Do you know what your money personality is? There are three well-traversed roads to wealth: business, real-estate, and paper assets (i.e., stocks and bonds). By being successful in any one of these three areas you can become financially free faster. But what if you are risk averse? What if the idea of starting a business seems too scary or you don’t want the hassle of managing rental property real-estate? Or what if you find stock investing too risky? Is there another option that would enable you to retire early?
In Kirsty Shen and Bryce Leung’s book, Quit Like a Millionaire, they talk about the three different kinds of millionaires:
1) The Hustlers. These are the entrepreneurs of the world who create successful businesses (i.e., Elon Musk, Bill Gates, Jeff Bezos);
2) The Investors. These are the people who make money out of money through investing acumen and skill. Examples here are Peter Lynch, author of One Up on Wallstreet, Warren Buffett, Benjamin Graham, or even Robert Kiyosaki who invests in real-estate;
3) The Optimizers. This group becomes wealthy and retires sooner by “obsessively controlling expenses.” Examples here are Pete Adeney of mrmoneymustache.com or Jacob Lund Fiskar, author of Early Retirement Extreme or Jeff Yeager of The Ultimate Cheapskate’s Road Map to True Riches.
The point is, there isn’t just one path to financial freedom and independence.
Stanley and Danko, the authors of The Millionaire Next Door, point out that the vast majority of America’s millionaires do a combination of all three strategies without being necessarily spectacularly good at any one of these areas. They are typically small business owners, who own their own home in a good middle-class neighborhood. They typically stay married and manage their expenses, often driving quality used cars. These millionaires living next door are hard to spot because they aren’t flashy. But take note, they also aren’t millionaires retiring in their 30’s. They are usually in their 50’s and have let their 401Ks and mutual funds grow and compound over time with consistent contributions. You can be average in all three areas and still retire relatively early in your 50’s. Or you can be super in one or two areas and retire much sooner. You may have more control over your retirement levers than you realize.
As Shen and Leung point out, it makes sense to match your financial freedom strategy to your money style. So let’s dig a bit deeper to uncover the three millionaire styles…
The Hustler is your classic entrepreneur who is willing to take big risks. The Hustler “sees the world as endlessly full of opportunities to make money.” They don’t put much emphasis on controlling spending. The way they see it, you just need to generate more money, which is “an infinitely renewable resource.” The Hustler is very comfortable with risk and may be willing to bet everything on their business idea. Elon Musk could easily have retired on $200 million after selling PayPal, but instead invested it all in Tesla. He just recently made a massive bet on Bitcoin, which many consider incredibly risky and a highly speculative gamble. Jeff Bezos of Amazon is another example of someone who was earning a great income and left to start his online book selling business. He could have chosen the safe route but chose to invest in his start up, knowing he’d regret it more if he didn’t.
The Investor is also willing to take risks but not gamble, given their risks are calculated. The famous investors of the world may invest in stocks, real-estate, fine art, wine or other commodities or collectibles. The investors don’t particularly worry about cutting expenses, are comfortable using leverage to maximize returns, or have a specialized body of knowledge or skill that they can leverage into profits.
The Optimizers are the exceptional savers who look for ways to optimize value in every financial exchange. These are frugal people who take joy in cutting expenses and saving pennies. They may be highly risk averse. They may prefer to pay off the mortgage before beginning to invest. Also, they may find the roller coaster ride of the stock market unpalatable, thanks to their fear of loss. They might be average investors with somewhat above average income and use their penny-pinching ways to retire faster. The beauty of this method, above the others, is that it’s the easiest strategy to reproduce. It requires no special investing acumen or skill. This is why you see most of the FIRE bloggers cutting expenses to the bone and investing in low-cost index funds. They are taking the safe and risk averse path to an early retirement.
In order to retire early, you’ll have to find a path that works for you and suits your money personality. This makes a lot of sense to me. The average person gets an average salary and saves the average 6% to 10% of their salary and invests it in average ways. If you take the average path, it will take on average, 35-40 years of work before you can retire. This is the traditional retirement path. If you want to get there faster, you can’t be average. You’ll need to be exceptional in at least one way.
If I look at my own path to financial freedom, my money personality is a little bit of all three. I am a small business owner and so is my husband. We are investors in real-estate in that we have three homes, one of which produces rental income. We also invest in low-cost indexed funds. However, we are more spend-y than frugal. We live a luxurious lifestyle in a large home and like to travel as much as possible. We rein in a bit simply by buying used cars and furniture. Doing two out of three things, without having superstar success in any one area, means we can retire in our 50’s. If we had chosen to live more frugally or not have two kids, we’d have been able to retire in our 40’s instead. Spending more lavishly means that we either need to be a lot more brilliant in business or investing, or it will take more time before we can retire. We’ve chosen the slower, more enjoyable route because that suits our style.
Now, what’s your money personality?