exercise and see, “Okay, well maybe I could save 25% of my income.”

Then they look at the chart and they're like, “Holy cow. I could be done working in just a few decades.” If one spouse isn't working and realizes, “Oh, if I go to work and we save all of my income and we just keep living off of the other income, maybe we can be financially independent in 10 years.”

Once you realize that that's powerful for people and it gives people a lot of purpose, too.

[00:28:11] Jamie: Right. A lot of times people talk about cutting expenses when it comes time to increase their net worth or financial independence.

So you'll hear about, “Oh, if you didn't go to Starbucks every day, you could save up $6,200 a year,” or whatever the math equates to. All that stuff is great, and there's definitely a place for that, like you said, of cutting. But, if you can cut what doesn't add value to your life while also increasing your income, you know, the spouse goes back to work, even if it's part-time or you pick up a side hustle, or do odd jobs, or sell stuff on eBay. You can get thousands of dollars pretty quickly.

The stuff that's just around most people's houses that they're not using anymore. That widens the gap. You'll hear a lot of people talk about widening the gap so that's all very, very good and important advice for sure.

[00:29:01] Spencer: A lot of people are hesitant when they're trying to go for financial independence from saving into their retirement funds whether it’s Roth IRA or Roth TSP.

The first question is, “well, how do I get the money out before age 59½?” I don't have an article on my site about it because The Mad Fientist, that's, or you can just Google “how to access retirement funds early”. He wrote basically the definitive article on how to access retirement funds early.

I always just point people there when they have questions about that.

[00:29:40] Jamie: The short version is you can take out money, again, consult a professional, do your own research on this. But, currently, you can do stuff like taking out $10,000 to buy or build your first house.

The definition of the first house is vague. So either you're very first or you haven't done it in a while. There are caveats for education expenses and also anything you contribute you can take out as you said. Just make sure to do your research on that one. But it's not locked in there until retirement age like some people believe.

[00:30:14] Spencer: So as I broke it down for Kyle, you definitely don't have to wait until you're 65 to retire or be financially independent. As he was talking about, he got the idea from The Four Hour Work Week of taking mini-retirements. So maybe working for a couple of years, saving up some money, and then taking a year off and going hiking, or racing motorcycles across Europe, or whatever tickles your fancy.

That's something that you can do on the path to financial independence. As we've been talking about this whole time, about the flexibility. If you are the person who can work a military job for 10 years, buckle down, save 30%, 40%, 50% of your income and you come out of the end of that 10 years with half a million dollars, $750,000, maybe even a million dollars if you're an officer and you have a spouse that makes a lot of money and you can really put that money away.

If you can do that, then you can take the mini-retirement, right? If you worked for 10 years in the military, you managed to save up $250,000 or $500,000. Especially on the east side. I know there are like E-4s out there who have saved six figures by the time they make E-4.

If they are in the military for 10 years, let's say they make E-5 or E-6, they get out with $100,000 or $150,000. They take their GI bill, and they go to school for four years, right? Now they're collecting BAH while they're going to school and they have this giant 6 figure chunk of money backstopping them.

Yeah, just growing, and if they get out of college and nobody's hiring because it's 2008 and you mistimed it, just take a year off and go do something else. Go work an apprenticeship or an internship that doesn't get paid. Then all of a sudden now in 2010, 2011, when people start hiring again, you’re in the position to capitalize on it.

I think a lot of people think they are stuffing this money into accounts that they can never access again. But you can. It's not only can you access it, but if you don't want to access it, at least you know it's there to backstop you so you can take risks and if you mess it up, you have savings to fall back on.

I think a lot of people just don't think about how flexible their life could be if they had $250,000 sitting in an investment fund somewhere, or $500,000. Let's say your lifestyle was $50,000 a year and the investment returned nothing, 0%. That's 10 years that you can live off of. That's 10 years. People find jobs in minutes online now. Sometimes they search for months though. If you're the person who served in the military, you're usually the person who can pick yourself back up and, and get on a path towards employment again.

[00:33:23] Jamie: Or the freedom to work on a passion project or some kind of volunteer. My wife, she's a nurse, and she always wishes, you know, basically, she wishes we didn't get married young and we didn't have kids so she could have done the Mercy Ship or the Mercy Hospital. She's like, I always wanted to do that and I never got the chance.

