Tips - Financial Independence / The Good Life
by Mark Gallagher
Note, I am not a financial planner.
I am sharing some ideas based on my experience. This advice is offered
for free and there is nothing for sale here, no advertising and no
sponsorships - just my views that you may consider, accept or reject as you
your life as simple as possible.
How do you do
that ? Take a lot of time on the big decisions - who
you marry, buying a house, and where you work. The biggest
obstacles to the good life are complications from divorce, a house you can't
sell or a job you hate. The #1 decision in your life is who you marry. Related
Tip - How to avoid the complication of divorce.
2. Learning what is most
valuable. What brings happiness?
Most people don't learn this one
until they are 65 years old. If you figure this out when you are 30, the good
life is guaranteed.
Ok, this is it - the most valuable and enjoyable
things in life are your health, time with family and friends, and a job that
you enjoy. Buying expensive things
brings less and less satisfaction. Buying an expensive car, vacation home,
or latest large-screen TV will
bring fleeting moments of happiness. Skip the expensive stuff when you are
your savings, and later in life you will have the financial freedom to spend time
with your friends and family and a job you enjoy.
Related point > >
> keep your life and your possessions in balance. Here
is how you do it ...
Every time you acquire
something new, take the time to give something away. Buy a new car,
think about selling your old car (at a below market price) to a relative or
neighbor that needs a good used car at a low price. Buy a new TV or
computer, donate your old one to Goodwill.
3. Buying a home.
One of your biggest
decisions. Take a lot of time. Never rush.
the period 2008 - 2011, home values have fallen 30 percent or more in many
markets. There is no clear sign home values will go up soon. Yes,
mortgage rates are at super-attractive levels and prices are low, so this is
good time to buy, but rates will probably stay low well into 2012 and home values may
stay low, so no hurry. Look for a great deal on a nice home selling at a
fair price in the best neighborhood. Resist the temptation to
"move-up" for more space you may not need. If you like your
neighbors, stay where you are, keep your house in good shape, and pay
down your mortgage early. No better feeling than being about 50 years
old and you still love your house and your neighborhood and no mortgage
lot of time. Look at a lot of houses and when you narrow it down to one
house, walk around the neighborhood on a Saturday morning before you make any
4. Buying a car.
Buy a new Honda Accord or
Toyota Camry, take care of it, and own it for at least 8 years. Never lease a car.
If you need a second car, buy a
new Honda Civic or Toyota Corolla and keep it for 10 years.
(2011 update -
I currently own a 2000 Honda Accord and 2006 Honda Accord. Both are serviced
regularly by the Honda dealer and both run like a top. The 2000 is eleven years
old, but is running so well, I plan to keep it for several more years. I
have enjoyed no car
payments for many, many years .... sweet!).
Never buy a vacation home, but spend money on nice vacations each
year. Never buy a time-share of any kind.
Related point - hobbies and
sports - take an interest in the low-cost hobbies
Hobbies / Sports
Hobbies / Sports
- Sports Cars
- Collecting jewelry
6. Monthly Services - cell
phones, cable TV, internet access, lawn service.
Never, I repeat never, buy
anything from a phone solicitation, someone that knocks at your door, a TV
infomercial or a street salesman when on vacation. Be careful buying anything
with a monthly service fee. Sweat the details to keep these costs as low
as possible. Never sign long term contracts.
You should never
carry a balance on a credit card when you are over 30 years old.
should have no debt (other than the mortgage on your house) by the time you
are 40 years old.
have no debt (owe nothing on your mortgage, no car payments) when you are 50
Related Point - - Cost of
Sending Kids to College - It may not be realistic to pay for college and
be debt-free by the time you are 50. So if you have big college costs
in your late 40's or 50's you should try to be free of all debt by the age
of 60. But, the most important thing about paying for college is
selecting the college for your children. You can't let your kids decide
where they want to go. If you let the kids decide, you may compromise
your financial security for your retirement. The parents must select
the school they can afford. This is a huge financial decision. Also,
attending a community college the first two years of college and a state
university for the junior and senior years results in huge savings for the
cost of a good college education.
8. Save, save,
Save a lot of
money in your 30's and 40's. Invest your savings in low-cost stock index
mutual funds (about 50 percent) and in US Government bonds / agency
bonds or high quality tax-exempt bonds (50 percent).
about age 50,
shift about 80 percent of your savings into safe, income producing bonds
including US Treasuries, US agency bonds (ex., GNMA), quality municipal
bond funds and investment-grade corporate bond funds.
