Spreading Like FIRE

On this episode of Motley Fool Answers, hosts Alison Southwick and Robert Brokamp are joined in studio by the ChooseFI Guys, who are back to talk about their new book and a documentary about the growing FIRE (Financial Independence Retire Early) movement.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Nov. 12, 2019.

Alison Southwick: This is Motley Fool Answers! I'm Alison Southwick and I'm joined, as always, by Bertie Brokamp, personal finance expert here at The Motley Fool. 

Robert Brokamp: Hm, hello!

Southwick: Have I already called you Bertie Brokamp?

Brokamp: I don't believe so...

Southwick: Well, there we go!

Brokamp: ... and I'm thrilled by it!

Southwick: In this week's episode, the ChooseFI guys are back! Hooray! All that and more on this week's episode of Motley Fool Answers.

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Brokamp: So, Alison, what's up?

Southwick: Well, you know Bro, if anyone's going to move the market it's got to be the president of the United States, right? I mean all that power and influence has to count for something. 

Brokamp: You'd think so.

Southwick: You'd think so. So when looking at Google Trends you happen to see --

Brokamp: Yes...

Southwick: ... wouldn't you know it -- a massive spike in interest in [certain] stocks the week of November 6th-12th, 2016. And it just so happened to have been the week following Trump getting elected. And along with that you see a lot of articles like, Seven Stocks for a Trump Presidency, wherein the writers make assumptions about which stocks are going to perform well with Trump in the White House. So a few years in, how are those stock picks panning out? Let's take a fairly unscientific look, shall we?

Brokamp: Please do!

Southwick: Yes, very short on time planning for this week's episode, so go easy on me everybody. So I scrounged up three articles from back in the day and did some very rough back-of-the-envelope math to see how well these stock prognosticators did when trying to figure out what Trump's presidency would mean for some companies and industries. 

Let's start with Six Stocks to Buy When Donald Trump is President, from TheStreet. Do you have any guesses on what some of these stocks are going to be or do you want me to tell you the stocks and you can guess if they're up or down?

Brokamp: I assume they would be financial services companies and oil companies because the Trump administration is going to remove all of these environmental protections and things like that.

Southwick: Yup. So TheStreet's first pick was Apple because of something called tax repatriation, which I did not have time to research. The idea being that if you have a bunch of money outside of the U.S. we'll let you bring it back into the U.S. at a lower tax rate. 

Brokamp: Right. A lot of companies are storing their money overseas because if they bring it back to the U.S. they'd have to pay taxes on it.

Southwick: I don't know why that means that Apple's stock price would go up, but they picked Apple for that.

Brokamp: OK. 

Southwick: Another one is The GEO Group, which is private prisons. That's horrible! We laugh, but it's actually very sad. 

Brokamp: It's funny because it hurts. 

Southwick: It hurts so much. Yeah, again, ExxonMobil for oil, Smith & Wesson, the gun manufacturer.

Brokamp: Guns, of course. Guns. 

Southwick: Which later became American Outdoor Brands. HCA Holdings, which manages hospitals. This one because apparently Trump had promised to overhaul the VA system, allowing veterans to go to any hospital and not just a VA hospital. And then this one is just so on the nose. It's quite funny. Cemex, the Mexico-based construction company. 

Brokamp: A Mexican company? Oh, because...

Southwick: They were going to build the wall.

Brokamp: The wall. That's how Mexico was going to pay for it. They were going to provide the concrete. 

Southwick: And so this company was going to benefit. 

Brokamp: Actually, they're not concrete walls. That's the thing, though. 

Southwick: So a lot of these were based on, at this point, of course, nothing but campaign promises, so how do you know for sure that something's going to come through? Do you want me to tell you how these stocks performed or do you want me to move on to the next one and then I can tell you?

Brokamp: Let's move to the next one. 

Southwick: Hey, not to be outdone, six stocks for Trump? How about seven from The Motley Fool? 

Brokamp: Those people?

Southwick: Yes, that's right. Someone from The Motley Fool wrote an article, Seven Top Stocks to Buy With Trump as President.

Brokamp: What do they know?

Southwick: So along the same lines of Apple and tax repatriation, this analyst said to buy General Electric. 

Brokamp: [Laughs] Really? 

Southwick: Yes. It's so easy to look back now and laugh, isn't it?

Brokamp: I guess that could be the financial services and maybe also the manufacturing part of it.

Southwick: They said tax repatriation. I don't know. 

Brokamp: It hasn't worked out.

Southwick: It hasn't worked out. The Cheesecake Factory because individual tax cuts are going to result in people eating out more. 

Brokamp: Interesting. 

Southwick: Kinder Morgan, energy and energy infrastructure. Bank of America because of, like you said, deregulation. General Dynamics, defense. Celgene, the biotech company because of, again, deregulation possible with the pricing of drugs. And then Freeport-McMoRan. It's the copper mining company. This one because of Trump promising $1 trillion in infrastructure investment. The last one I looked at is Kiplinger's Best Stocks for a Donald Trump Presidency. Their first stock pick there was Coach bags, which later became Tapestry. The idea, here, was consumer spending from tax cuts and a crackdown on counterfeit Chinese goods.

ExxonMobil, energy. The GEO Group, again, for private prisons. La-Z-Boy because...

Brokamp: People sit around and watch Fox News? 

