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Making the Transition From Spender to Saver to Achieve Financial Freedom

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Today, I have an interview with Rob Berger of Retire Before Mom & Dad. I’ve gotten to know Rob through the blogging world over the past couple years. You may be familiar with Doughroller, the popular blog and podcast he started. He is now also deputy editor at Forbes.

Rob has a fascinating money story. He started out as a high-earning (and high-spending) lawyer who worked for years to become a partner at his law firm, only to realize he was pursuing the wrong goals. Shortly thereafter, he quit to take a lower paying job with a different firm.

He transformed his financial life, from spending money on items he thought would bring happiness to saving towards a goal of financial freedom. Despite making far less money than he had been, he got out of debt and learned to build wealth that enabled him to retire at 49 years of age. 

Rob initially shared what he was learning while writing at Doughroller. He eventually built that site out and sold it for a hefty sum, making his family financially independent a second time.

He has an interesting perspective on retirement. Though he could certainly retire, he’s chosen instead to continue to work on projects he is passionate about. One of those projects is a book he recently released: Retire Before Mom and Dad: The Simple Numbers Behind a Lifetime of Financial Freedom.

I recently read the book and used it to develop a few questions to allow Rob to expand on ideas especially relevant to our audience including teaching your kids about money, the “five lies” that trap people financially, his transformation from spender to saver, tax advantaged investing strategies, perspective on the 4% rule, and finding happiness where you don’t expect it. Enjoy. . .

Let’s start at the BEGINNING of your book. I laughed out loud reading your dedication. You wrote: “To our children Robert and Anna Nicole. For the love of God, please read this book. I wrote it for you.” 

This begs a number of questions for me and other parents reading this who want to help our own children. How old are your kids? Have they read the book yet? If so, has it caused them to make any behavioral changes? Aside from your book, what techniques of teaching your kids about money have worked well? What have been miserable failures?

Our kids are not kids anymore! They are in their mid-20s and both living on their own (Yes!). They have not read the book yet, but they both have a copy. I think they will read it. I hope they will.

Our primary technique now is not to “save” them when they have financial challenges. We do help, but only when they are part of the solution. For our son, a big part of the solution is automation. He contributes to his 401(k) every paycheck without fail. Our daughter can be a really good saver, except when she’s not! It’s a work in progress.

One strategy we used when they lived at home as adults was to require that they save 50% of their income. Why not? They aren’t paying rent. Our biggest failure was when we stopped enforcing that rule. It became too much of a struggle. And then it was a firm but loving push out of the nest.

I loved how you outline “The Five Lies” that trap people financially as well as the related quote “Because everybody around you believes the five lies, it’s easy for you to believe them too!” Was there a “lie” that was particularly hard for you to stop believing and why?

For me, it was that happiness is expensive. For a time I was going down the path of making good money and spending most of it on stuff. It took me about 10 years to realize that the stuff wasn’t making me happy. I’m a slow learner.

[Editor’s note: The other four “lies” are 1.) Financial freedom requires a BIG salary, 2.) Financial Freedom takes 40 years (or longer) to achieve, 3.) Investing is complicated, and 4.) Debt is a fact of life.]

You graduated law school in 1992 and describe living a pretty standard American lifestyle of using debt to keep up with the Joneses until 2005. At that point you wrote “everything changed.” Most people follow this script their whole lives. What was the trigger for you to change after 13 years and what were the biggest obstacles to making changes?

The trigger really started after I made partner at the law firm in 2000. It was disappointing. Working eight years to become a partner is a lot like driving across the country to see Mount Rushmore. You’re excited to get there, but once you arrive and stare at it for a few minutes, you’re ready to go.

It was then that I realized what I thought I wanted was not in fact what I really wanted. That began a time of self-reflection that culminated in resigning from the partnership two years later and taking a huge pay cut. 

That then led to the 2005 epiphany. I was listening to Dave Ramsey. While I don’t regularly listen to Dave and I’ve never read one of his books, the folks calling into his show to scream that they are debt-free was motivating for me. The rest, as they say, is history.

There are two quotes in your book that I’d like to discuss. You wrote: “Rob Berger (Retired at 49, and again at 51, and back to work I love at 52)” and “I’m retired from my career, and I never have to work again if I don’t want to.”

There are many people who will say that you’re “not really retired” if you’re still working and earning an income, you just changed careers. How do you address that? Why do you continue to work if you don’t need the money? How has your work changed since reaching your financial goals?

