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Do you need to be lucky to achieve financial independence and retire early (FIRE)? A popular narrative says you do. 

Emma Pattee expressed this point of view in a recent article. I found it when it was shared and praised on social media.

Praise of the need luck to achieve financial independence narrative

Pattee achieved financial independence in less than 10 years by following FIRE principles. She opined, “I’m personally responsible for 20% of my current situation, while the other 80% is just plain good luck, circumstance and privilege.”

This “lucky and privileged” narrative comes from a place of good intentions. Completely ignoring the roles of luck, circumstance and privilege can lead to a lack of empathy. This in turn can lead to judging others unfairly.

But there are two big problems with the “lucky and privileged” narrative that I’ll address.

  1. It is incorrect. 
  2. It is harmful.

The Role of Luck

Personal finance is all about taking action to control the things you can control to change your financial position in life. Luck, by definition, is success or failure brought about by chance, rather than by your own actions.

Focusing on luck is to focus on things you can’t control, rather than the many things you can. If we want to get on the path to financial independence and a secure retirement, then we need to do the exact opposite. Acknowledge the role of luck, but keep it in perspective.

Luck as a Lottery Analogy

If 80% of financial success is “luck, circumstance, and privilege,” then why even try? Just buy lottery tickets. Better yet, run out to the nearest casino for better odds and a good time at the craps table or slot machines! At least when your money is gone you’ll have enjoyed the “free” drinks and festive environment.

Luck plays a role in the ability to achieve financial independence. However, using casino or lottery-type odds is the wrong analogy. It misrepresents the role of luck and circumstance.

Luck as a Poker Analogy

A better analogy is the luck involved in the game of poker. Can you be dealt a bad poker hand? Absolutely. Is it possible to be dealt a number of bad hands in a row? Yes!

Pair of Aces

But a good player with bad cards can remain in the game long enough for his luck to turn. And a bad player with good cards will inevitably run out of luck and lose if he plays long enough. In both poker and personal finance, your outcomes are a combination of circumstance (or luck) and what actions you take given your circumstances.

I apply the concepts written about by professional poker player Annie Duke in her book Thinking In Bets to evaluate my financial decisions. Another excellent resource linking poker and personal finance is this Financial Mentor Podcast episode with poker player Billy Murphy exploring the expected value formula

Expected value is the probability of a positive or negative event occurring multiplied by the payoff of a positive outcome or cost of a negative one. This requires acknowledging any single decision or action comes with an element of chance. 

You can seek out positive expectancy bets and minimize negative ones. Doing so repeatedly shifts the odds so far in your favor that you can virtually eliminate the role of luck on your outcomes.

Expectancy math is pretty simple. Not taking time to understand it is one of the most expensive mistakes you can make in life.

The Role of Privilege

The second aspect that makes this narrative harmful is the idea that financial independence is a product of privilege. Imagine believing you need to be born to the right parents, in the right location, with the right skin color, the right combination of X vs. Y chromosomes and perfect health, and sent to the right school while having it paid for by mommy and daddy to have a chance to succeed financially. 

This is an extension of the idea that your success or failure is dependent on luck and circumstances. It’s a depressing and disempowering way to go through life. It breeds hopelessness and resentment, rather than inspiring the action necessary to create personal change.

Pattee wrote, “I don’t know what would fix the enormous inequality that exists in our country and in our world. All I know is that, if you look at the data, personal responsibility is largely a sham (emphasis hers).”

I agree that there is inequality in our society. I also don’t know what would fix it on a societal level. But I completely disagree that personal responsibility is a sham. 

Taking ownership of your situation is hard, but possible for anyone who chooses to do so. It is a necessary first step for making any meaningful changes in your life

Taking control of your finances provides the ability to take care of yourself. This is a prerequisite to having the resources to meaningfully help others. When you’re financially independent, you’re free to become an agent for change in any way you see fit, unconstrained by the need to work to advance anyone else’s agenda.

Universal Principles > Luck

That doesn’t mean achieving financial independence isn’t easier or harder, the path shorter or longer, for some people than others. It doesn’t mean the formula will be exactly the same for each of us. 

In the Choose FI book, we explored a variety of stories and tactics to identify universal principles that are applicable to help anyone create their own unique path to financial independence. When I released the book, I shared that my only regret with the way the book turned out was that we weren’t able to share even more stories with greater diversity. 

