Afford Anything - Seven Ways to Escape the Rat Race - with Michael Robinson

Episode Date: October 28, 2019

#222: Michael Robinson and his wife, Ellen, achieved financial independence at age 33. They ‘retired’ (they still enjoy working) three years later at age 36 on two five-figure incomes. Today, Michael and Ellen are raising their two children to be bilingual by slow traveling throughout Latin America. Michael and Ellen blog about their FIRE adventures at uncommondream.com. They believe that “the Uncommon Dream is the dream pursued – the dream met with planning, action, and sacrifice. With just a dream and those three tools, you can accomplish almost anything.” Today, Michael joins us on the show to talk about the seven ways that he and Ellen escaped the rat race and achieved FI at 33. If you enjoy hearing stories and case studies from people in this community who have reached FI, then you’ll love this interview. For the full show notes, go here: https://affordanything.com/episode222 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything. Every decision that you make is a tradeoff against something else, and that doesn't just apply to your money. That applies to any limited resource that you need to manage, such as your time, your focus, your attention, and your energy. And so that leads to two questions. Number one, what do you value the most? What are your priorities? And number two, how do you align your day-to-day decisions in a way that reflects those priorities? Answering these two questions is a lifetime practice, and that's what this podcast is here to explore.

My name is Paula Pant. I'm the host of the Afford Anything podcast, and today we are talking with Michael Robinson about seven ways to escape the rat race. Michael Robinson and his wife, Ellen, achieved financial independence at age 33. They, quote unquote, retired, meaning they left their primary place of occupation three years later at the age of 36. And they did all of this on two five-figure incomes. So both Michael and his wife, Ellen, both of them earned a year. in the five figures for their entire career and still reached FI and retired in their 30s. Today, Michael and Ellen are raising their two kids to be bilingual by slow traveling through Latin America with their kids. They blog about this at UncommonDream.com.

So today, Michael is joining us on the show to talk about seven ways to escape the rat race. And what's interesting about this is that when we talk about escaping the rat race, escaping the rat race might include reaching financial independence, but it doesn't necessarily have to. So we're going to talk about seven ways to escape the drudgery of the rat race. And in fact, in this upcoming interview, we're going to talk about how we define rat race. But we'll talk about seven ways to escape the rat race, some of which include reaching financial independence and some of which do not. To do a quick rundown, the seven methods that we're going to talk about include the status quo method, the portfolio income method, the passive income method, the passion income method, the windfall, the sabbatical, and the gratitude adjustment strategy.

So what does that mean? We're going to find out right now. Hey, Michael. Hey, Paula. I wanted to chat with you about financial independence, you and your wife reached FI at 33, even though both of you made five-figure incomes. Can you tell us about that? We met in college and in 2004 started dating and I think early 2005 combined finances and started living off of her teacher income while we were doing everything we could to save my sales guy income. And how much was her teacher income as you were living off of just that one income about how much was that? Yeah, so I think she started like in the high 20s and worked her way up into the 30s while she was teaching and then subsequently she got a nonprofit job similarly like.

Like in 2008, she was earning around $40,000 per year. How long did the two of you live on just one income and then save yours? When we combined finances in 2004, we already had some savings each. But really, the journey took us from roughly 2004 until spring of 2014. And we were saving, you know, 50 to 75% of our income each year. Okay. So for a decade, you lived on her income and saved your income. both of you were making five figures throughout that entire time.

Yeah, so tactically, we were maxing out her 403B while we were also maxing out my 401K. And then we would each, you know, make maximum contributions into our Roth IRAs at the time. And then when in years when we could, we'd also make some additional non-tax advantage contributions as well. So as you were living on her income, so she was making, in the beginning she was making in the 20s and eventually she moved into the 40s. So you were living on somewhere between high 20s to in the 40s,000 per year? Yeah. So she actually, at her nonprofit, she was working as an educator, but it was a small nonprofit, and she worked her way up from an educator to being the program director over the course

of the next five years that she started. So I think her maximum income was in the 60,000 range. But that pretty quickly went back down to high 40s when we had our son. and she started working four days a week instead of five days a week. And so throughout all of this time, as you were living on her income and you were saving yours, you were making five figures. What was the range of that between 2004 and 2014? My income started in the $40,000 range, and then for quite a long time, it was $75,000 per year,

and then it increased to $85,000 per year for most of my career. So basically, for the span of about a decade, you were saving all of that. You were saving the higher of those two incomes. Were you specifically going after financial independence or did you have the goal to retire early or was something else motivating you? It wasn't so much like to retire early, but I did read in college the book The Millionaire Next Door. Pretty quickly fell in love with this idea of the prodigious accumulator of wealth and how wealthy people are not necessarily what you expect. They're kind of everyday people and not living ostentatious lives. So that book and some arithmetic that spawned from that book just I was able to calculate that we could become millionaires in our 30s or even multi-millionaires if we started really saving aggressively.

And I understood that we needed to save as much as we could, as early as we could, to give compound interest the time to do the work. And it was a dedication to that idea that led you to consistently save the higher of the two incomes. That's the part that I find amazing, doing it not just one year, but. year after year for a decade. Right. Well, we live pretty simple lives. Like, I never had a commute. Neither of us ever bought a television or paid for television service. There were a lot of expenses that we just didn't incur. When we bought a house, we actually qualified for a loan for it was like $600,000 or something. This was in 2007 when people were happy to give out really large loans. We chose to buy a $175,000 starter house instead and paid it off in a couple of years. So we just made some uncommon lifestyle decisions along the way.