Southwick: No, because Trump said as one of his campaign promises that he was going to bring manufacturing back to the U.S. and La-Z-Boy already manufactures some of their stuff in the U.S. Merck, the [pharmaceutical] company because Trump would not regulate drug prices, in theory. Smith & Wesson, again, for guns. And then Vulcan Materials, the largest U.S. producer of construction aggregates, such as gravel and crushed stone. Again, an infrastructure product. 

Brokamp: Right, right, right. 

Southwick: Now there's a lot of numbers that I could just keep shouting at you, but going with TheStreet, on average had you bought these stocks, the average return, here, is about 27%, but that was because Apple was the one that did really well. Without Apple, the returns would be a lot less. HCA Holdings, the company that manages hospitals also did well with about 93% returns. 

Brokamp: That's pretty good. 

Southwick: Not bad. The Motley Fool and looking at their picks. Well, as you know, there's a couple of stinkers here, particularly GE. It's not done so well. The Cheesecake Factory has not done so well. Bank of America is up very well at 146%. General Dynamics, the defense regulator, is up about 37%. If you had gone with The Motley Fool's picks, the average return was about 40%. Not bad.

Brokamp: Not bad.

Southwick: Kiplinger. Again, they were Coach, ExxonMobil, The Geo Group, La-Z-Boy. The big winner, here, was La-Z-Boy.

Brokamp: Really?

Southwick: Yes, it saw 71% returns followed by Merck, which is up about 60% and Vulcan Materials which is up about 50%. So compare that to the S&P, which is up over 50% since then, so that makes a lot of these stock picks look even worse. This is super back-of-the-envelope. These articles did not all come out the same day. 

But I have a broader point.

Brokamp: What's your broader point?

Southwick: My broader point is honestly, this is just a reminder that no one can predict what is going to happen in the economy, especially based on campaign promises. If you remember with Obama, he was going to make all the solar and wind stocks just shoot through the roof. Sure enough, they did do quite well for a little while...

Brokamp: And then not so well. 

Southwick: ... and so in the same way, the people thought with Trump that coal stocks, energy, oil; that all this is just going to go through the roof. Just saying that Republicans equals guns for babies and Democrats means solar panels for senior citizens is an oversimplification that ignores all the aspects that really matter when you're investing in a company like whether they have good management. Do they allocate capital wisely? Do they have pricing power, etc. 

And, while you're certainly free to speculate how any one president may move the markets and move stocks, it's more fulfilling to invest in the world you want to live in and not the one you think you're going to get just because of whoever is in power right now. And that, Bro, is what's up.

[...]

Brokamp: We Americans aren't known for being a nation of savers. A typical American saves less than 10% of their income, which means most will have to work well into their 60s and in many cases rely on debt to pay the bills. 

But there are some people who are not typical. They somehow manage to save 50-80% of their incomes -- which means they can retire much sooner and sometimes in their 30s or 40s -- or they gain the financial independence to choose to work because they want to and not because they have to. 

Today we welcome back to the show two such people, Brad Barrett and Jonathan Mendonsa, of the ChooseFI website and podcast. Guys, great to have you back!

Southwick: Welcome back!

Brad Barrett: Yeah, thank you!

Southwick: Thanks for coming back!

Brokamp: We're sure everyone listened to the last episode, but just in case they don't remember everything or this is their first time, give us a quick bio on each of you. Just a little background on your stories. 

Jonathan Mendonsa: My name's Jonathan. I graduated from school and became a pharmacist and graduated at the same time with $168,000 in student loan debt. Paid down the debt within the next four or five years on this mad rush to get back to broke. That's kind of depressing when you think about. It's a 12-year cycle getting back to broke just at the age of like 30ish.

Brokamp: Working all that time to have a zero net worth.

Mendonsa: Yeah. Anyway, the plan was to get back to broke and then [to] start using that savings rate. If you pay off $168,000 in a relatively short period of time you, by definition, have a pretty epic savings rate. Now I have reclaimed that money that was going to student loans and I can use that to now start trying to achieve this level of financial independence that you addressed in the intro.

The story from there gets a little interesting. It's kind of a sidebar. Maybe we could talk about it later, but actually along the way I started a small side hustle with my co-host, Brad, here. Along the way I had the choice. There's actually a little bit of a story, there, we can go into a little bit more detail later, but I had the choice to basically walk away from my job in a pharmacy, even though that last 12 years had been in that effort, in that profession. I kind of walked away and am now doing something totally different. I guess my take on this whole thing is that you get most of the benefits of financial independence long before you reach some number. And I think that, actually, is in slight contrast to Brad's story.

Barrett: Yes. My story certainly is the more conventional, if you will, of the financial independence stories. It's important to note there, for Jonathan, [that] he was able to leave his job as a retail pharmacist not because he had reached some mythical number but because he had put in place all the groundwork. He had cut his expenses to the bone. He had been saving diligently. That enabled him some degree of flexibility and freedom to choose what he wanted to with his time, which is ultimately what financial independence is all about. 

My story is I am a CPA and my wife is a CPA. We lived in a high cost-of-living area. We're from Long Island, New York. We got married and we decided we would always have to give something up to live on Long Island. We'd have to both work. We'd have to maybe not save as much for retirement or maybe not travel. We could have made a life, but it wasn't a life we wanted and I think that's the crucial piece. 