I was like, “Thank you. Now I carry that guilt around for the rest of my life.” Imagine being able to do that, not having to worry about being able to afford to take a year off work.

[00:33:53] Spencer: Yeah, that's the freedom and the flexibility that FI gives you. It's a little bit different if you have young kids.

Yeah. You can't just abandon them.

[00:34:07] Jamie: All right. Back on track. So obviously we've established now you don't have to wait till you're 65 to retire. You're financially independent when you're expenses times 25 equal your invested assets. So 25 x of your expenses in your invested assets, and then you could be done working if you want. You have the freedom to choose, come and go.

Fat fire, lean fire, regular fire, coast fire, bounce back and forth, whatever you want to do with it. It's a really solid range if you're between 25 and 33 x. We talked a little bit last week about the 4% rule, and so that's similar. it is identical to the 25 x. If you hear people talk about the 4% rule, and then if you hear someone talk about more like 3% to 4%, that's where the 25 to 33 x range comes in.

[00:34:59] Spencer: Yep. So, as we mentioned last week, the most important factor for rapid financial independence is your savings rate. It really comes down to the fact that you can't control your investment returns despite what people might tell you online. Anytime you get increased returns, you're taking an increased risk.

I really don't advise you, if you're on the path of financial independence, it’s not the time to go gamble with Dogecoin or whatever cryptocurrency is hot at the moment. I think index funds are the place to be. Low-cost, long-term, simple index funds.

They're going to go up some years, they're going to go down. Some years you can't really control it, but in general, you're going to end up okay based on the last a hundred years or so of history. There's a great calculator at Net Worthify, and I advise Kyle to take a look at this. You can put in what your income is, and what your expenses are and it'll calculate what your savings rate is, and then it'll just show you this great graph.

If you can crank your savings rate up a little bit, you'll shave this many years off of work. When you think about shaving years off of work, that can be pretty powerful for some people to have that mental mind shift.

[00:36:22] Jamie: Potentially, if you're in your twenties and you're like, “Should my spouse go back to work?” That is one example that's easy to use and obviously won't apply to everyone, but if your spouse goes back to work for, say, two years at one assignment and it just works out. There's a good job market or whatever.

He or she works for two years. That's not going to cut two years off of your working life. It's by the time you retire it's probably going to be more like 8 or 10. So there are huge returns on that if you start early. So it will help you understand the why. 

My wife is back at work right now full-time. She's stepping down to part-time because it was a little bit much for us. But the “why” is what is motivating us for the nights where it's hard where I'm at home alone while she's working the night shift in the ER and stuff like that. It's not easy, but we have a goal and this is going toward the goal. It’s a temporary period of sacrifice a little bit that's going to pay off in the long run, for sure. 

So, Spencer, let me transition now to asset allocation. What do we do with our money in the sense of, like you mentioned, not necessarily investment advice or definitely not investment advice, but have we done that has worked well for us?

You actually have your actual asset allocation published online. Do you want to talk a little bit about how you allocate your funds and what your investments look like?

[00:37:53] Spencer: Well, I think the bigger point we can talk about is the percentages and I'll get into them a little bit.

For most people, unless you really nerd out about this, probably the simplest thing to do is just go to the Bogleheads’ forum and look up “lazy portfolios”. It's going to recommend something like 33% bonds, 33% US stocks, and 33% international stocks. That's it. Just do that. Not guaranteed, but pretty much over any time period you're going to do fine.

You're not going to end up like Jeff Bezos, but you're also probably not going to end up at the poor house. I think going and reading just a couple simple lazy portfolios, you can look at the Little Book of Common Sense Investing or A Random Walk Down Wall Street. Any of those asset allocation books.

They're going to advise pretty much the same thing. If you're young, probably like 80/20, 80% US stocks, 20% US bonds. A lot of people are advising adding some international exposure. Now, if you look at the world economy, the US is about 50% market cap. The rest of the world is about 50%, so maybe a 40/40/20.

So 40% US stocks, 40% international stocks, and then 20% US bonds. They're all just percentages, right? So I think the bigger point that I want to make is to go do your own research and go read Meb Faber. I think he's a hedge fund guy who really gets into the nitty gritty of value investing or momentum investing.