I suggest the
no-load and low-fee bond funds of Vanguard and Fidelity. Vanguard funds I like
are: GNMA (VFIIX), Long-Term Investment Grade (VWESX) and Fidelity
funds: Municipal Income Fund ( FHIGX) and Strategic Income (FSICX). When
I buy US Treasuries, I buy "new issue" bonds directly though my
brokerage firm and they charge no fee. Note, the bonds and bond funds I
buy are intended to be held for a long time. I don't trade them or sell
them. These funds produce good monthly income to support your retirement
downshifting / Fun upshifting.
Now you are in
your early 50's, you have no debt, you have a large nest egg that generates
good interest income, and you have a lot of flexibility.
that job that you really enjoy - something low-pressure and rewarding.
more time with your family and friends. Pick up tennis or swimming.
to work at this fun job into your early 60's. Retire if you like and
continue to live off the interest generated from your nest egg of income
How To Avoid the Complications of Divorce
Don't rush any decision. Have a long engagement period (at least one
year). Many people have a "dating personality" and a
"real personality". You need enough time to get to know the
Related to #1, the real personality is exposed by how someone reacts to
something that goes wrong when interacting with a stranger (waiter in a
restaurant or driver on the road). If someone is nice to you, but rude
to a waiter.... you will be treated like the waiter after you are
Amen brother, there is some good
advice here. Nice site in general. I am a 46 year old tech worker.
Got my pilots license in high school. Only thing that taught me any
discipline. My version of the #1 rule is: Pay attention to details
proportionally with the amount of money involved (e.g pay more attention to
buying a house than a stereo system). On #4 I would suggest a civic or
corolla, more inline with current gas prices but maybe not as safe.
Can't argue too much with the other guidelines although some people need to
stick their neck out a little more on their investments. Very good.
Thanks for putting this together.
Read your comments on a 'Good
life'. Really thoughtful and informative points.
Keep up the good work and enjoy life.
What a great site! I've just paid off my C/C bal as a result!
Just wish I'd read No.10 a few years ago though!
The main reason for writing is to thank you for listing `An Irish Funeral
Prayer` which I'll use at my Mother's funeral on Monday.
With best wishes from Scotland,
How Idealistic!! If this has been
your life, you are a very lucky and unusual person.
First, your webpage is a great
collection of eclectic and entertaining
stuff. As far as your financial tips go, you are 100% RIGHT. I'm
old and, aside from an occasional DVD, pair of shoes, or sweater, I don't
really spend money on myself. And I like it that way.
fun. Cars depreciate; gadgets lose their appeal; fancy clothes get
or go out of style. Investment accounts grow, and make you more powerful
and secure. A lot of my friends make a lot of money, spend it all, and
complain about having no money when there's an emergency (or their jaws drop
in envy when I tell them how much I have saved).
I agree with almost
everything in your Tips to Financial Independence link: Marry the right
person; get a job you enjoy; be frugal; buy Japanese cars; enjoy the simple
pleasures and shun asinine materialism.
However, aren’t you
advocating too high of a percentage of assets -- 60% -- in fixed income?
I know one should shift more toward bonds with age, but I’m 33 years old –
isn’t the rule of thumb “own your age in bonds”? Right now, 70% of
my money is in the stock market (albeit in a sensible array of foreign and
domestic low-cost index funds) and everything I read says this where young
people need to be to benefit from compounding you can only get in equities
You’re making me
nervous…..should I really have 50 to 60% of my money in government bonds at
Response to Ian by
Hi Ian, Thanks for the note.
Yes, I am way on the conservative side
regarding asset allocation. At your age, most financial advisors
would recommend exactly what you are doing - putting 70 percent into
several, good equity funds. So you are fine at your age.
I may change my recommendations on asset
allocation on my web page, 60 percent in bonds in your 30's is probably
too much in bonds.
But something to consider ....
Most money managers or financial planners know
nothing about bonds, don't make commissions on bonds and therefore seldom
recommend bonds to investors for retirement savings.
My views on bonds are different from most
financial advisors. Most money managers look at risk in terms of
changes to the market value of you investments. To me that makes
sense for stocks, but not for bonds. I primarily buy treasury and
agency bonds. The actual individual bonds and not funds. If
you hold these bonds to maturity you get back exactly what you expect -
the interest payments twice a year and your principal at maturity.
In this case there is no market risk. You don't care if you buy a 10-year
treasury and 5 years later your statement shows the market value of the
bond went down because you are holding to maturity and at the end of the
10 years you are paid back the principal.