They would be correct. I’m a Deputy Editor at Forbes, I’m an author, and I still record a podcast. On top of that, I’m planning to launch at least two more podcasts and a Youtube channel.

What I can tell you, however, is that my life is completely different as compared to when I had to work. I have total control of my life. It would be silly to stop doing what I love just so I could say I’m retired.

Many people view financial independence and retirement as a dichotomy. Either you are or you aren’t. You instead describe it as a continuum with “7 Levels of Financial Freedom” ranging from Level 1: one month of expenses saved to Level 7: twenty five years of expenses saved. My next two questions expand on that idea.

You define Level 5 as having five years of expenses saved. Can you share the life and career changes you made at that point and how having that amount of savings empowered you to do so?

This is a great question. At one point I saw money like I think most people do–as something to spend. What would be the benefit of money you never plan to spend? When I left the partnership, however, the money we saved allowed me to make the leap. While I couldn’t retire, we had enough money to sustain us for years if the career change didn’t work out.

Frankly, the same is true today. While we do have enough to retire, my hope is to never spend it. I’d be thrilled to leave our children some of it and give the rest to charity.

You define the highest level of financial freedom as having 25 years of expenses saved. I’m curious why you decided to stop the levels there?

Would you have been comfortable retiring in a traditional sense of stopping all paid work and drawing down your investments at this level of financial freedom in your early 50’s? Do you think this is prudent advice for others considering early retirement, particularly in this time of high stock valuations and low interest rates?

Another great question. So the 4% rule is, I think, misunderstood. Let’s put it this way–one person’s 4% may look very different than another person’s 4%. One could include in that 4% budget a lot of discretionary spending, like world travel, while another barely lives on 4%. They are both following the same 4% rule, but they couldn’t be more different.

At the same time, NO, I’m not comfortable drawing down my investments. It scares me to death, even though we can easily live off about 2%!!! Yeah, I’m working on this.

For those considering taking the leap on a 4% budget, here are a few things to consider:

  • Could you easily get a job you love in your field if you had to go back to work?
  • How much wiggle room is in your budget?
  • Will you be earning any income or relying 100% on investments?
  • If you just barely reach the 4% mark, what are your plans when, not if, the market drops by 20% or more?

The 4% rule is a good guideline for planning. Once you get to retirement, however, it’s time to sharpen your pencil and steady your nerves. 

I have always been a natural saver. I started writing to help others, but I find it hard to know how to help people that are naturally spenders. So I’m very interested to learn what worked for you as someone who lived above their means for years. 

You wrote, “Save first, spend second is a mindset. But it’s the right mindset.” and “Once you’ve set aside what you’ll save from each paycheck, you have the freedom to spend everything (emphasis mine) that’s left.” 

I agree that saving is a mindset, but I personally think that mindset should be different. People shouldn’t spend everything just because there is money left over. They should save even more than they planned if they can! They also shouldn’t deprive themselves if there is something they REALLY value right now. They should buy it now rather than sticking to an arbitrary budget or savings rate. I call this being a valuist, a person that lines up their spending with their values and spends intentionally. 

Tell me why I am wrong. Is this bad advice? Is it unrealistic for most people to follow this principle, particularly those who are natural spenders?

So the freedom to do something doesn’t mean you have to do it. The point is that we generally dislike limits and restrictions. By setting and meeting a savings goal, the freedom to spend the rest removes the restrictions. It’s liberating. Some, however, may choose to save more, and that’s terrific. 

Briefly describe your concept of a money audit. Now that you have reached “Level 7 Financial Freedom” do you still find the need to do money audits? If so, how often do you perform them and what value do they provide at this stage in your financial journey?

Absolutely. I recently canceled Hulu Plus to save $5.99 a month. It’s not that $6 a month makes a big difference. It’s that we weren’t using it, so why spend it. We recently lowered both our home owner’s insurance and our car insurance with a few phone calls and comparison shopping. I recently gave up my car (although I might buy another one later). You can save a truckload of money (pun intended) by giving up a car.

In terms of frequency, I’ve found that once a year is more than enough for a Money Audit. After you’ve done it a few times, it doesn’t take very long at all.

I loved the concept you weaved through the book of asking yourself “What if?” to challenge your way of thinking. What change has this simple exercise prompted you to make that has had the largest positive impact on your life? Has it ever led you to make any life changes that have had substantially negative effects and, if so, how have you dealt with them?