We made the difficult decision to move away from our family and friends down to Richmond, Virginia which is a wonderful place to live. That was a hard decision that we made, but it was in service of a larger goal and for us that was Laura staying home with our future fictional kids at that point...

Mendonsa: Future fictional kids is like my favorite single line ever. 

Barrett: But we were thinking about that and we were thinking about what does a life looks like. And in the subsequent years it has borne out, which is amazing. We set this plan in place when we were 25 years old. I had a 13-year working career and that was with my wife staying home with the kids for a good portion of that, albeit she was working during tax-busy season and such, but she was a stay-at-home mom. 

And so there was no level of deprivation. There was nothing that we were living like misers. We were living a nice middle or even upper middle class life, but yet because of intentional decisions we made to save money -- to not buy new cars, to not spend a ton of money on going out to eat -- just these simple things. While still living a great life, we reached the point where we can say we're financially independent.

Mendonsa: And I just want to add one more thing to Brad's story just for the audience to recap here. Financial independence is getting to this point where working is optional, and one of the ways that we can project out how long it's going to take you to reach financial independence -- in Brad's case he talked about a 13-year working career -- and we talk about savings rate.

The easiest way, in my mind, to get this idea across is that to your audience, if someone's listening to this and they're paycheck to paycheck and they are using credit cards just to get to the next pay period, you can never retire. You need that credit card and you need that paycheck just to make it to the next pay period. If you could save 1% of your income, that means that every 99 years you work, you could afford to take a year off. 

There's a problem with this, though, because you can only run so many of those cycles. You talked about savings rate earlier in the intro. We scale that out now and you're saving 25% of your income. This is really good. This is actually an aggressive savings rate that many financial advisors are hoping for their clients. Now every three years you work, you have enough to take one year off. But if you could somehow -- and maybe not all at once but incrementally approach this 50% savings rate -- you work a year and it's very simple math.

This is the heart of all of this, is it needs to be simple and I think complexity is used to your great disadvantage in many aspects of financial planning, but in this case it needs to be simple and understandable. If you can save 50% a year income every year you work, you have enough to take an additional year off. And if you can invest that using common sense investment strategies and making average market returns, this is not even about beating the market. That's great if you do, but if you can just keep up with the market getting average market returns in a relatively short period of time -- say 10 to 15 years -- you're going to be at the point where working is optional. 

And that is exactly what Brad saw in his path. And when I heard Brad actually talking about his story -- two accountants on modest salaries implementing domestic "geoarbitrage" -- just moving from a high cost of living area to Richmond, where I happen to live, I was like, "Wow, this is real!" I connected with him for lunch and I pitched him on this idea if you have this one individual that's kind of just done it right and it has done it [for] me, someone that is getting back to broke in my late 20s. Does this still work? I have this plan. I'm going to do this going forward. What if we could document this together? 

And that was the impetus for the show, is the vast majority of people listening to this aren't there looking back. They're listening because they're on the path. Does this still work? It's great, but is it too late? Will it make a difference? It works. It works.

The initial idea was going to be Brad and Jonathan on this journey. Our community has really blown up in size. It's incredible how many people decided they wanted to be on this journey with us and they're sharing their own versions of the story. 

So the show, ChooseFI, and the book is really intended to highlight the patterns, the synergies that we see. It's simple, but it's not always easy. And people are coming at this from different places. Although we're doing a lot of the same things, we're maybe having to overcome different obstacles. Different baggage and poor financial decisions that we're having to work through. 

And the way you work through those makes this so invaluable to those that are coming after you because I, personally, could never be a trailblazer. I just am too scared. I have that fear. Will it work? I don't want to go out there and try something that's never been done before. I just don't have that risk tolerance. But I can follow a path that other people have said if I see the pattern and I know it works and if it's simple. It's just obvious. If you know that it's fundamentally right, why wouldn't you do that?

Brokamp: You just mentioned the book, so congratulations! The book came out in October.

Southwick: That looks awesome!

Barrett: Thank you!

Brokamp: It looks great! It is, Choose FI: Your Blueprint to Financial Independence co-written with Chris Mamula, who also followed this trail. He was a physical therapist. Retired at age 41 or at least changed his lifestyle at age 41. And the book is just full of stories of people who have done it and you've laid out a great, ordered way to figure it out. 

Mendonsa: Thank you! That was one of the things with our podcast. First of all, as you know, when you start your podcast the podcast is not linear. Podcasts just aren't that format. The information is kind of building on itself, but it's kind of as you encounter the information. But over time you go from a discrete concept to more of a philosophy or a worldview and you actually see the patterns. You see the guests that are coming from different angles. You see the overlap. What are they doing? What do they have in common?

And the great thing is when someone picks up, they can listen to all the episodes going forward and they can try to pick through the episodes in the past based on the title that they think might serve them. But in a perfect world, Brad, we'd like for people to interact with this content in a comprehensive way.

Barrett: Right. So it was basically if we could go back and create the podcast in a linear fashion, this is what it would look like. So we call it your Blueprint to Financial Independence. Here's all the information from the first, let's say, hundred or so episodes of ChooseFI. 

And Jonathan alluded to this before. Financial independence and life is about choices and it's not about one set path. We like to [say] that it's a blueprint, but in essence it's "choose your own adventure." You have to take action. As Jonathon said before, if you're living paycheck to paycheck or getting into credit card debt, you're never going to reach any point where you can retire. I don't care if it's early, late. It's ever. So you have to take action to make your life better. 