My retirement strategy is to build a nest egg
of bonds that kicks off enough interest to supplement my income as I
downshift into a fun and lower paying job and is like an annuity of
regular income when I retire. But I'm also in my early 50's and you are
I just bought some 25 year Federal Home Loan
Bank (AAA rated agency bonds) with a coupon and yield of 6 percent in my
IRA account. Over the next 25 years stocks may outperform 6 percent,
but I bet not by much and there is a real risk stocks perform much worse
So keep the 70 percent in stocks but research
individual bonds as you get older. When rates go up (as they are
now) consider adding some individual bonds to your savings. I also
own some bond funds but most of my nest egg is in individual bonds.
I have an account with major brokerage firm and they let me buy new issue
treasuries and agency bonds with no commissions..........as in zero.
I think it's nuts that many financial planners
tell retirees to keep 50 percent or more in equities because they need the
higher returns on equities to offset inflation, blah, blah. If you
look at any 20 or 30 year window of retirement, there is a reasonable
chance for a major decline in the equity markets. If that
happens during your window of retirement, you have very few options - you
may be too old to go back to work, you are selling stocks that have
declined in value to pay your bills and you don't sleep at night. That's
That's my thinking. I appreciate your
Thank you, I really liked your 10
tips.. You really hit the nail on the head. I was an obsessed spender a year
ago to keep up with the competition.. I thought I could keep up with all the
technology and current next Gen video games and movies; It turns out that my
15 IPAQS, 60 Computer Games, 45 Pairs of Pants, and two plasma screen High Def
TV's, and 45 DVD collections brought me straight down to debt. That
compulsive buying really adds up, and I was not able to keep up with paying my
rent.. I was dumb and regret spending too much when I really didn't need that
After reading your site, you've helped me control my spending addiction...
Thank you Mark.
I have done almost everything you
said. My testimony... it works for me. I am 63, stopped working for a
salary and very happy as a volunteer for my Church. I am sending your
advice to my good friends.
Thanks for sharing.
Mark, One question...so if you
follow this plan, when you are 40 or 50 and your kids are in college, you
still should have no debt, mortgage is about to be paid off, and tuition is
covered? I like the ideas you have, I really do. But I think it's
not as realistic as it could be. It's perfect for people who have no
intention of having children.
March 12, 2007
Response to Ian by
True. college is a big
expense. Having to save for college and pay down your mortgage in your
30s and 40s is not easy and may not be realistic for most.
But many parents have choices
during this time, and some choose to move up to a bigger house (and bigger
mortgage) they really don't need, some let their kids decide where they want
to go to college and the kids pick very expensive private schools, some buy a
Lexis every 3 years and not a Honda Accord (and keep it for 8 years).
So most of the ideas apply to a family with children. Maybe it's more
realistic to set the date for no debt when you are 60 if you have kids.
See Greg's note below about paying
for college and selecting a low-cost method of a good college education (two
years at a community college and the last two years at a state university).
But you are right, it's not as
easy with kids. Thanks for the feedback. Mark
Great stuff! I am currently in the process of
reorganizing my life along these lines when I read this--downsizing the house
and moving out a bit to a smaller house and retire the mortgage, etc.
I don't have a problem with your ideas on
helping kids in school and I'd take it further. I rebel at this idea that
I owe my kids an education scott free. Help, sure, but my kids will stand on
their own two feet. My parents provided a free place to live (home) and a free
used car to use (insurance/gas). Tuition and books were my problem. Fair
enough. I'm 41 and my state university education has served me very well. I
graduated flat broke but with 0 debt. Since I was paying the tab there was
never a discussion of whether my parents liked what I was studying. And what's
wrong with 2 years at community college to save cash and get the basic courses
I'm very excited, looking forward to having my
scaled-down life be supportable by my return on assets (invested about like
you're talking about) vs. my income. I work in the very bumpy tech industry
and get hit with unemployment or job changes from time to time. So won't it be
cool if ever I came home and told my wife "Hey honey, the company got
bought and I lost my job today" and her response was "That's
nice", because ultimately that loss of income was an inconvenient
nuisance not a life-killer?
It's positively energizing. I'm also of a mind
that these sellers of 401K plans are crooks. Why should I defer such a big
chunk of cash until I'm old when I can nearly "retire" (work at what
I love not what I feel I must do) now? Not to mention the high fees they get
on my money. The only reason for a 401K is to get the employer matching,
otherwise its bunk.
Greg (Feb. 2008)
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