And so you reached financial independence at 33, but you retired at 36. You decided to stay in the workforce for another three years after you hit your FI number. Yeah, and I always say retired with an asterisk. I'm still doing some consulting work that I really enjoy doing, and it brings purpose to my I spent, I think it was something like three months doing pretty close to nothing after I stopped working full time and Ellen wasn't working full time. I just really was eager to reengage more. So I think it was something like 40 hours a month of consulting work originally. It's bumped up to 70 hours a month of consulting work.

And even more recently, I've chosen to take on a bunch of big projects and it's been closer to full time work. But it's work that I enjoy doing is the point. And that actually leads perfectly to what we are about to talk about next, which is, that since you quit your 9 to 5 at least, since you quit W2 employment, you have met a lot of other early retirees and you've seen, or people who are financially independent, and you've seen the various models not just for how they got there, but for what they do afterwards. Right, exactly. So I've started a local meetup group for people interested in this stuff back in 2016. And through that, I've met dozens and dozens of people that have reached financial independence. And what's interesting to me, is almost to a person, people achieve financial independence. They have maybe some decompression period. And then pretty quickly they find themselves doing something that looks a whole lot like work.

So it's certainly work they're enjoying. They're not going to go endure a miserable work life or anything after financial independence. But work that is meaningful, work that stretches you is something that we all end up getting drawn to, I'm finding. As a result of having met people in this local meetup group, you came up with this framework that you call seven ways to escape the rat race. Let's dive into it. Let's talk about the first strategy that is on that list of seven ways to escape the rat race. And this first one doesn't really seem like much of an escape. Tell us about it. So the status quo strategy is really the default script that we're following whether you're actively employing the strategy

or not. This is what most people are doing in developed economies. You're earning what you earn. You're finding out your take-home pay is this. Let's say a 2,000. and you're saying, okay, well, I have $2,000 to spend and you're either spending $2,000 a month or maybe you're spending a little bit more than that, but you're working with a low saving rate. So, I mean, in the U.S., we've averaged single-digit saving rates for decades. And if you look at what it takes to save and then be able to live off of your assets, even a 10% saving rate has you working until for 51 years essentially into your probably into your 70s or so to be able to then have assets large enough to cover your expenses.

So functionally, most Americans are essentially working until they die or until they qualify for some kind of government assistance program, Social Security or Medicare, something like that that will help them with those retirement expenses. So the status quo strategy doesn't seem like much of a strategy. to escape the rat race, why do people do it? Like, what are some of the benefits to it? It's essentially the opportunity to spend everything that you earn. So as soon as you have it, you can spend it.

And there's something to be said for that. And I don't want to, like, completely rag on this strategy because there's certainly times in your life where it makes sense to fall back on this strategy, perhaps, or to use this strategy to be able to further your education or further your kids' education, something like that. Or there's times where it makes sense to be just where you're, you have to put everything that you earn into some other goal and you can't really make progress towards escaping a rat race otherwise. Right. Certainly if you have major health expenses

or big legal bills or something like that, then there might be a period of time where you just have to cash up and focus on today. Exactly. But there's some drawbacks too, and there's been research around those drawbacks. Can you tell us about that? Yeah. So for over two decades now, Gallup's been collecting data on the U.S. workforce engagement. And kind of surprisingly, to me at least, they've found that 30%, only 30% of the U.S. workforce is actually engaged in the work they're doing. So that means that 70% of people are disengaged or actively disengaged from their work where they're not enjoying their day-to-day work lives, their day-to-day experiences. What do you mean by being engaged with your work? What is it to be engaged with work? Gallup defines that as follows. They say that the engaged subset of the workforce or the,

those who are involved in, enthusiastic about and committed to their work and their workplace. But they also go on to have the 70% of workforce falls into either the not-engaged category or the actively disengaged category. And so for not-engaged, they say, you know, essentially people that may be generally satisfied with their work, but they're not cognitively or emotionally connected to their work or their workplace. They'll usually show up to work and then do the minimum that's required. So kind of like that character in office space.

Exactly. And then there's actually a subset. The last subset of the workforce is the actively disengage, they call it. I think it's around 13% of the U.S. workforce per Gallup studies. But these are workers who are having a miserable work experience. Just every day, they go to work and they're just miserable throughout the entire day. So that's almost like one in seven, one and eight workers in the United States that are actively loathing their everyday existence. So the status close strategy doesn't really. sound like a strategy for retirement? I think it belongs as one of our seven strategies, not just because it's the default script, not just because most people are doing it, but many people find they get within five, ten years of retirement and those Social Security Administration papers start showing up saying, on this day, you will start to receive $2,000 a month or $3,000 a month, and it becomes a key part of the strategy where they start to see, okay, well, at that moment in time, I'll be financially independent. I will be able to cover all my expenses.