Just try to understand, “What am I actually investing in? What is the potential future of this asset?” For instance, if you invested in gold, I think in the last like 10 or 20 years, your money went basically nowhere. Every decade, there's always some reason, there's always somebody who's trying to sell gold who's like, “Inflation's going to go nuts. You know, it's time to buy gold!” 

The other thing to do is look at the historical performance of the investment. A lot of times you'll discover that, especially for commodities, they actually tend to go down because guess what? They find more gold and when the supply goes up and the demand stays the same, well then the price has to come down. That's just economics and microeconomics 101. 

On a personal level, I do 70% US stocks, 25% international stocks, and 5% bonds. I'm trying to get those bonds a little bit closer at 10% and reduce my US stocks down to 65%. Is this the optimal asset allocation? I have no idea.

I don't know, it's just what I've settled on. After doing all my own research, I think it doesn't make sense not to own international stocks. China is going to be the world's largest economy in probably 10 or 20 years if they’re not already. When I travel around the world and I see just how hard a lot of other countries work and how many people there are, it would be astounding to me if they can't grow their economy in the next 10, 20, or 30 years. I don't want to miss out on not owning Korean stocks or Taiwanese stocks or Indonesian stocks, but I don't want to have to go and pick them all myself. Right. So that's why I just use an international index fund.

If I was talking to Kyle that's what I would recommend. Do your own research. If it all seems too confusing, just do a target date fund, like you were mentioning earlier in the podcast. 

You can go to Betterment or Wealthfront and tell them what asset allocation you want. You can take these quizzes that'll show your risk. The way they define risk is weird, right? It's not risk in terms of are you going to lose the money.

It's how volatile is the investment going to be? Nobody can guarantee that the investment is going to perform at all, right? Past performance is no indication of future results. So if you say, “Oh, I'm very risk-averse, I want it all in treasury bonds.” Well, if you bought 2% treasury bonds last year and inflation's now 6%, you're actually losing 4% a year.

So that's a pretty risky investment if you ask me. The definition of risk is a bit weird in the financial world. I like to advocate for a LADS system, and that's low-cost, automatic, diversified, and simple.

If your investment meets all those criteria, then go for it. You'll probably be fine, but like I said, just go to the Bogleheads’ wiki and look up “lazy portfolios”. If you look at my website, I talk about how to simulate a total stock market fund in the TSP by combining the C and S funds.

That's really all there is to it. You can run the backtest data on the portfolio visualizer or something. The best portfolio is only, you're only going to know it in hindsight. Right? 

Maybe 2022 is the year to throw it all into international stocks, because guess what, over the last 10 years they have way underperformed US stocks. That's actually another thing too. My Money Blog has a really good chart on this where they show every year that US stocks outperformed international stocks and it's a wave, right?

It'll go in 10 or 15 years that US is crushing international stocks and then all of a sudden, 2000 whatever happens, I think it was 2000 or 1999, the US stocks are way down international, everybody's dumping money into emerging markets. If you did that for the last 10 years it was a terrible strategy.

The US stock market went nuts. It's really hard to predict the future. I think if you cover your bases, and especially if you're younger, you go heavy on the stocks, light on the bonds, and you just put it all into index funds, you're probably going to do alright.

[00:44:56] Jamie: To summarize, it isn't so much about finding the perfect percentage as to have a good savings rate in low-cost funds like Vanguard, TSP, great options. There are other banks as well that offer low-cost stuff. That's great, but low cost, automatic, diversified, and simple. So the exact percentages are not as important as you having a plan and making progress by having a high savings rate. 

Is that a fair summary?

[00:45:25] Spencer: Absolutely. Just doing something. Whatever your allocation is, as long as it's not 100% bonds, I'd probably advise against that, especially if you're under the age of like 95. As long as you have a reason why you went with the asset allocation, and if you don't have a reason why you went with a certain asset allocation, then tell me why you're not in a life cycle fund like the TSP. Tell me why you're not in a Vanguard or Schwab or Fidelity target date fund because they'll handle it. Just tell them when you want to be retired, per se, or, there are funds that just do an 80/20 stock bond split. Guess what? That's probably all you need for life. You’ll probably do just fine doing that. They're super low cost, I mean, pennies on every thousand of dollars.

Jack Bogle likes to say, “The winning formula for success and investing is owning the entire stock market through an index fund and then doing nothing. Just stay the course.” He was the founder of Vanguard so obviously, he's a big fan of index funds.