We relate to others in a similar position in life with shared struggles. Seeing people like us  achieving things we would like to achieve makes the unlikely seem possible. 

I try to share a variety of ideas and perspectives in my writing because I know that stories inspire action. It is vital to take action to control the things we can. 

The more I study varied stories of others, the more I find the same common principles. There are really only three levers we can pull that enable financial independence: spend less, earn more, and invest better. 

Spend Less

Most people should start with the spending side of the equation because it allows for some quick wins. Earning more tends to take more time.

I acknowledge that frugality is not exciting or sexy. So for someone looking for a reason to not follow this advice and take action, opinions like Pattee’s would certainly be attractive. She wrote, “it’s clear that frugality is not what enabled me to be financially independent. I owe my financial independence almost entirely to being lucky and being advantaged.”

In my case, and the case of every other person I’ve studied who has achieved financial independence, their financial independence was because they lived frugally in relation to their income.

This is elementary math. Being ignorant of math is possibly the most expensive mistake you can make in life. So let’s look at the math of spending less.

The Big Three

There is no rocket science here. Start with: 

  • Housing,
  • Cars,  
  • Food.

These are typically the biggest expenses under your control, thus the best opportunity to have the maximal impact.

Recurring Expenses

Next look at recurring expenses such as:

  • Phone, 
  • Cable, 
  • Subscriptions, 
  • Utilities.

Look for ways to make a decision or take action one time that will automatically save you money every month going forward. 

Saving Gets Fun

As you achieve a positive savings rate and degree of financial independence, focus on minimizing:

In my opinion, this is where frugality and fun intersect. You can structure your finances in ways that you automate saving thousands of dollars a year. That money can then accelerate your path to financial independence or be spent in ways that improve your quality of life sooner.

Earn More

Earning is the other variable that allows you to create a gap between what you spend and what you earn. Again, some people think earning more is a matter of luck. 

Pattee wrote in her essay, “If my wages hadn’t been somewhat falsely inflated by the tech boom, but instead had increased only by the national average since 2011, I would still be making less than $50,000. I mean, there’s a reason so many FIRE followers are tech workers!” 

Passion Hypothesis

This is consistent with the type of faulty thinking that Cal Newport in his book So Good They Can’t Ignore You calls the “Passion Hypothesis.” The idea is to figure out what we’re passionate about and then find a career that matches our passion. 

Combining the lucky and passion hypotheses reduces everything to pure chance. If you’re not passionate about the right things, you’re destined for poverty. It’s depressing and disempowering.

So Good They Can’t Ignore You

Just because the “Passion Hypothesis” is widely accepted conventional wisdom doesn’t mean it is true. Newport proposes an alternative idea. Focus on getting good at something “rare and valuable” and then cashing in the “career capital” to increase your earnings and improve your working conditions.

This is exactly what I did as a physical therapist, a career where education requirements and costs are steadily increasing. Simultaneously, reimbursement and salaries are stagnant.

Using domestic geoarbitrage, I moved to a rural area where supply and demand worked in my favor, making me more rare and valuable. I stayed with the same company for nearly 15 years and focused on building relationships in the community and with key referral sources. That’s the most reliable way to build a busy practice and become more valuable.

Applying these replicable principles allowed me to also increase my salary much faster than the national average while improving my working conditions greatly. 

Actionable Principles to Earn More

In the Choose FI book, I outlined how people who achieve FI quickly earn more while creating a better life along the way. This was able to be reduced to reproducible principles which each got an entire chapter of attention. Here’s the Cliff’s Notes version:

  • View education as a value proposition: Embrace continuous learning and growth, but consider the price tag of your education and find ways to get the best value possible.
  • Manage your career: Your work is the product you’re selling. As such, you should make it as valuable as possible. Market it so others are aware of your value.
  • Build a network: Constantly look for ways to help others without expectations of anything in return. Over time, you will inevitably create a community of people who will want to help you when and where they can.

Invest Better

The third lever we can pull is investing better. Many people lack the knowledge of how and where to invest their money. They have no idea what reasonable expectations for rates of return are.

Adding to the sense of feeling overwhelmed and helpless by emphasizing luck is counterproductive. Instead, focus on identifying things we can control and setting realistic expectations.