through the combination of this Social Security check and maybe whatever savings I have. Oh, okay. So I see what you're saying. So in the way that financial planners, when they talk about retirement planning, they often talk about a three-legged stool, that three-legged stool being social security, pension, and your retirement portfolio. So in that context, you're using the status quo strategy as the strategy that gets you eventually to retirement, to financial independence, through Social Security and maybe a pension even if you are lucky enough to have one. Right, exactly. So maybe you're financially independent at 65 because you can live off of that check you start collecting. Some of the risks associated with that include that mile marker

can change. The government can say, we've decided it's not 65, it's 75. You know, that can happen and you're without those personal assets that you've been working on or without some of these other strategies, and pulling some of these other strategies, there's the real risk that you're differing all of the control to others, whether it's government or maybe it's an employer that gives you a pension like you mentioned. Either way, the control is outside of your hands. Exactly. Number two on this list of seven ways to escape the rat race is something that you refer to as

the portfolio income strategy. Can you tell us about that? For people pursuing financial independence, this isn't going to be that big of news, but it's essentially the path of saying I'm going to save my money aggressively so that I can quickly accumulate assets enough to cover all of my living expenses. And instead of the 51 years that a 10% saving rate might yield, these are people targeting maybe 25% saving rates that consolidate their working years down to 32 years before they're financially independent.

Or saving 50% of your income, which results in a 17-year. career or more aggressively still, if you save 75% of your income, your working career can drop down to seven years. And so with a portfolio income strategy, that is essentially saving enough money in your portfolio such that you have an investable portfolio that's 25 times your annual spending. Right. Exactly. So you're trying to grow your income as much as you can. You're trying to cut your expenses as much as you can and then prudently save the difference, prudently invest the difference even. And with this strategy, are we talking purely about investing in index funds, or does this strategy encompass all types of investments? So I personally invest in index funds,

and it would advise most people to do so in like low cost, broad-based index funds is a really sensible approach. But I identify that there are 6, 7, 8, other reasonably prudent ways you can invest. It's ultimately when you're saving 50 to 75 percent of your income, income, let's say. The specific investment methodology, if you choose something reasonably prudent, is less important. It kind of becomes noise as opposed to signal. Your contributions are the single biggest determinant of the size of your portfolio. Exactly. So that is the portfolio strategy. We've talked about the status quo, and then we've talked about the most common financial independence methodology. But what comes next? So I also wanted to bring people's attention to the passive

income strategy. We hear a lot about, you know, go pursue some kind of an online business or side hustle or something where you can create a business that's going to produce money for you while you sleep. And what I find valuable about breaking up the portfolio income strategy and the passive income strategy in particular is this understanding that there are two really very different things. The portfolio income strategy relying on an accumulation of a large amount of assets that then produce income for you. But with passive income, we're more often than not, people are referring to things like online businesses and authority websites, e-commerce sites, royalty income, things like that, where they have really very different characteristics.

So if we can walk through quickly the five characteristics of passive income, we're looking at by contrast to the portfolio income strategy, there's no. No significant upfront investment of capital required to start up these passive income businesses. What do you mean by significant? Well, you may have some expenses to start up a business, but typically nowadays you can start a website. You can pay $249 a month to have a website up and launched and you're marketing to the entire planet. Yeah, afford anything.com slash blue host, by the way. Yeah, that's true. That is absolutely true.

Alternatively, there is a significant upfront investment of time. So this business doesn't just start raking in money the moment you throw open the doors on your website. You've got to really do a lot of work. You've got to format it, make it look beautiful, add a lot of content, whatever it is. And there's lots of different passive income business ideas that you could pursue. But another characteristic I would say is there's no real-time involvement. So if it requires a real-time involvement, you have to be there from 8 a.m. to 5 p.m. every day. I don't think that's also not passive income.

You may put in quite a bit of hours, but it's going to be as you choose over time. So by no real-time involvement, what you mean is flexible hours. Yeah, very flexible hours. There's no need to be there at any specific time. Another characteristic would be that there's some ongoing effort to maintain the business. Again, look at the portfolio income strategy with this huge, as you collect a large sum of assets and then live off of it, Vanguard is going to send you your dividend check every quarter. consistently whether you show up or not, whether you do anything or not. But if you build a passive income business, eventually at some point that income will dwindle. It requires some ongoing

effort, some ongoing contributions of time and energy. And then lastly, it's no real-time involvement is really made possible by automating as many tasks as you can. And again, nowadays, it's very easy. You throw the doors open to an e-commerce website and the fulfillment of the things people are buying is handled for you, the transaction, you know, ringing up their sale is handled for you. Really, so many things are automated. So you don't have to be standing there when somebody shows up on your shop and is ready to start buying from you. And certainly for e-commerce, there are a lot of drop shipping companies, things like that that can handle the order fulfillment. Yeah. So these are when I'm talking about passive income, those are some of the types of businesses

that I'm referring to. Writing a book is another one, creating a comic, you know, there's any number of creative works like that graphic design where you create an asset and then put it up for sale and people are buying it downstream of the U. So you continue to get royalties downstream for something, some creative work that you've created. Those are all examples of the passive income strategy. You mentioned creating a comic. Do you know anybody who's done that? I need more people who have created comics in my life.