You go read the books, you go look at the math. If the average return in the S&P 500 last year was 28%, that's the average which means some people made more, 50%, and some people made less, 50%. For every winner, there had to be a loser. If you're not exactly on the average, if you didn't make 28% in your portfolio last year, that means you're on the losing side and that means someone gained.

When you put it that way, when people realize that if you are not being average in investing is good, being average is really good. I think our whole life we've been told not to be average, but guess what? I am proud to be an average investor. 

[00:47:27] Jamie: That's hard, right? Especially in the military. It’s like, “Oh, I gotta compete for this, I gotta get this award, I gotta whatever, blah, blah, blah job.” 

[00:47:33] Spencer: So one thing that I've tried to share on my website, and I actually wrote this back in 2012, was my plan for financial independence in the military by age 40. It's pretty cool to go back and read it.

I wrote this, I think it was worth, you know, negative $46,000 when I wrote it. It's pretty neat to go back and I encourage you that if you are thinking about going for FI and I don't see why you wouldn't if you're listening to this podcast since we've laid out so many of the tactics and strategies that you can use to become FI.

If you just go on my website and you search for “plan for military financial independence”, you can see I lay it out there. 

I encourage you to write out your own plan. Put it down on paper. I did this thing the other day, I think it's called Intentional Path. And so what you do is, it's hocus pocus, but you just pick a time in the future, whether it’s 5 years, 10 years, 15, or 20, and you envision your life at that point. How old are you? Do the math. Figure out how old you'll be. Who are you with? How old are your kids? How old is your spouse? Where are you? What are you doing? What did you do the day before? What are you going to do the next day? Think about that person and think about how you're going to get there. I think financial independence is the best way to get there and become the best version of yourself.

You can check out my plan that I wrote. This was back in 2012. Before I knew probably 1% of all the stuff I know now about FI, but it is still in motion. We're still going for FI by age 40. There you go.

[00:49:24] Jamie: One final comment for Kyle is, you talked about researching and how you learn so much from basically picking up every personal finance book at the library and developing your own plan from that.

So a great question to ask Kyle and anyone else who's starting out their journey is what books have you read recently? Any tips you want to point them to for good books, they can find more.

[00:49:49] Spencer: Yeah, absolutely. Of course, I’ve got to put in the plug for The Military Money Manual Practical Guide to Financial Freedom available on my website at

I've tried my best to summarize, I’ve calculated it out, I would say about 4,000 hours of research. Almost 2 full years of working over the last 10 years. I tried to distill everything that I've learned about achieving FI in the military into this short book.

A lot of people have told me they've read it in a couple of hours or just in the afternoon. It is less than 130 pages.

[00:50:31] Jamie: 119 pages if you include about the author and everything.

[00:50:34] Spencer: Yeah. So, check out that book. A couple of other books I'll mention Psychology of Money by Morgan Housel. A really good one. Bogleheads’ Guide to Investing. Good summary of the Jack Bogel flavor or philosophy of investing, The Four Hour Work Week by Tim Ferris. Really good. I really enjoyed the book. It's a little bit different than your standard FI book. It makes you think about a lot of those bigger questions.

For me it was a huge mindset shift, especially being in the military where I'm so used to working from, well, at the time it was 12-hour days, 5 in the morning to 5 at night, 5 days a week. Changing the mindset and getting that mental shift to thinking smarter, I guess.

And then Ramit Sethi, I Will Teach You To Be Rich. Jack Bogle’s A Little Book of Common Sense Investing. Doug Norman's Military Guide to Financial Independence in Retirement. The Millionaire Next Door by Thomas J Stanley. That's a classic. I would recommend the older one. I think there's a new one written by like his daughter or his son. The one that came out in the eighties, I think is the good one. Random Walk down Wall Street by Burton G. Malkiel. Then White Coat Investor is a really good one. Finally, A Simple Path to Wealth, JL Collins. I think A Simple Path to Wealth is probably one of my top recommendations for, again, short reads.

That just lays out very simply, what is FI and what I do to get there. It turns into about 100 pages of invest in VTSAX . Actually, if you go to his website or just Google “JL Collins”. It’s He's got this stock series on there. It's really good if you want to deep dive into stocks. He used to be a stock trader himself, but what he realized after years and years of investing was, “Hey, just put in index funds.” It's easy, and it works. It really is the simple path to wealth. 