In the Choose FI book, I identified three valid investment paths utilized by those who have achieved financial independence. They are:

  1. The Simple Path: A high savings rate combined with investing in index funds,
  2. The Active Path: Investing in your own business,
  3. The Hybrid Path: Investing in real estate, which incorporates principles of both the simple and active paths.

Pattee’s investing approach fits this pattern. She achieved financial independence by utilizing real estate and stock market investments. Since leaving her tech career, she has become a solopreneur with at least some success as evidenced by a byline that notes she’s written for major publications including the New York Times and Elle.

Of her real estate investments she wrote, “if I hadn’t bought real estate during one of the hottest growth periods in Portland, Oregon’s history, I wouldn’t have reached financial independence at all.”

Of investing in stocks, Pattee wrote, “That doesn’t even take into account the stock market, which has nearly doubled my contributions since I started investing in 2009.”

Was she just lucky? Are all of us espousing FIRE principles just products of market conditions of the past decade? When the bull market comes to an end, will the FIRE movement end with it?

Evaluating the role of luck requires a bit more nuance and another look at expectancy.

Stock market return expectations

If we want to judge whether we got lucky in the stock market, we need to know more. 

  • How did we allocate our money? 
  • What were our goals? 
  • How did a similar approach perform historically?
  • Is it realistic to expect to double your money in the stock market in a decade?

It helps to first understand the rule of 72 which gives a good approximation of how long it takes to double the value of an investment. To double your money in a decade, you would need a little more than a 7% annualized return.

Does that require luck? Vanguard reports the average annual return for the S&P 500, which is often used as a proxy for the stock market, was 10.2% between 1926 and 2019. 

The Vanguard 500 Index Fund returned 13.85% annually over the ten years ending 12/31/2020. So, if you are defining luck as getting greater than average returns, then investors over the last decade have been lucky. However, you could have been equally “unlucky” and underperformed the market by the same 3.5% and still come close to doubling your money.

Far more important than focusing on market returns and luck, which are out of our control, we should be focusing on things we can control:

I saved and invested through the “lost decade” of 2000-2009, continued through the bull market of the 2010s, and I’ve built a portfolio I’m confident will do reasonably well in the coming decades regardless of what the S&P 500 does.

Making Money With Real Estate

Assessing luck with real estate is an equally pointless exercise. Instead, try asking better questions.

  • How can you make and lose money with this strategy?
  • Does it fit with your skillset, time constraints, and interests?
  • Will this strategy allow you to meet your financial goals?

Chad Carson uses the I.D.E.A.L. acronym to explain five ways to make money with real estate investments. They are:

  • Income,
  • Depreciation,
  • Equity,
  • Appreciation, 
  • Leverage

Appreciation is one way real estate investors make money. There is an element of luck in owning property in an area where prices are rapidly increasing.

However, you can also “force appreciation” by buying properties below market value, improving them, etc. The other four income drivers provide a great deal of control of your outcomes. These areas are where you should focus your attention and energy.

Luck and Business

Successfully investing in a personal business certainly has an element of luck. If you disagree, ask anyone who was optimistic about owning a bar, restaurant, or entertainment venue at this time last year how they’re doing now.

However, this doesn’t mean we’re at the mercy of luck and circumstance. In the Choose FI book, we highlighted the ideas of Alan Donegan and Todd Tresidder. Donegan emphasizes using creativity rather than debt to help overcome fear and manage risk when starting a business. Tresidder teaches how to safely apply leverage to profitable ideas to grow quickly. He also teaches avoiding leverage in unknowable or unprofitable situations to manage risk.

Applying these principles, many businesses can remain viable through tough economic conditions. Even if awful luck destroys your business, proactively applying solid financial and risk management principles to your business and personal life means you should be well-positioned to try again when conditions are more favorable or try a completely different idea.

What Can You Control?

A variety of recovery groups teach the Serenity Prayer. These organizations continue to teach these simple, yet powerful, words because they’re such an important first step in the process of overcoming challenging circumstances and creating meaningful change:

God, grant me the serenity

To accept the things I cannot change;

Courage to change the things I can;

and wisdom to know the difference.

Overcoming obstacles and changing your life is hard. Don’t waste time on things that are out of your control. If you want to achieve financial independence, focus on things you can control rather than luck, which by definition is everything you can’t.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at chris@caniretireyet.com.]

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