I know one person, this guy, Carl, who's working on developing a really awesome comic. Huh. It was such a specific example that when you said it, I was like, he's got to know someone who's done it. You don't give that specific of an example. We'll come back to this episode after this word from our sponsors. Are you an entrepreneur or do you have a side hustle or a small business? Well, if so, as you know, as a small business owner, you're doing a lot of things. You're developing or offering a product or service. You're marketing that product or service. You're making sure that the customers are happy. And there are are some administrative tasks like filing taxes and running payroll, they're necessary, but they're taking you away from this core value that you offer. They're taking you away from the real work that you're doing. That's where Gusto comes in. Gusto makes payroll, taxes, and HR easy for entrepreneurs and small business owners. Gusto will automatically pay and file your federal, state, and local taxes so that you just don't have to worry about it. Plus,

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nonfiction books, all the books you want and all for one low price. And right now, for a limited time, Blinkist has a special offer just for our audience. Go to Blinkist.com slash Paula. Try it free for seven days and save 25% off your new. subscription. That's Blinkist, spelled B-L-I-N-K-S-T. Blinkist.com slash Paula to start your free seven-day trial and you'll also save 25% off, but only when you sign up at Blinkist.com slash Paula. That's Blinkist.com slash Paula. So let's talk about the fourth of the seven strategies for escaping the rat race, and that is the passion income strategy. Yeah, and I like

this wording, I heard this first from my friend Jillian Montana Money Adventures, but it is the idea that this is kind of taking a shortcut out of the rat race by saying I'm not going to work even seven years or 17 years in work I don't enjoy. I'm going to go tomorrow and start to find some work that I'm really passionate about doing that I really want to do so that my everyday life is something that I can be enthusiastic about, something I can be committed. to and engaged in going back to that Gallup study we mentioned before, you know, this is the people saying, I want to be part of that 30% that's actively engaged in my work, even if that means I maybe earn a little bit less.

And so the passion income strategy allows you to escape the rat race insofar as the work that you do doesn't feel like the rat race. So you're not financially independent per se, but you do enjoy your day-to-day work life. Exactly. So that's that's the main benefit. And then we need to mention also the disadvantages of this approach being that our passion's going to evolve. You know, who's to say that the 25-year-old you that decided you really want to be in a band and tour is going to be able to answer for the 45-year-old version of you that maybe doesn't want to be touring anymore and is ready to shift into some other kind of lifestyle. And also our circumstances can change. You could enjoy your workplace, but then come in tomorrow and find out that you're, favorite worker you've been working alongside that really made your workplace so pleasant was been replaced by somebody you don't get along with all of a sudden. Do you know people who say, I'm so in love with my work that I don't really care about reaching financial independence? You know, I have family members who've decided to be veterinarians,

not because it's the most lucrative job in the world, but because they enjoy it. Several of my friends are in bands, and I've, there's some of the people that I admire the most because they had that dream and that vision in college. They were like, I'm going to be a musician. And most people are musicians in college, and then it kind of falls by the wayside. But a couple of my friends have just continued consistently year after year after year producing music, touring, working hard, doing what they're doing. And they're covering their expenses for the most part, sometimes with some odd jobs here and there. But I admire people like that that decide they're going to do work that's really meaningful to them. And it certainly makes all of our lives better having these musicians out there doing that kind of work.

Yeah, absolutely. Let's talk about number five on the list, which is the windfall strategy. How do you control getting a windfall? Okay, so when we think of the word windfall, we most frequently think about these kind of external circumstances. Somebody passes away and suddenly you come into all this money. But I think there are ways that you can actively practice the windfall strategy that I don't want to have excluded as we're talking through different ways to become financially independent. One of those is growing and selling a business as an example. So entrepreneurs will often put a lot of time and energy into building a business.

And maybe they don't pay themselves all that much as they're working through the business. They reinvest everything into the business. But at some point, they're hoping that down the line they will be able to sell this business for $5 million, $10 million, or some big number in their mind. It may happen. But of course, there's that high reward of growing and selling this business for a big amount. But of course, there's also high risk in this approach. Businesses are not the most liquid investments. So it can take months or years to find a buyer and have a transaction when you're trying to grow and sell a business.

Another example would be working for a promising startup. Some people will say, I really believe in what this tech startup is doing and I want to go work there and earn a little bit of equity in the company, you know, some preferred shares or whatever the case. and hope that this company goes to IPO someday, right? So those are examples of practicing what I would call the windfall strategy where you're trying to grow a business or help a business grow and having some sizable payout on the back end of that if it goes well. So basically with a windfall strategy, you're taking a big bet. To use Las Vegas terminology, you're putting it all on black.

And if this pays off, it'll pay off big. And if it doesn't, I guess then you try again. Yeah. So depending on the business, it could be, okay, we're going to put it all on black or it could also look like, all right, we're going to put it all on red 32, a red 23 or something. Some very specific high reward, high risk kind of bet. There are people, people who have been guests on this podcast who have actually reached financial independence through the windfall strategy. So our mutual good friend J.D. Roth, he's been a guest on this podcast, I believe three times already. He reached financial independence quite suddenly by starting a business, which was a website, and over the span of three years, he grew it from nothing to something that he could sell for a nice multimillion dollar sum.

Right. And I was also at a conference recently, FinCon, and I was talking to a guy Adam who was practicing the portfolio income strategy, who was dutifully earning as much as he could, spending as little as he could. growing his investments. But then the company that he worked for was sold and he suddenly found himself with a seven-figure windfall into his retirement income planning. If you are going to try to follow the windfall strategy, would it be wise to do that in conjunction with one of these other strategies? Yeah. So I want to quickly say to that, all of these strategies are really not meant to be followed necessarily one at a time, only one to the exclusion of the others. I liken them to hiking trails.

You may, when you're out on a hike, you might suddenly decide, I'm going to take this trail for a little bit, and you may find at another point that both trails converge, and suddenly I'm walking, like you said, the windfall strategy and maybe the portfolio income strategy simultaneously. And there are certainly times where you're proceeding down one and you just notice a little chance to cut back over and suddenly be walking another one. And it's kind of a choose-your-own adventure book kind of thing. Do you think that's common? Is that what most people do?