Finally, I'll add one more. Die With Zero, we've talked about that quite a bit on the podcast, but that's been a really good one. I would say that's a little bit more advanced. Maybe wait until you're on your journey to financial independence before you dive into that one. I just gave you like, man, if you read one of these books a month for the next year, you would come out at the end of the year probably ready to write your own book on financial independence

I think you'd really, really accelerate all your goals by reading those books. Let's say you read all those books, Jamie, you save and invest wisely in index funds for the next 15, 17 years or so. Now you're financially independent. What's going to happen?

What's going to change? What would you tell Kyle that’s going to be different about his life if he goes on this path of FI and reaches it before 45?

[00:53:54] Jamie: You know, I don't really think life is going to change much. It's not like I'm going to throw a party and have everyone over, you know, post on Facebook status.

Like, Oh, I've achieved my FI, I got 25 x my annual expenses. It's just another day. What it does is gives you the emotional victory psychologically, it's going to be like a big sigh. Like, “Ah, we made it!” That, just knowing I can choose now and if I don't like what my job is trying to do to me or if I'm still in the military at that point I'm not under contract and they try to send me on a 365 and it just isn't right for my family, I can have options.

I think knowing you have freedom is a big psychological win, but it's not like I'm going to sell all my stocks and then go buy a beach house or anything like that. Life's still going to be the same. If I'm a mean person now, I'm still going to be a mean person then. If I'm generous now, I'm still going to be generous then.

So it's not really going to change anything about who you are or who I am. It's more of just knowing now that you have the freedom to choose, I would say.

[00:54:58] Spencer: Yeah,, he achieved financial independence a couple of years ago, I think 2016 or 2017, and he put off a lot of stuff while he was on his journey to FI.

He thought, “Well, once I'm FI, I'll do those things.” Then he became FI and he realized, “Oh, I want to do those things,” or, “The reason I wasn't doing those things wasn't that I wasn't FI it’s because I had other psychological issues going on.” 

So yeah, just like Jamie was saying, no matter where you go, there you are. You're going to take all of your insecurities and all of your problems with you, both on the journey and to the destination. When you get there, if you're not the person you want to be, start working on that now so that when you get to FI you're ready to be the person that you want to be.

Um, is the podcast he did with Morgan Housel. He talks about life after FI. I thought he's done a couple actually I think annually, he does annual updates on his life after FI, and I think it's really good to see someone who's crossed that barrier into the afterlife, into paradise.

Yeah. What they report back, it's not all rosy, right? There's a lot of existential angst. So it's still life, right? It's exactly, It's still life.

[00:56:35] Jamie: All right. Well, Spencer, I think we're getting to the end. Before we go, I just want to mention one thing. We were planning to do a series on FI, right?

We kinda mentioned we were going to start a series as part two, but actually, we're bored with FI because FI is boring. We just talked about it for almost an hour. FI is boring because it's automatic. It just runs based on decisions you made years ago. It's not a sexy style of investing at all, but it works.

So we're going to not continue a series on FI at this point. We'll wrap up this episode here in a second. If you do have questions about FI, or any other more specific topics you want us to talk about, we can always answer a quick FAQ at the beginning of a different episode. 

You can message on Instagram military money manual or email

Before I pass it back to you for your closing thoughts, I want to just read a couple of lines from page 23 of your hymnal that just motivates and wraps up today's conversation in a really nice way. 

“Do yourself a favor and start now. But remember, a high savings rate can overcome a late start. It's never too late to start. The best time to start investing was yesterday. The next best time is today.”

[00:57:51] Spencer: I like that.

[00:57:55] Jamie: I underlined it and starred it in my book. 

[00:57:58] Spencer: I got, I got a star, too. Yeah. Awesome. Well, I'll close with a quote actually from the Psychology of Money, which is actually how I closed The Military Money Manual because I thought it was a good summary quote.

“The highest form of wealth is the ability to wake up every morning and say, I can do whatever I want today. The ability to do what you want, when you want, with who you want for as long as you want is priceless. It is the highest dividend money pays.”

 All right, with that listener, good luck on your journey to financial independence.

We'll see you next week on the Military Money Manual Podcast. 

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