The biggest change for me was giving up my car and biking most places. We recently moved to a town in Northern Virginia that is very bike-friendly. I bike to the gym, grocery store (have you ever stuffed a watermelon into your backpack to get it home?), or coffee shop. I absolutely love biking.

Not sure what I’ll do this winter!!! Maybe my wife will let me borrow her car. More seriously, I have no problem taking an Uber as needed. I still save a ton of money.

You are much more bullish than me on the use of Roth IRAs for most people building a financial freedom fund. Can you explain why you are such a big fan and who and when someone should prioritize tax-deferred savings vehicles?

Interesting story. We have a lot in tax-deferred accounts. I assumed that it would be a smart move to start converting some of it each year to Roth. It’s a common strategy. My financial advisor (he doesn’t manage my investments, but we talk once a year) ran all my numbers using eMoneyAdvisor (a fantastic tool, by the way). It turns out the Roth conversions wouldn’t have made much of a difference! Your mileage may vary.

I generally used tax-deferred accounts because of the tax bracket we were in. For those in lower brackets, I think a Roth makes more sense. Of course, there are a lot of factors to consider:

  • Marginal tax rate
  • State income taxes
  • Where you plan to live in retirement
  • Your view of tax rates in the future
  • Estate issues
  • Age of retirement

Again, for most, I think Roths make the most sense. But it’s really hard to go by a rule of thumb. By the way, my current contributions go into a Roth 401(k).

You are very open about your struggles with debt and are now a proponent of living within your means. So I’m curious why you felt the need to write the following sentences and what you were trying to convey with them. “Having debt does not prevent you from achieving financial freedom. And having no debt does not guarantee financial freedom either.” Can you explain what you mean?

Some have an unhealthy obsession with getting out of debt. It causes them to do things like forgoing 401(k) contributions where an employer matches the contributions. Or not investing at all while they spend years (decades?) paying down student loans at 6% interest. Or running with scissors. You know, dumb things.

The point of the sentence you quote is to make sure we all understand the end goal–Financial Freedom. Is getting out of debt a part of that goal? Of course it is. But so are a lot of things. We achieved Financial Freedom even though we had mortgages on three rental properties we owned (we’ve since sold them).

Begin with the end in mind.

My Take

Thanks to Rob for taking the time to answer all of my questions. I found his experiences of spending on items he thought would bring happiness and working so hard to become a partner at his law firm only to realize that wasn’t what he wanted refreshingly candid and relatable. It is similar to my experience of pursuing early retirement thinking it would make me happy, only to realize it would introduce new stresses and challenges.

I appreciate his candidness about not wanting to spend down his portfolio, despite having built up enough assets that he can comfortably support his spending needs by drawing down only about 2% annually. I’ve experienced this phenomenon and hear about it frequently from readers who find it unnerving to transition from accumulation to decumulation. For many of us earning income feels good, and spending it down creates anxiety and stress.

In addition to providing a way to continue to make a contribution to society, get affordable health insurance, and provide purpose and meaning to our lives, being motivated to have some ongoing income are big reasons my wife continues to work part-time, I wrote a book and continue to work on this website, and we continue to entertain the idea of shifting some of our assets to income producing real estate investments.

I also could not agree more with his sentiments that what I call financial independence and what he calls financial freedom are a better goal for many people than traditional retirement. He summed it up perfectly when he answered, “my life is completely different as compared to when I had to work. I have total control of my life. It would be silly to stop doing what I love just so I could say I’m retired.”

Retire Before Mom and Dad

Retire Before Mom and Dad isn’t really geared to our core audience pondering the retirement question. But I found it to be a fun and interesting read. It provided a fresh perspective that challenged me to question a lot of things that I already “know.”

A segment of our audience is just getting started on the path to financial independence and another segment is parents who want to help their children become financially literate and responsible adults. This is an excellent book for those groups. It is particularly effective at simplifying investing for those who feel overwhelmed.

Starting the book with “The Five Lies” was thought provoking. I’ve written about a similar concept that we need to learn the rules about money, but that starts with unlearning the unwritten rules that so many of us blindly accept.

You can find Retire Before Mom and Dad: The Simple Numbers Behind a Lifetime of Financial Freedom here.