I do think it's common for business owners to be able to then also save some assets in this case when we're talking about the windfall strategy. But it's also, there's certainly plenty of examples of people that are betting everything on that eventual payout and not putting anything away along the way. So we're not considering side businesses that maybe could produce some passive income while they're doing everything they can to grow and maybe sell a business. Growing a business that you intend to sell is the kind of thing that can and should occupy a significant portion of your energy in time. And it's understandable to be very narrowly focused on that. It's just I would caution people pursuing this strategy not to turn a blind eye to having some things set aside to protect you should this very large bet not pay off. So let's talk about number six on the seven ways to escape the rat race. And that's what you refer to as the sabbatical strategy.

There's this beautiful TED talk by a guy who was basically saying his, he didn't necessarily buy the idea that you're supposed to work for 40 years to then have maybe 15 years of retirement. He decided as an experiment, he ran a design firm and had a few employees. And he decided as an experiment that he would let everybody in his company take one year off. And it was a year of a year of. experiments, because it's a design firm, their creativity is so important. They took this year off for this year of experiments and circled back around. And when they did the next six years of work,

they suddenly found themselves producing at such a higher level that this is something that he's now repeated again, which he was sharing the results of in his TED talk. So the sabbatical strategy is essentially saying, I need to escape the rat race now or sooner than later. I can't just endure this miserable work life. Maybe if you're in the, that gallops bottom 13 percent, you're seeking near-term relief and you need to refresh your perspective, essentially. So you're just, you know, maybe it looks like negotiating a leave of absence with your employer or maybe it looks like taking a gap year or something like that. But this is essentially saying, I'm going to take a deep breath, stop working and live off of whatever savings I have. Sure, they won't be able to sustain my, my lifestyle indefinitely. But

gives me a chance to maybe it looks like doubling down on learning to become learning some new skill that could launch some new career or maybe it just looks like decompressing before you resume something similar. So the sabbatical strategy in this context is a way that you can escape the rat race. Again, you're not financially independent in the monetary sense, but you're not in the thick of that status quo 40 year work. Yeah. So for Ellen and me, I mean, a lot of people think that your employer won't permit this, but I think for highly valuable hardworking employees, this is something that can happen. In fact, I think on five different occasions between Ellen and myself, we've taken sabbaticals of a month or more, sometimes a year, from our work while along the way. And we've gone and lived in low cost of living areas like Mexico. And our purpose was to learn Spanish. My wife was a bilingual school teacher. So this was, something that her principal was quite happy to permit. Her principal was quite happy to let her take a year off and really dive deep into Spanish and come back a better bilingual teacher for it. When it comes to sabbaticals or mini retirements, what are some of the drawbacks of taking these breaks mid-career?

So I mentioned at the beginning that one of the things that worked well for Ellen and me is that we realized that we needed to give compound interest time to grow our assets. and we were really trying to save as much as we could as early as we could. So I think one of the most consequential drawbacks of the sabbatical strategy of just saying, I'm going to take a year off is for that year you're basically missing out on the opportunity to have earned and saved and invested some money that could be going towards, let's say, the portfolio income strategy. So sometimes it's necessary for that psychic break, that psychic rest. But you should not do so without both eyes while.

open and a keen awareness of just how much it's costing you. It's not just the, let's say, $20,000 or $30,000 you might have saved that year, but compounded over time that becomes a really consequential sum. So I think that's maybe the opportunity cost of that lost work is maybe the most important. There is something to be said for the risking your job security and those resume gaps that people typically worry about. But again, I say for highly valuable employees, it hasn't at least proved to be that large of a concern for Ellen and me in our anecdotal experience. Do you see sabbaticals or mini-retirements as becoming more popular, like now as compared to, say, 15 or 20 years ago? I do. I mean, I know a number of people that have done this. Like I said, we've done this five times. I think it might be generationally something that's maybe more present for us, something that we're choosing to do more often, those of us in our 20s 30s.

And I would also say the workforce has changed considerably. It's, you know, you rewind the clock 30, 40 years and it would, and workers would typically join a firm. And they would follow a track of working and growing within that firm and retire and receive a pension. So as the workforce has changed, the opportunity to take gaps between employment is certainly presented itself more and more. Or to work more flexible arrangements. I'm doing consulting from a laptop wherever I happen to be right now. that's the kind of thing that wouldn't have been possible 20, 30, 40 years ago. We'll come back to the show in just a second, but first, hiring can be a challenge.

Just ask Gretchen Heibner. She's the founder of an education tech company called Kodabble, and she needed to hire a game artist for her company. She knew that it wouldn't be easy to find someone who could grow with her team, and so she went to ZipRecruiter. ZipRecruiter doesn't depend on candidates finding you. It finds them for you. Its technology identifies people with the right experience and invites them to apply to your job, so you get qualified candidates fast. Gretchen posted her job on ZipRecruiter and said she was impressed by how quickly she found qualified applicants.