It's not my place as a host of some podcast to say, "You have to do X, Y, and Z to be a card-carrying member of the financial independence community." That is not what we believe at all. We say there are hundreds of different things you can do to make your life better today. Here is a whole host of them. You have to get up off the couch and take action and maybe for the first time be honest with where you are. 

So many people stick their head in the sand when it comes to their finances. They have no idea where they're even starting from. What I counsel is, "All right. You may have made bad decisions in the past. I've made bad decisions. We all have. Nobody's perfect." But you have to be honest with yourself. Get it on paper. It might be ugly, honestly, but get it on paper in front of you. "What do I spend every month? What comes in? What are my assets? What do I owe?" Then you can move forward and make decisions based on what you value. 

But you have to make decisions. Let's be perfectly clear, here. You have to take actions that are going to make tomorrow, and every tomorrow, thereafter better. And it starts, literally, today. 

Brokamp: Another exciting development for you guys is that you're now movie stars because you make cameos in the new documentary, Playing with FIRE, by Scott Rieckens. As of today it's now available on Amazon, Google Play and iTunes. It's highly recommended. 

It's basically the story of Scott and his wife on their road to financial independence and the FIRE part is Financial Independence, Retire Early. And you guys had Scott on your podcast right as he was beginning this. It was clear his wife wasn't totally on board yet. I remember him saying he was listening to the Tim Ferriss blog and the guest was Mr. Money Mustache, who's sort of a big deal in the FIRE movement. 

Now he becomes obsessed with this, proposes it to his wife. "Maybe we can do this. We're living this high-class lifestyle." They're leasing a BMW and living outside of San Diego. He proposed that they change all that so that they can reach financial independence in 10 years or so and his wife says, "If this is possible, why isn't everyone doing it?" 

I'm going to pose that question to you, because everyone wants financial independence, but most people are not doing enough to achieve it and certainly most people are not saving 50% or more of their incomes. 

Mendonsa: I think this is so multifactorial, but just for the sake of this conversation, let's just look at a couple of obvious things. One of them is that we have to have all the stuff. We have to have all the things. And this is by intent. I mean, businesses create exchanges of value and for many people that value is a very arbitrary thing and at some point it becomes corrupted and we just have to have everything. We have to have it because our neighbors have it and our neighbors have it because of whatever and it's just trying to keep up with the Joneses. 

A perfect example is if you look at this distortion effect. In the 1950s and 1960s we had thousand-square-foot houses. Now we have, on average, well over 2,000 square feet. When you have a 2,000 square foot house, you have to furnish all the extra rooms. Maybe the norm is 3,000 or 4,000, etc. You can't have one car. You need two cars. Now to maintain that you have to have both people working, but now you have extra money. Now you can afford the payments. 

Now we have cellphones. Our parents and grandparents didn't have cellphones. I think a part of this is that frog in water -- lukewarm water. And the water increases one degree at a time and the frog's fine. At some point that water becomes boiling and the frog never gets out because it's just been increasing one degree at a time.

The problem is if you compare that to your life, you may be in your 50s before you realize that the water is boiling. You may be in your 60s and now you're suddenly awake and you're realizing when you make the choice to purchase something, you're exchanging your life energy for that stuff. So you earn this money and you make the choice to spend this money on some stuff and really it's that question of how much you value this and how much are you getting out of it.

But I think [this is] the biggest problem [both Brad and I have] highlighted in the past. Let's say you put all your energy into keeping the new car -- leasing the BMW. That BMW keeps you trapped and that BMW may represent the overinflated house and everything else. It keeps you trapped in a job you barely tolerate while it's sitting, unoccupied in the parking lot 90% of the time so that you can afford the payments. You don't get there on day one, but you might get there because you deserve it. You deserve this and you deserve that because, because, because. At some point you look up and it's too late. 

That's the insipid nature of marketing that's not checked. We talk about "drift state." You drift, here. You don't intentionally make the choice to be underwater. You make the choice because you can afford the payments. You deserve the stuff. You deserve the lifestyle, and you don't even necessarily verbalize that. Maybe that choice is made just because it's been a stressful week or whatever. Because your neighbor is doing it. Because it's the new norm. We don't have anybody else.

I talked about "trailblazing" earlier. Who's trailblazing a different path? Everywhere you see everybody trying to spend up to their eyeballs.

Barrett: To me, that's the point. Everybody thinks there's some secret. There's some insider information to succeed in life or if this was so easy, to your question, why isn't everybody doing it? But what did Jonathan say why he got into this? He heard Brad, this random guy Brad, on a podcast and said, "Wow! That guy's doing this in my hometown. This is not just people on the internet. These are real human beings who are living nice, normal lives."

I always say I'm kind of living a middle or upper-middle-class life just being a little bit smarter. I'm not doing anything crazy. There's no one on my block who doesn't know me that would think we're living any kind of different life from anybody else. And yet, we've reached financial independence in our mid- to 30s and we live a perfectly happy life that, as I call it, we're rolling in abundance. That's what I feel like, but yet, we're saving 50%+ of our money. 

