“At either end of the social spectrum there lies a leisure class” This post delves into becoming a Dirtbag Millionaire and living the life of your dreams. Analysis of the 4% Rule from a Dirtbag Perspective.
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“At either end of the social spectrum there lies a leisure class” – Eric Beck
New Hampshire, Fall, 2000:
My eyes snap open into inky blackness. I smell the tar of the asphalt, dust, dirt and the metallic tang of the rust from my buddy’s car which we had chosen to sleep as close as possible to in fear of being run over by other late-night arrivals. Unzipping my bag, I step out into the night. As I stumble over to a nearby ditch to relieve myself, my eyes are caught by the enormous silhouette of Cannon Cliff. It’s bulk standing impossibly high. Tomorrow we will climb it for the first time. I am twenty-five years old, barely scraping by, and as happy as I have ever been standing below this behemoth. My only worry being how we will find the descent path at the top of our climb before the sun sets the following day. I am young, broke, and stoked. Firmly in the lower end of Beck’s spectrum but years from becoming the Dirtbag Millionaire.
Fast-forward to 2017:
I have a beautiful wife and two lovely children. The sleeping bag is still down in the gear room, but I’m more apt to spend camping nights snuggled under a down comforter in my van rather than spread out in the dirt. I make way more money now than I did at the turn of the century. This has brought opportunities my younger self could not have dreamed of that night standing below Cannon’s big wall. But these changes also bring worries and responsibilities that my twenty-five year old self didn’t have. The pressures and demands of work, family and being “grown up” often supersede the ability to be carefree, spontaneous and joyful. I find myself watching weeks flash by; caught up in the daily grind of work, gym, prepare, repeat. I am stronger, more resilient and I would not trade my life and the love and experiences I have now for anything, but I have definitely left the leisure class behind.
So, knowing that I cannot return to that near-penniless dirtbag of old and still uphold my commitments to family and community, the question becomes:
How does one gain access to the upper level leisure class?
(I have good news for you my friends, it’s not as hard as you might think!)
All you need to do is save up 25 times your annual expenses and put them into a mixture of stocks and bonds.
Once you have done this, you can stop working that day, pack up the van and never look back. Or, keep working, knowing that you have the financial flexibility and stability to weather any economic storm that comes your way. Or, really, do whatever the hell you want, you’re rich! It really is that simple and there are thousands of people leaving the rat race today and finding their way to financial independence.
The Dirtbag Millionaire, here is how and why it works:
According to the seminal Trinity Study, which analyzed hypothetical retirees retiring from the years 1925-present, an investment portfolio can be safely drawn down by 4% in perpetuity without ever spending the initial investment capital. That means that your nest egg will last forever and can be passed on to your dirtbag descendants once you have passed on and gone to the great crag in the sky.
Fondly called the 4% rule, this drawdown strategy is a conservative play on financial independence. Assuming a historical average stock market return of 8%, subtract an equally conservative 4% from inflation + fees and you are left with: 4%. This is the amount of money your investments will make that you can spend on things like gas, new cams, that cool new haulbag backpack and food for your next backpacking trip without ever having to touch your initial capital!
So, to put it all together, if you can live off $40,000 a year (This figure would have my twenty-five year old self boggling at the thought of having that much money coming in!) all you need to save up is one million dollars and you are done!
A million dollars!? There’s no way I can save that much!
Yes you can as long as you view this as a long game. This is not a get-rich-quick scheme here. We are talking about the work of years.
But not decades.
As the graph above shows, with a savings rate of 50% you can retire in just under 17 years. At that time, for us, our second daughter will be headed off to college. Seems like the perfect time to head off for a long road trip! But, by either increasing the amount of money coming in (offense), or increasing our savings rate (defense) by crushing debt and reducing expenses we can shrink that number and reach independence even sooner!
A strong offense means having high W2 earnings and/or creating multiple streams of income through creating businesses such as side hustles (like this blog) and investing in real estate. The crux here is to create systems that increase the amount of flexible, free time we have to go off and climb more.
From a defensive perspective, the main advantage Dirtbag Millionaires have over the majority of people walking around today is that we have spent years trimming our spending and possessions in order to create more time and space to pursue the activities we love. Remember that summer road trip when you lived off of nothing but peanut butter and honey, camped for free on BLM land and climbed every day? Those same skills can be leveraged right now to drastically reduce your spending and create the financial space to radically increase your savings rate.
We are all susceptible to lifestyle creep. My “entertainment” budget for the year (mostly beer, road trip gas and dining out) would have crushed my 2001 paycheck. I have a home filled with possessions and can no longer move everything I own in one pickup truck load. (My kids’ Legos would probably be one trip on their own!) But by channeling our inner minimalist and focusing on the values of freedom and travel, we can focus on what is important and work to reduce or eliminate those elements that are holding us back.
Read more about our defensive strategies: Crushing Consumer Debt: The Three Systems Of A Good Defense
So, where do we go from here?
I invite you to join me on my journey towards becoming the Dirtbag Millionaire. (Shall we call it a road trip? an expedition?) Come along with us as we experiment our way towards financial freedom. (Don’t worry, we will still post lots of details about our van conversion and how to get your family out and enjoying adventure together!) Starting with the very next post on crushing our consumer debt, follow us as we highlight the highs, lows and bumps in the road along the way (kind of like that unexpected offwidth pitch that wasn’t on the topo, life can throw us curve balls) and, hopefully, we can all stand on the summit in the not-too-distant future and together gaze out at the world stretched beneath and the bright future ahead of us.
See you out there,
The Simple Path to Wealth by J.L. Collins (my favorite book outlining how to achieve financial freedom)
MMM: The Shockingly Simple Math Behind Early Retirement