She also used ZipRecruiter screening questions to filter her candidates so that she could focus on the best ones, and that is how Gretchen found a new game artist in less than two weeks. With results like that, it's no wonder four out of five employers who post on ZipRecruiter get a quality candidate within the first day. So see why ZipRecruiter is effective for businesses of all sizes. Try ZipRecruiter for free at our web address, ZipRecruiter.com slash afford. That's ZipRecruiter.com slash AFFORD. ZipRecruiter. The smartest way to hire. Guess what time of year it is? It's open enrollment season. This is the time of year where you make a decision about your health care coverage for the upcoming year. And if you're like me, I've been buying an individual health insurance plan on the open market since 2008.

I've been doing it for more than a decade. And this year, as I did last year, I'm going to PolicyGenius to look at different health insurance plans that are available on the open market and pick a plan that is right for me. The thing is, policy genius can help you shop not just for health insurance as I am, but also for life insurance, home insurance, auto insurance, disability insurance. And let's talk about some of these because, you know, most people need 10 times the life insurance coverage that they are getting through their jobs, which means that if you're getting employer life insurance, you might be underinsured. Policy Genius is a way that you can shop for a life insurance plan that's not tied to your job. Same with health insurance. If you're self-employed

like me, you can look for plans, which, of course, are not going to be tied to your job. You can look for those individual plans. And when you apply, the PolicyGenius team will handle all of the paperwork in the red tape. So when you're looking at your workplace benefits this month, make sure to double-check your life insurance options and then go to policygenius.com to get quotes and apply in minutes. PolicyGenius, the easy way to compare and buy life insurance. The seventh and final strategy is what you call the gratitude adjustment strategy. Tell us about that.

So I imagine there are going to be some listeners to this who are hearing all. of these different strategies for escaping the rat race and saying, you know, none of these really work for me right now in my situation. Gratitude, I think, can be a really useful escape from the rat race, just even in the moment when you take the time to practice gratitude and practice gratitude consistently and consider just how fortunate we all are. Every listener of your podcast should understand just how lucky we all are to have the tools that you're using to listen to these podcasts, let alone to live in the societies we live in and in this time that we live in. Connecting yourself with people in the situations in less fortunate parts of the world or in less

fortunate times through history can help you really, you know, suddenly maybe a mundane insurance job seems pretty pleasant when you're comparing it to 14-hour food lines and being unable to get food as an example. What's interesting to me about this is that this strategy, along with several other strategies on the list, are ones in which you escape the rat race, again, not by achieving financial independence, but by, you know, with the gratitude adjustment strategy, it's by reframing your perspective on the situation. With the sabbatical strategy, it's by taking a short break. What's interesting to me about this is that escaping the rat race, as part of this framework that you constructed, escaping the rat race can come from financial independence, but it doesn't have to. Right. I think it's important to remind ourselves that the rat race is really a prison of our minds. It's a mental construct. And when you can use your mind as a tool to reframe your perspective, I think you can and see your current situation through a different light. from a different angle, I think you can escape from the rat race immediately.

One of the downsides of this is it's not as permanent as, let's say, the portfolio income strategy where you have a portfolio of assets that are going to produce income for you for the rest of your life. Gratitude would need to be practiced consistently. It's just as fleeting as it is available. Same with passion in that regard. Right. So in my, you know, in my own experience, there have certainly, been times in my career where my passion for what I'm doing has waned and it's been trying. Even though I would say in broad strokes that I've really enjoyed my entire career, I've enjoyed everything I've done, you know, we all have those days where it's more difficult

than not or you have some unfortunate interaction with another coworker or whatever. So one thing for me that's been useful is just trying to reconnect myself to the purpose of what I'm doing. If I can think about the people that are benefiting from my work, for me, I find it very useful and very motivating to remember. There are real people who I'm impacting through this work. It may feel trivial to me. It may feel mundane now, but every business exists to help other people. Realizing that and seeing your peace in that can bring peace.

At least, I've found that to be the case. Finding meaning in what you do day to day. Exactly. Thank you for this recap of the seven ways to escape the rat race. Where can people find you if they want to know more about you and your story? So my wife and I blog at UncommonDream.com. That's probably the best place to find us. Great. Awesome. And we will link to that in the show notes.

Thank you so much, Michael. Thanks, Paula. Thank you, Michael. What are some of the key takeaways that we got from this conversation? Here are eight. We're going to cover each one of the seven ways to escape the rat race as a takeaway, and then we'll wrap it up with a final eighth. So here we go. Number one, the status quo. Remember that the default option is an option, and many people who remain in the status quo do ultimately escape the rat race when they reach retirement age. The status quo strategy is really the default script that we're following, whether you're actively employing the strategy or not.

This is what most people are doing in developed economies. You're working with a low saving rate, even a 10% saving rate. even a 10% saving rate has you working until for 51 years, essentially into your, probably into your 70s or so, to be able to then have assets large enough to cover your expenses. The default or status quo option is that most people work for as long as they are healthy enough to do so. And there are benefits to this option. I know on this podcast, we talk so much about financial independence that for some people it can feel like if you're not on the path to FI, Are you doing something wrong? Are you, quote, unquote, supposed to be on the path to FI? There's no supposed to here. Do what's right for you. And if what's right for you is managing your money well throughout your life so that you can retire at normal retirement age, if that is the conscious decision that you've made, then good for you because you have made that conscious lifestyle decision.

There are no shoulds in personal finance. There's that cliche. It's overused because it's true that personal finance is. is personal. However, I will say about the status quo strategy, a lot of people do to circumstances beyond their control, like legal bills or medical bills, they end up having to work for a long time. The drawback to choosing this as a strategy and the drawback to not having a high savings rate is that when those unexpected or unforeseen circumstances come up, you have fewer options. So even if you do plan on staying in your primary place of occupation until your 70s, that's amazing. That's great. But remember to give yourself a safety net so that in case life throws some dog poop on you, you've got some tools to deal with it.