And I think a lot of it comes down to, like you mentioned Scott Rieckens and his wife Taylor. It comes down to why are we doing this? And I think a lot of people don't have a plan. Actually, Scott presented our episode, The Why of FI, to his wife Taylor and it got her to think about why we would pursue this path. Why would we step off the normal narrative of spending all of our money? Having the leased BMW? To her it came down to the things that I truly enjoy in life don't cost that much money. Reading to my daughter. Taking walks with my family. Having a glass of wine for a happy hour with my husband every day.

Mendonsa: It doesn't need to be expensive. It just needs to be alcoholic.

Brokamp: Is that what she said?

Barrett: And those things don't cost that much if we can save money and reframe that from what's the common narrative. The common narrative is saving money is deprivation. "Oh, YOLO. Why don't you spend it?" So change that frame and say you're saving for the ultimate luxury, which is your time. Your precious time to spend as you see fit. And I can tell you, personally, that I get to spend my time, now, in ways I couldn't have imagined. Jonathan just mentioned this. It's amazing! I had my 14th anniversary yesterday. My wife posted on Facebook something incredibly sweet. She said, "The last three months have been the best of our lives." 

And they truly have been and it's because of little things. It's because now we go to CrossFit together three times a week at 09:30 in the morning. Who else is at CrossFit? 

Mendonsa: They have the class to themselves and not because they reserved it.

Barrett: No. It's just that. We have my mom in town to babysit and we get to go out on these happy hours every Friday. It's the little things in life, but they make a difference. And when you have your time, you have everything.

Brokamp: We talked about the cars, there. Jonathan, you and I had a conversation earlier today. How much did you spend for your most recent car?

Mendonsa: I have a 1998 Ford Expedition Eddie Bauer Edition that I purchased for $1,000.

Brokamp: A five CD changer. 

Mendonsa: Yes, six CD changer. Let me tell you a little story about this. In 1998 I was in high school and my buddy was carpooling me there and he was driving a brand new 1998 Ford Expedition Eddie Bauer Edition he had been gifted from his parents as a gift for going to high school. I was carpooling. At the time I think at some level I must have known. I looked at the car and I said, "I'll see you in 20 years."

Let me talk about that just for a second. Brad runs this analogy that we just love. He runs this case study from his personal life. It actually directed his decision to buy a new -- at the time -- 2003 Honda Civic. 

Brokamp: We still have those. 

Mendonsa: And so in this case study this one individual always has to have all the things, and when they get tired of their car they upgrade to the next car. So this individual every three or four or five years is upgrading their car and they can always afford the payments. They're always going to have that $300-350 a month payment.

The other individual is more on this path. They're having a little bit of tension. They can't afford to pay for that first car outright, so they're going to get that first new car, but they're going to pick a modest new car -- probably a $20,000 vehicle. They're going to have it paid off in five years. So they're going to have payments for five years and then they're going to have no payments for 10 years. So every 15 years they're going to buy that new car and then they're going to drive it forever, the equivalent being about 15 years. They're going to have three cars over their investing lifetime. 

These two individuals start off on this path together. It's a 45-year investing timeline. The one individual always has payments. The other one takes that 10-year gap in between when the five years is paid off and they take that 10 years of no payments and they invest that making average market returns. 

The difference at the end of that 45-year investing timeline, not shocking to those of us that look at compound interest calculations, is roughly $1 million. The difference between Brad staying in Long Island and coming here to Richmond. The difference in the cost of living. They're investing the difference. It's roughly $1 million. 

And the difference between paying attention to your grocery budget. Brad uses this anchor of $2 per person per meal in terms of mapping it out. I've got a second story I'll tack onto that. But he and his wife actually plan their meals out. And if you can come close to approximately $2 per person per meal, you're going to shave hundreds of dollars off your food budget. That savings is roughly, over an investing timeline, $1 million. 

And then you can compress that timeline and you can see how no one on the outside is going to see that. He's not going to get credit from his friends and family. He doesn't look like success as he's on this path. 

Barrett: I don't look like success at all. 

Southwick: You look like a bum!

Mendonsa: On the path, but he doesn't have the best house. He doesn't have the flashiest car. And they have gorgeous, wonderful food, but it's home cooked. They're not out at the restaurants every week. But along this way, even before you hit your actual number, you realize that if you never saved another penny... 

We call this CoastFI. Let's say you have several hundred thousand dollars in your account in your mid-30s. And then you realize, you know what? I want to unwind. I want to be paycheck to paycheck. I'm never going to go back into debt. But you just realized just by having front-loaded that energy and that effort, you are going to have more than most people have at traditional retirement if you just let what you've saved rest and grow in those accounts. That's the incredible part of just leaning into this as quickly as possible.

So this movie is literally a call to action. To the millions of people that will be exposed to it as it hits Netflix and Amazon Prime and all these sorts of vehicles to say, "Are you drifting or are you just asking yourself, 'Am I getting a value from the choices that I'm making? Every single time I make the decision to purchase stuff, instead I'm making the decision not to purchase my freedom. I'm exchanging my life energy for stuff,"' and you get a finite amount of that.

What we recommend you do is if you're going to buy something, buy the ultimate luxury. Buy back decades of your life because that just gives you options. And I think all of us want more options in our life.

[...]

Brokamp: So in your book you highlight what I thought were some either intriguing or clever concepts. Some of them come from you. Some of them don't, but let's do this rapid fire. I'm going to throw a few of them out here and you just give me your take on them. First of all, "FI is a superpower and FU money." 