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[Contributing Editor 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' writing has been featured in MarketWatch, Doughroller, Business Insider and RockStar Finance. He is also the primary author of the forthcoming book Choose FI: Your Blueprint to Financial Independence. You can reach him at chris@caniretireyet.com.]

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Comments

  1. Michael Schaeffer says

    Hi Gents. Is the 25 times expenses to be inflation adjusted? Or is the major number 25X your current annual expenses? What love to understand the mechanics of this – just to test the numbers.

    • Chris Mamula says

      As Rob eluded to in the Q&A and we’ve written about in detail on this site (see links related to that question) the 4% rule is a great starting point to determine when you are financially independent, but it is much more the 4% guideline or rule of thumb than it is a rule. The basics are that you can W/D 4% of your portfolio in the year you retire, then continue to W/D that same amount, adjusted for inflation every year thereafter and have little chance of running out of money over a 30 year retirement. You may be able to extrapolate that out over a longer time period, b/c the key is the return in the early years. If you deplete your funds too much in the early years, your portfolio may not last 30 years. If you have strong returns early, your portfolio will grow substantially despite taking money from it and it may last much longer.

      Your question is a good one. What do you use as your expenses, which will determine what you multiply by 25 to get your financial freedom number. Understanding your current spending is an excellent starting point. However, you then have to project and make a lot of educated guesses. Will you spend more in retirement (highly likely with health care), less in retirement (likely with expenses like work clothes, commuting, etc), or could it go either way (for example some people will travel and thus spend more in retirement, while others who had to travel on peak times may be able to travel more while spending less by traveling off-peak). Then there are many things that you can not predict like new interests that develop, changes in health status, changes in tax law, etc. All of this makes retirement planning an inexact science and requires ongoing monitoring and adjustments. Darrow covers this in detail in his book Can I Retire Yet?

  2. “I find it hard to know how to help people that are naturally spenders”. I’ve seen this too. Never really thought about the concept of a “natural spender” personality being such a strong trait/habit. Then again, I could never quite get why some people eat such unhealthy diets either.

    • As have I, particularly with family. I find when observing natural spenders, some of the spending is tied to behavioral habits or unaligned values that make it hard to approach in conversation. More than often I find myself completely avoiding the topic, which isn’t great either.

      Max

      • Chris Mamula says

        I agree that I am not out to change anyone’s habits/behaviors unless they ask me for help. I don’t think it is a good idea from either a practical or social standpoint to try to help someone who is not looking for your help.

        I asked that question from the perspective of producing content. Having my original career training in the medical field, I try to maintain the ethos of first do no harm. Saving has always been natural and easy for me, so I’m trying to get into the head of someone who thinks differently so I am not giving them advice that does more harm than good.

  3. I had the pleasure of attending FinCon and hearing Rob speak. Was a great presentation and will certainly check out the book.

    • Chris Mamula says

      I’ve had the pleasure to meet Rob on several occasions online and in person. He is as genuine as they come and also very smart and practical in his writing, podcast and now book.

  4. I like the idea of a money audit and its something I’ve been doing over the last few years. Question everything and get into the details. Like with Rob’s Hulu subscription being only $5.99 a month, no sense in spending it if you arent using it. Lots of money leaks out there if you really look. One thing I do is get Sirius XM for my car for the 6 month promo deal at about $5 month. But I only get it for the 6 months during the summer months when Im driving more then cancel it before the renewal. Otherwise, it would mostly go unused. Not a big expense if I got it for a year but why spend any extra money for nothing? Am I really missing out on life by not having it for 6 months? Im just using this as an example and its about having the right mindset and some self discipline. You can do the same thing for Netflix etc. Do you have to have it all time? Or maybe just get it for 3 – 6 months then cancel and find other things to do with your life plus save a few bucks. It all adds up and many times you are better off for it. … I agree with you about the 4% rule. Just because it says you can spend 4% a year doesnt mean you have to if you dont really have a need. Maybe it will all balance out as eventually you will have some larger expenses like another car, appliance, home repairs that may take you past the 4% in any given year. But I’m of the mindset to just save any extra if I dont need it at that particular time.

    • Chris Mamula says

      Regarding the money audit, I struggle with finding the balance b/t simplifying and not overly obsessing about little things and my hate for waste. Rob’s idea of doing a money audit once a year sounds about right and it is pretty simple to do for those of us who track our spending.