So that is takeaway number one. The status quo strategy is an option. The default option is an option. Key takeaway number two. Portfolio income can be a way to escape the rat race. Now, portfolio income in this framework is amassing an investment portfolio that is large enough that a reasonable drawdown rate can cover your cost of living. It's essentially the path of saying I'm going to save my money aggressively so that I can quickly accumulate assets enough to cover all of my living expenses. The benefit to this strategy is that you cut down your time to retirement by all.

lot. For example, if you save 25% of your income, then you may only have to work for 32 years before you're able to retire, which means if you start working at the age of 22, then by the time you're 54 years old, you're totally ready to retire. And that's just from saving 25% of your income. If you save even more aggressively, if you save 15% of your income, this decreases down to 17 years. So the overall goal with the portfolio income strategy is to save 25 times your annual spending. Of course, the only way to save is by growing your income, cutting your expenses, and investing the difference wisely. So that is key takeaway number two, the portfolio income strategy. Key takeaway number three, the passive income strategy. Passive income is income that

is decoupled from a direct time for money exchange. So rather than getting paid by the hour or getting paid a salary by the year or by the pay period, with passive income, you decouple that link between the time that you put into something and the income that it produces. With passive income, more often than not, people are referring to things like online businesses and authority websites, e-commerce sites, royalty income, things like that, where they have really very different characteristics. Now, when Michael talks about passive income, he gives five characteristics, which is automation, some ongoing effort to maintain the business. It's not nothing, but it's minimal ongoing

effort. No real-time involvement. And by that, he means flexible time. You don't have to be there during certain designated hours. You do have to significantly front load the time investment that you put into this. Passive income is not a euphemism for free money. And then the fifth characteristic that Michael gives in his framework when he talks about passive income is no significant upfront investment of capital. I would add an asterisk there because when, comes to rental properties, there is a significant upfront investment of capital. But of course, rental properties are only one of many forms of passive income. You could also collect royalties for something that you've created in the past, like software or music or art that you've created.

You could have an Amazon business, a fulfillment by Amazon drop shipping business. Whether or not passive income requires some upfront investment of capital depends on specifically how you're trying to build it. So that is key takeaway number three, that passive income is a way that you can escape the rat race. And takeaway number four is what Michael refers to as passion income. And this is an interesting construct because in this construct with passion income, you're not escaping the rat race in the sense that you've reached financial independence. You're escaping the rat race in the sense that you are committed to doing work that you enjoy and therefore it is no longer the rat race.

So this is not a financial escape, but rather a choosing your career or your work with a different framework type of escape. This is kind of taking a shortcut out of the rat race by saying I'm not going to work even seven years or 17 years in work I don't enjoy. I'm going to go tomorrow and start to find some work that I'm really passionate about doing that I really want to do so that my everyday life is something that I can be enthusiastic about, something I can be committed to and engaged in. So let's say you decide to pursue passion income. Like maybe you decide that you want to be a ski instructor during the winters and a scuba diving instructor during the summers.

You might earn less doing that than what you're currently doing, but you might be more fulfilled. Or you might not be. I mean, who knows, right? That sounds very glamorous when you talk about it, but what are the day-to-day realities of it and will you enjoy it? Like those are the questions to think about before making a move towards passion income. And passion, by the way, I should note here, passion is a loaded word. So for those of you who are struggling with, I don't know what my passion is, another framework for it,

I like to say rather than follow your passion, follow your curiosity. What are you curious about? What do you naturally gravitate towards? If you chase the things that you find yourself drawn towards, you may be able to connect more meaningfully with the work that you're doing. And that connection, that psychological and emotional connection with your work that leads you to be engaged, that is a way to escape the rat race because now you no longer feel like you're on that hamster wheel. The discussion around passion income, actually, it could be a whole episode in and of itself because there are so many variables that go into your likelihood of being engaged with

your work or your likelihood of job satisfaction. satisfaction. So part of it is the meaning or the purpose behind your work, but it's also partially your feelings about your direct supervisor. It's partially the hours that you're required to keep and the flexibility within those hours. It's partially the design and layout and safety of your workspace and your relationship with your colleagues or your coworkers. There are all of these variables that go into the way that you feel about your work, some of which you can anticipate or predict in advance. I mean, you can you can anticipate what you'll be doing on the job and what the purpose of that job will be. You can anticipate that in advance. But it is hard to

anticipate what type of supervisor you have and whether or not you're going to like that person or the level of direction that you receive or the level of feedback that you receive. All of those play into how you feel about your work. But I think the broad takeaway when it comes to conceptualizing passion income as a way to escape the rat race is to decide that if you are unsatisfied with the work that you're doing, you will make a move, even if it's a lateral move, or even if it's a move that's quote unquote down the ladder in which you have to take a reduction in income, you're going to keep moving until you find the thing that brings you engagement. And this is where the principles of good personal finance, the principles of having a strong emergency fund and no high interest credit card debt and living frugally, this is where those principles really come in handy because you don't need to be financially independent to be able to leave a job that you hate. You just need enough of a cushion that you can leave that job and be okay while you search for the next thing.