Mendonsa: That's one that I would love to talk about for just a second. If you really think about the way our story is framed, you have someone who has reached financial independence and someone that's on the path. Someone that like a madman got back to broke which, in the context of what I just said sounds like kind of a bad thing but in reality, "I'm finally broke again! I've had six figures of student loan debt this entire time. I've lost that decade between my 30s based on this traditional path that America said looks like success. Get the degree at any cost. Get the job. Whatever! I'm finally back to broke and now I have my future ahead of me and I can start working toward this financial independence goal."

What's crazy, based on what Brad was saying earlier is, "Now I have this incredible savings rate [with which] I used to pay off the student loans and very quickly I was able to save up several years' worth of expenses -- like two or three years' worth of expenses -- and I have this 50%+ savings rate. For the first time it's really going into my pockets as opposed to just paying back the government. And, on top of that, because I had this high savings rate my life didn't cost a whole lot. We have kept our lifestyle at this particular point in time -- for this season of life -- in between $30,000-40,000 a year." 

And what happened was very interesting. Brad and I started this project ChooseFI. It was a way of really documenting our journey. Our community really leaned into it and it grew. And what happened is it started to produce a small amount of income. It wasn't replacing my income as a pharmacist, which was pretty significant. Entry level is six figures. But I could see, after a period of time, where it was on track to replace my expenses. It was about to cover all my expenses. 

And in the context of that -- in the context of it growing, in the context of having no debt, a lean lifestyle, and several years of expenses saved up something happened -- this documentary wanted to film us. The exact one you're talking about wanted to come film us. We wanted to go to a conference, which is in our space -- called Fincon and that was a way for us to network. And then the third one -- and I say this last because it's really the most important -- I wanted to go visit my wife's family. My wife is from Zimbabwe. It takes like 20 hours to get there. So this isn't something you do with a one or two-day around. It's like one or two days for the jetlag, so it's kind of a one to two-week type of trip. 

You put all that together and you can do the math. You're quickly exceeding corporate America's allowance for what you get -- 20 days -- and in my role you absolutely could not take those together. It doesn't happen.

So here's what happened. I looked at that and I was like, "Wow, I don't know how I'm going to put that together. I'm stumped. I checked my company's policies. They had something called a family leave of absence. It was a conditional leave of absence I could get my manager's approval on." 

So I went to him and I said, "Would it be possible, with me having all this going on, to take an unpaid leave of absence for this three-week period of time? The pharmacy's in great shape and we can have help come in. It will work out fine." And he looked at me and he said, "I don't think it's in the company's best interest for us to let you do that."

Now, let's flip the script here. If I [was making] $168,000 -- if I worked paycheck to paycheck -- I would have meekly put my head back down and I would have gone to work. But this was my FU money and we'll just call it "freedom unlimited" for the families. Let's keep it family friendly. But really you know what it was? It was a freaking superpower, because what I just laid out for you may have seemed risky to say what I said, but I viewed it as an opportunity. I said, "I don't think it's in my best interest to stay."

Brokamp: I assume that was a little surprising to him?

Mendonsa: Shocked! I think I broke him. I can't swear to you. 

Brokamp: He had to reach in and get some of the Valium that he kept behind the...

Mendonsa: All right, family friendly. But I mean, this is tilt. Like employees don't have the ability to say this 90% of the time when they are paycheck to paycheck. When you don't have investments, when you don't have savings, you don't have that superpower. You can't do that. 

But if you can create this bandwidth ahead of time, you don't know when you're going to lean on this, but at some point you're going to want to flex your FU money. You're going to want to flex your superpower and being on this path, regardless of your absolute number, even marginally on this path is going to allow you to really think through your options and instead of always putting your corporate job's goals ahead of your family's goals and objectives, you can start to look at this objectively and say, "What's best for my family? What's best for my life?" 

And I tell you it was the best thing I ever did just being able to step away, because you can always go back. People think about leaving a career as this one-way thing. It's like a turnstile. If it didn't work out I can always go back. I can go across the street. I mean, I didn't burn the bridge. I wasn't mean. I just said I'm placing my family's values and goals ahead of my corporate goals. And it was the best thing that could have ever happened.

Brokamp: Another term, and we mentioned it already, is "geographic arbitrage."

Barrett: This is something I certainly took great advantage of. I think it's basically moving or considering a lower cost of living area. Now, I think most people hear geoarbitrage and they think international geoarbitrage. But mine was an example of United States geoarbitrage. 

Living on Long Island we were looking at like a $400,000-500,000 starter home that would need a lot of work with $10,000+ a year in taxes. Now everything costs more there. Car insurance costs more. Home heating oil. Everything literally across the board. And in Richmond, it worked out to be about 40% of the cost just for living as compared to Long Island. As I said before, this was not an easy decision for us. It was something that when we looked at the numbers and we looked at the goals that we had for our lives, that was something that became very obvious for our lives. 

So I think there's many aspects of geoarbitrage, but ultimately it's looking at how you get an arrangement where you can spend less and still live a wonderful life, in essence.

Mendonsa: And to add onto that, there are people that are pursuing this. Our communities are all around the world. They're certainly in Long Island, New York. They're pursuing this in San Diego. They're pursuing it in Coronado. I had heard Coronado and San Diego were the most expensive places ever. As we were driving by [a street in that area], I saw an address and I was like, "That looks like about 1,400 square feet. I wonder what that's selling for on Zillow?" I checked it out and it was like $1.4 million. I was like, "Ho! Oh, wow!" But there are people doing this in every place around the country.

