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How to be financially independent by 50 [video]

Andrew Hallam, author of best-selling book Millionaire Expat, explains how it's possible...

RP: You may have heard of the FIRE movement. But what’s it all about?

FIRE stands for Financial Independence Retire Early.

One of the first people to write about it was the financial author, Andrew Hallam.

He started investing at the age of 19.

AH: I met somebody who was a mechanic, who was a self-made millionaire. He said to me, “if you want to become a teacher, you’re not going to have a high salary, but if you learn to manage your money effectively, you can build wealth even on a middle class income”. So, because there’s a lazy bone in all of us – and I think especially with me – I really took to that. I thought: yeah, I’ll get money to work for me, so that I work less for money.

RP: Although, as a teacher, he earned a modest salary, Andrew achieved financial independence remarkably early — in his late 30s.

He puts that down to the fact he doesn’t have children.

But it’s entirely realistic, he says, for those who really want it, to be financially independent by the age of 50.

So, what did that mechanic Andrew mentioned teach him?

AH: What he taught me was: one – the power of compound interest; and if I started at an early age, I could invest less than most people over my investment lifetime but then end up with more money. So that was the most appealing thing. That and the fact that, if I wanted to build wealth – especially on the income that I was going to have, which would have been a middle-class salary, I had to ignore the temptations that so many other people fall victim to. Which are the materialistic urges to want to chase the latest phone, to want to chase buying new cars, when really – as he said to me – a new car is the biggest wealth destroyer you can buy.

RP: Interviewing Andrew, what intrigued me about him was that, despite the sacrifices he had to make, he doesn’t feel he missed out on anything he really wanted.

AH: There was an interesting study done in Michigan State University where they looked at people who owned high-end automobiles versus people who owned average or low-end cars. And they found that, when studying how they perceived – or how they felt – about their driving experience, how much they actually enjoyed driving. The study found that people with the high-end vehicles didn’t report a greater level of driving satisfaction than the people with the low-end vehicles.

RP: What Andrew described there is an example of what’s called the hedonic treadmill. Basically, we spend money on things that don’t give us as much pleasure as we’d hoped.

AH: So you spend £600 on a brand new phone – a brand new iPhone 36 or whatever the new iPhone is of the day – and, at first you have a sugar high. It feels really good; perhaps you’ve even lined up to buy this thing. And then, after two or three weeks, it’s just another phone. It’s the same, studies show, with automobiles; it’s the same with home renovations too. So, when I look back on it, to get back to your question, when I look back on it, I see that I haven’t really given up anything of any long-term value for financial freedom.

RP: Early financial independence isn’t for everyone. Most of us are happy to reach it rather later than Andrew did. But there are valuable lessons that we can all learn from his achievement.

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