And so those are some takeaways from this discussion around passion income, which I think is a really interesting framework for escaping their at race. But let's move on. Let's talk about key takeaway number five, which is windfall income. Now, normally when we hear the word windfall, we think of winning the lottery or a big inheritance. But as Michael says, you can actively seek out windfalls or big payouts. There are ways that you can actively practice the windfall strategy. One of those is growing and selling a business. So one example of a person who pursued the windfall strategy is J.D. Roth. He's been a guest on this podcast three times.

And he started and then sold the website Get Rich Slowly. From that sale, he became financially independent. So he had a big windfall, a big ticket payout from the sale of a business that he created and then sold. Pursuing these types of big ticket wins is a way that you can become financially independent. I don't want to use the phrase overnight because it takes years to actually build that business. But it's certainly a way that you can, you know, as compared with the portfolio strategy where, you know, you're planning to be financially independent in 17 years or in 30 years. two years, this is a way that you can try to become financially independent in five years. So it's a way

that you can potentially fast forward that timeline. But of course, it's risky. It's a big bet. But it is a strategy. And it is a strategy that you can pursue in conjunction with some of these others. Remember, none of these strategies are meant to be pursued in isolation. You can cobble together a mosaic. And so that is key takeaway number five, that windfalls are something. that you can try to create. Key takeaway number six. The sabbatical strategy. And this is what I refer to as retiring early and often.

This is the often part of it where you take many retirements. The sabbatical strategy is essentially saying, I need to escape the rat race now or sooner than later. I can't just endure this miserable work life. You need to refresh your perspective. Michael and Ellen took five sabbaticals between the two of them, while they were working. So they lived in during these sabbaticals. They lived in low cost of living areas where Ellen could deep dive into learning the Spanish language. And they had these sabbaticals

to motivate them as they were on their journey to financial independence. They were living these very frugal and unusual lives. I mean, they were saving a very high percentage of their income on five-figure incomes and taking sabbaticals along the journey, taking these mini retirements along the way, fueled them. as they pursued this big long-term goal. And so the benefits of a sabbatical strategy is that you can use this time to decompress, to have adventures, to figure out what inspires you, to follow your curiosity, and to double down on learning new skills. The drawbacks, of course, are the opportunity cost because you're not earning income during this time. You're not investing during this time.

And depending on the specifics of your job, you may risk your job security. If you want a deeper discussion into the concept of sabbaticals and mini-retirements, check out episode 164, which is an interview that we did with a guy named Bob Loddick who took a mini-retirement for a year. So that's episode 164. You can access it at afford-anything.com slash episode 164. In that episode, we spend the whole time talking about mini-retirements, and he offers a lot of actionable advice for anybody who might want to pursue this in their own lives. And so that is key takeaway number six, the sabbatical strategy. And key takeaway number seven is the gratitude adjustment strategy. And I like this framework as well because this is a framework for escaping the rat race, not through financial means, but through a reframing of your relationship with work. Gratitude, I think, can be a really useful escape from the rat race, just even in the moment, when you take the time to practice gratitude and practice gratitude consistently and consider just,

how fortunate we all are. Every listener of your podcast should understand just how lucky we all are to have the tools that you're using to listen to these podcasts, let alone to live in the societies we live in and in this time that we live in. If you need an escape from your work right now, practicing gratitude can serve as a mini escape. So it's worth practicing gratitude. And it is a practice. It's not something that you're going to nail on the first try. It's It takes work and it takes consistency and it takes making it a habit. So taking note of how fortunate you are or reconnecting with the purpose in your work or reframing your situation, those are ways that you can develop gratitude around your work. And in doing so, escape the weight of being in a rat race.

And so that's key takeaway number seven. And then finally, key takeaway number eight to tie this all together is that escaping the rat race can come from financial independence. But it doesn't have to. You don't have to reach FI to find that escape. You can take short breaks. You can reframe the situation. You can reconnect with your purpose. Those are all ways that you can experience an escape and some relief immediately while you're also building towards these bigger financial goals.

And also, it doesn't hurt to make unconventional choices if it enhances your lifestyle. Michael and Ellen lived on one income, one five-figure income, and then saved the higher of their two incomes for a decade. And they did that because they were committed to living simple lives. So they chose not to commute. They chose not to have a TV. They qualified for a $600,000 mortgage, but they didn't take out a $600,000 mortgage. They bought $175,000 starter home and paid it off in a few years. So they made this commitment to living much more frugally than they had to.

and those unconventional choices allowed them to reach FI at 33 and to quit their jobs at 36. And so, yes, they found escape through reaching financial independence, but financial independence is often a side effect of practicing really good financial habits throughout your life. It is the natural organic consequence of increasing your income, decreasing or holding steady, your expenses and widening the gap between the two, widening the gap between what you make and what you spend, and then investing that gap. Financial independence is the natural organic consequence of pursuing the types of investments that bring you passive income or pursuing the types of opportunities that might lead to

some type of a big-ticket windfall. And it's often fueled by mini-retirements or sabbaticals or gratitude that allow you, you to refresh and recharge so that you can come back to your work with this renewed vitality. So all of this plays together in a big mosaic that helps you escape from the rat race. And those are the takeaways from this conversation with Michael Robinson from UncommonDream.com. Thank you for tuning in. If you enjoyed today's show, please leave us a review. As of the time of this recording, we have 1,800 ratings on Apple Podcasts.

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This is the Afford Anything podcast. I'll catch you next week.