Brokamp: And around the world.

Mendonsa: And around the world. You've got to realize you don't necessarily have to leave your home. Like if you're saying that that is something you are not willing to compromise on and you are going to pursue this in your local area, that's fine. But you have to also be intellectually honest and say that if you're paycheck to paycheck, you are going to have to do something differently than you are doing right now if you want to get a different result. 

And again, this [is a] call to action. Let this be that lightning bolt to your soul to say that these small changes that you make can and will make a difference, but only if you take action. The ideas work. They're great. They are tried and true. They work every time, but they're only as good as your ability to read them, internalize them, and take action upon them. 

So that's what I hope, again, this documentary does, as people go and check it out and they share it. It's just to raise public awareness of even this idea that small changes that you make can be implemented and have massive impact. Not on this 40-year timeline -- that's great -- but even in this intermediate timeline. You can get the benefits of this within a couple of pay periods. If you're paycheck to paycheck and you have $1,000 for the first time in the bank, when you can buffer the storms of having a flat tire for the first time, you can scale this all the way down. But it's not binary. Financial independence or not, you get this power every single pay period you make the choice to save something for your future self. 

Barrett: And that's the answer to, again, the FI as a superpower. Think about how much less stressful your life is when you have that little bit of space. So if you've been living paycheck to paycheck and now you have $1,000-5,000 in the bank, how much easier is your life? And then you have that as the umbrella. I've made these decisions. My life is easier and now I can focus on things that actually make me happier. My connections. My health. Nutrition. All these things. That's why when you ask the question for the lightning answer which Jonathan regaled you with for five minutes...

Mendonsa: Oh, I thought you were saying it quickly.

Barrett: No, no, no. It's supposed to be a short answer. He's pathologically incapable. 

[everybody laughs] 

It's the power that makes everything else better in your life. That's how I see FI. 

Brokamp: You guys focus on the FI. Most people know it as the "FIRE movement," so I'm just going to keep using that term. People are seeing more articles about it. It is getting more attention, but it's also getting some criticism. You'll find headlines like, Why I Hate the FIRE Movement, or Advisors Pour Water on the FIRE Movement. I'm sure you've read some of these articles. Are there any myths about the FIRE movement that you'd like to highlight or any criticisms that you've read you think are totally off base?

Mendonsa: I think you have to look at the motivations of people that are writing articles. For instance, even when people write about the FIRE movement, one of the reasons is that this idea is so different than anything you've heard and you immediately want to find out more, which is great because people need to be paying more attention to their finances. 

You said America, as a statistic, has less than 10% savings. I remember when it was negative 2%. So maybe we're doing better -- I don't know -- but it's really bad.

Brokamp: It is getting better, by the way, but part of that is thanks to mostly higher-income people. So if you look at the savings rate, it's gone up to over 8% now, but if you break it up by income, still the average person is closer to 5-6%. 

Mendonsa: I think one thing is we are just seeing a natural tendency to figure out what gets more eyeballs. One, people click just because it's talking about the FIRE movement. But then, two, I've noticed because we've actually had reporters come into our community and ask people, "Hey, is there anybody that tried this and it didn't work for them? Let's write about that." I know part of that is because people also like to click on negative [articles]. We know that negative sells. 

But to your audience listening to everything we just talked about, is there any downside to having more options in your life? I think the answer is almost unanimously no. Obviously not. This is common sense. However you want to frame it and whatever verbiage you want to wrap around it, there's no downside to being on this path. None. 

And so I think for us, in the world that we have in having a podcast and having this platform, we have to be very selective when we try to tackle straw men. We have to see if they're actually valid. I think some of it was, "Is this just for white, male software engineers?" And I think definitively we can say no. That's a stereotype and I don't know why it exists and it has been dispelled.

Brokamp: That was one of the earlier criticisms. 

Mendonsa: I think so. What happened is you have the loudest voices in the room. If you look back to like 2012-2013, you see some trends on who those loudest voices in the rooms are, but this is 2019 and the amazing thing is you're only seeing white, male software engineers if you choose to see white, male software engineers. I mean, there are literally thousands of people that have been willing to share their story on the internet in the form of blogs and podcasts, from every walk of life. From as much diversity as you could hope for and you can find someone that reflects that path that you're interested in finding more information about.

And so if you choose to say that it's only about white, male software engineers, that is a story that you're telling yourself and I think what we've tried to do over time is even if you look at some of our early interviews, we interviewed the people we knew about. And as soon as we realized that there is a much broader audience out there, we found them and told them that we'd do our best to help them tell their story on our show. I love how this community has expanded over the last two years.

Barrett: We have a Facebook group with about 55,000 members in it now. At least for the last year or year and a half, the majority has been women. I think at last count it was 54% women. This caricature, as Jonathan said... Just because some of the famous bloggers in 2013 were white males in their 30s, I think we've moved beyond that. 

I think the other thing people really focus on negatively is the "retire early," as if people are going to sit around and waste away sitting on a beach drinking umbrella drinks. Most people I know, that are pursuing financial independence, are doing it because they want to spend their time as they see fit and they want to add value to the world. To their communities, and their family, and their friends as they see fit. Not on some arbitrary, "I have to clock in at 09:00 and clock out at 05:00 every single day of my life." 