      I understand the importance for many if not most people (and businesses) to set a budget, but I’ve never done it and it is very unappealing to me. I also agree that it can actually drive you to spend more if you set up an arbitrary savings rate and view the rest as money that needs to be spent.

      That’s why this is PERSONAL finance. We’re all different, so you have to find what works for you and stick with it.

  5. Connor Davis says

    I greatly enjoy reading others take on financial freedom. For sure, different approaches work for different people. For example, we never wanted to budget, nor were we much on “pay yourself first”. Works for many, but we were not very good at either. What worked for us was not caring what the “Jones” did, avoiding debt, and, most important, controlling our wants. As a result, we always lived well below our income. If there was something we really wanted, lack of money was never a limitation. Sounds a bit like the “valueist” idea. It took a while, but financial freedom is more than worth it. We probably could had done it faster, but our way was low stress for us.

    Could you expand on the idea of lining up your spending with your values?

    • Chris Mamula says

      We’ve also never had a budget. I suppose we did follow the pay yourself first philosophy, but never called it that either.

      When I found FIRE blogs, the one thing I couldn’t relate to was the obsession with frugality. If I tried to talk about frugality without context, I felt like a fraud.

      We were able to save approximately 50% of our, above average but normal professional, salaries without ever feeling like we were sacrificing. We simply spent our money in alignment with what we valued.

      Early on, we both mutually agreed on the goal of getting out of debt ASAP, so we poured everything we had towards that. Once we were out of debt, we focused on what we really wanted.

      We didn’t spend a lot on things that many people do, b/c we recognized that we didn’t care much about them. Examples: We’ve always lived in nice, but modest homes. We never had a fancy car (or a car payment other than a $5k loan on my wife’s first car when there was no other option). We recently sold a car and became a one car household. We don’t exchange presents, cut the cable cord and have cheap MVNO phone plans with older phones, don’t wear jewelry or have fancy clothes, etc. If you saw only this, you could say we are ultra frugal cheapskates.

      But we have traveled extensively (all over the states & extensive international travel) including going to 2 Super Bowls, on African Safari and diving the Great Barrier Reef. We have hobbies like skiing and high altitude mountaineering. We started our daughter skiing at 2 y/o and have provided a ton of family experiences including a Disney Cruise, traveling to over 15 states by 6 y/o, amusement parks, swim lessons & summer pool passes, etc. We give freely to charities or people we want and feel can use our help. We are foodies who eat ridiculously well including a mostly organic diet at home and going out when and where we want. If you saw this side of our story, we don’t look frugal at all.

      That is what I consider being a valuist, someone who lines spending up with your values. Admittedly, this is easier if you have an above average income, but it is equally true that many people who make large incomes manage to spend it all without having the things they truly want.

      • Sorry, but this smacks of “I’m OK, you’re OK.” And maybe that’s the attitude that you mean to convey. If you meet your objective in the end, then it doesn’t really matter how you got there.

        But there is also the school of thought that says you can’t improve what you don’t measure. Budgeting and spending are easy areas to track, measure, and make improvements if you choose to. Do you know how much you’re saving? Is it enough to meet your goal of FIRE at age 50 or 45 or whatever? If not, then you need to save more. Where can you reduce spending? What does your post-retirement spending plan look like?

        Only with measurements and data, can you set your priorities and make a plan.

        • Chris Mamula says

          Agree Larry. We did start tracking our spending and have detailed data of our last 5 years. We just never pre-set a budget and followed it. We also payed pretty close attention when we started tracking, similar to Rob’s idea of an audit, but we’ve gotten pretty lax with that. Probably a pretty solid recommendation to continue to do that at least once a year to prevent a lot of waste from slipping into our recurring spending.

    • Connor Davis says

      Sounds astonishingly like us, but with more income. “Controlling our wants” and “spent our money in alignment with what we valued”, end up being very close to the same. My addiction is boats and diving, Karen’s is travel, which cost a bunch, but somehow we always had the $ for that, even as dirt poor graduate students.

      Thanks for the insight.

      Connor

  6. I think there is a difference in temperament and personality between natural savers and natural spenders. For some people money “burns a hole in their pocket” and they can’t wait to spend it. Other people simply hate spending money on things they don’t need. Huge difference.

    • Chris Mamula says

      Agree. I am a natural saver as is my wife, which is why I asked the question. I certainly don’t want to give advice that is not useful, or worse yet harmful.