And if pursuing something intentionally allows you to spend five, six, or seven decades of your life as you see fit, to me that's just a universal win.

Mendonsa: And what I'm trying to do is talk about the ones I think there's validity to at least discussing it for comprehensiveness as opposed to every negative thing that I've ever seen. The last one that I think is probably worth highlighting for people is that this is not about extreme frugality nor is it about deprivation at all. For me to be the ambassador of extreme frugality is laughable at best...

Brokamp: You're the reluctant frugalist...

Mendonsa: Yes, and hypocritical at worst. Frugality is a tool that for me is a means to an end and for a season of time it served me especially well, but if we think about this equation that we're all subject to, what you earn minus what you spend equals... We have this gap. And so our goal -- and we can do any or all -- is to focus on the income. Let's raise the income. Let's focus on the expenses. Let's crush the expenses or at least find the balance point. With that gap that we're now trying to grow, let's figure out how to optimize it. 

And if you think about this is what turns it into "choose your own adventure," I think that it is the easiest target. When you're starting out and you've had this awakening, you first go and look at what your life costs because you can change that instantly. Brian -- we're a huge fan of Brian Feroldi who writes here at The Motley Fool -- now with his financial independence, he offers coaching to friends and family. He does it for free. He doesn't need money anymore. Maybe he'll scale something out of that. 

One of the things that he does is he helps people go through their line items. He's not even focused on financial independence. He's focused on financial wellness. And for them he's just looking for inefficiencies. Like you're paying for this WIRED subscription that you bought three years ago, but you haven't looked at ever. You've got a $300 a monthly cable bill, plus Amazon Prime plus Netflix plus Hulu. What are you watching? "Oh, I just watch my kids. My kids watch Llama Llama." 

What? What's going on here? Let's wind this down. Go through the line items of your budget and cut those. Every hundred dollars a month that you can cut from your expenses -- monthly recurring expenses -- is $30,000 less that you need to reach this financial independence number. The small things do make a difference. Focus there. Focus on the small things. The structural expenses.

And then once you've optimized that, or even concurrently, don't just leave that. If you just have your money sitting in a checking account making 0.01% -- $150,000 and I just want it to be safe. It's sitting in a 0.01% interest checking account -- let's optimize that. You can, at a whim, with one button click, get 2% interest on your money minimum. Let's do that, at least, and then let's start getting average market returns and a reliable investment strategy. You can always complicate things later if you want, but let's at least try to keep up with the market. The simple things like that now are optimizing the gap. 

Now let's take a look at income. Salary negotiation. We recently talked with Tori Dunlap and, Brad, that statistic was astounding.

Barrett: Yes, the statistic Tori mentioned is that women -- and she deals mostly with women and negotiating in the workplace -- who don't negotiate ultimately make $1 million less over their working lifetime than people who do negotiate. So she had some very tactical strategies, and just using common sense language she had these two phrases. I don't want to steal her thunder, certainly, but Tori Dunlap is the woman's name. 

We actually had two of our community members come up to us at our book signing -- literally within 14 days after this episode aired -- and said, "We used the exact language that Tori mentioned just on your podcast." These were women who didn't know each other. They just happened to do this. One woman got a $5,000 raise and the other got a $20,000 raise.

By just standing up and hearing this information. So that's what a lot of this does, it normalizes the conversation. That's what ChooseFI does about financial independence. It makes it not so extreme. There's nothing we're doing that's extreme. We're just living an intentional life. And you pick up these little strategies. Those couple of lines made those two women $25,000. I wonder how many other people out there went into their VPs and asked for those raises? It's incredible.

Mendonsa: Does The Motley Fool have an "ask me for a raise desk?"

Brokamp: We did, yes.

Southwick: We did. 

Brokamp: Everyone had to ask for a raise, yes. 

Mendonsa: If your audience is listening to this, when was the last time they even contemplated giving themselves permission to go to an employer and ask them for a raise? Now just framing it that way -- I don't know what I would say -- yes, you've never thought of it before. That's a good question. What would I need to say? 

And you're like, "Well, I don't want it to sound scripted." It's OK if it's scripted. It's OK that it's not your original line. You don't need to think of this stuff on your own. You just need to ask the question, give yourself permission to practice it with a friend, have them pretend that the boss is in a good mood. The boss is in a bad mood. What are you going to say? Say it a couple of times and then commit that you're going to say it. That process literally could be worth $1 million over your working lifetime. 

Are you willing to change something? Some part of the equation? Are you willing to? Because otherwise you're just in a drift state and you're going to keep getting the same results you're getting now.

Brokamp: Well, guys, it's time to wrap up the show! Thank you very much for coming!

Southwick: Thank you!

Brokamp: Again, our guests have been Brad and Jonathan of the ChooseFI website and podcast. Their new book is Choose FI: Your Blueprint to Financial Independence and they make some cameos in the documentary, Playing with FIRE which, as of today, is now available. Thanks for stopping by, guys!

Southwick: Thank you, guys!

Mendonsa: Thanks so much!

Barrett: Yes, this was fun! Thank you!

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Southwick: Well, that's the show! It's edited independently by Rick Engdahl. Our email is [email protected]. For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody!