Read an Excerpt
Introduction
Winter 1991. My wife and I are in our late thirties. We have a daughter about to finish high school, a son with severe disabilities and health problems, and a daughter in elementary school. Our total income is only a little more than $34,000. We have a mortgage, car payments, and huge college bills looming ahead. Most of
our small $63,000 savings is tied up in our home equity and in a
retirement plan at work. The economy is in the tank and my job is
at risk.
Winter 1999. Our daughter has a college degree that is completely
paid for, we own our home and two cars, free and clear, and the
value of our assets is $467,000.
Hi. I'm Bill Toohey. My wife, Mary, and I are just average people,
working regular jobs, earning modest incomes. We love our family,
have great friends, and enjoy our low-key lives. We've never
intended to achieve fame, build a fortune, or earn big bucks. Like
most Americans, our interests have led us into careers that don't
pay a lot. We're not exactly poor, but we've always been closer to
poor than to rich. In fact, I've never broken through $40,000 at my
job and Mary has only recently topped $20,000 at hers.
I'm a state vocational rehabilitation counselor. If you have a disability
and you are looking for help to enter the workforce, I'm the
guy you come to. I've been doing that for about 23 years. Mary has
been managing a small professional office for more than 20 years.
We don't earn big salaries and, like most people, we never will. But
hey, many of us don't want to be attorneys, physicians, administrators,
and business owners. We're drawn to other things, and that's
good, because we need teachers, police officers, farmers, social
workers, nurses, carpenters, secretaries, retail clerks, and meat cutters.
Most of us are doing what we want, what we're cut out to do.
We're living the lives we choose. We go to work, do our jobs as best
we can, and look forward to weekends. Life is good. But there are
economic trends that pose threats to families like ours and probably
pose hazards for your family, too.
Companies are downsizing and employees who keep their jobs
are burning out from trying to keep up with more work and fewer
people to do it. Pressure to be totally productive is intense. Factory
lines are speeding up and previously rare conditions caused by
excessive repetitive movement, like carpal tunnel syndrome, are
now common. Good full-time jobs with benefits are on the decline
whereas part-time jobs with no benefits are increasing.
Trying desperately to hang on to their standard of living, husbands
and wives are working more hours. Author Juliet Schor, in
her book The Overworked American: The Unexpected Decline of Leisure,
tells us that work hours are on the rise:
In the last twenty years the amount of time Americans have spent at
their jobs has risen steadily. Each year the change is small, amounting
to about nine hours, or slightly more than one additional day of
work. In any given year, such a small increment has probably been
imperceptible. But the accumulated increase over two decades is
substantial. When surveyed, Americans report that they have only
sixteen and a half hours of leisure a week, after the obligations of
job and household are taken care of. Working hours are already
longer than they were forty years ago.*
*J. Schor, The Overworked American: The Unexpected Decline of Leisure (Basic Books/ Harper Collins, 1991, pp. 1-2).
In late 1990, Mary and I sat down and had a heart-to-heart talk
about our future. Our perception of the workplace had changed in
the sense that job security didn't exist anymore, and even if it did,
we wanted to have more time with each other and with our family.
We didn't want our family's financial fate to be in the hands of
politicians and chief executive officers (CEOs). Although we both
had benevolent employers at the time, there were storm clouds on
the horizon. We needed an exit, and as we saw it, the only escape
was to save money; enough money to cover most of our basic living
expenses for the rest of our lives. But it had to be done quickly
because we never knew when the axe would fall. Our mission: to
save as much as we could. Fast.
In only 8 years we added over $400,000 to our bottom line on an
income (not counting dividends and capital gains) averaging about
$65,000 per year. It wasn't easy because we had more expenses
than usual during that period. We paid cash for a new car, covered
the costs of many medical expenses and orthodontia, helped our
daughter pay for her wedding and get a debt-free college education,
extensively remodeled our son's room, plus we made some
expensive home improvements and repairs like all new kitchen
appliances, new roofs, and new central heating and air conditioning.
Yet we ended that 8 years with $404,000 more than the $63,000
we started with. We're closing in on half a million just 8 years after
we started. In fact, we now have enough to cover the following
expenses for the rest of our lives:
- Food
- Clothing
- Shelter
House
Heat
Air conditioning
Utilities
Phone
House maintenance and repairs
House insurance
Property taxes
Appliances
Household furnishings
Cable TV
Internet access
- Transportation
Car
Car insurance
Car license
Car maintenance and repairs
- Dental
- Miscellaneous expenses
- Some medical expenses
That's right. We have everything covered now except for part of
our medical expenses. In other words, without ever lifting a finger
in paid employment, we'll always have hot meals on the table, a car
to get where we want to go, and a cozy home to live in. How did we
do it? This book will tell you how.
In recent years we have taken our story public in hopes of helping
other families achieve financial freedom. After being named
among the "Best Personal Finance Managers in America" by Money
Magazine in 1994, we authored an article that summarized our
financial strategies and was published in the April 1997 issue of
Money Magazine. Some of our strategies were also featured in the
February 1998 issue of McCall's magazine in an article co-authored
by Mary. In 1997, we were invited to share our story at Money Magazine's
Elgin Project, an event in which Money celebrated its 25th
anniversary by "adopting" Elgin, Illinois, in an effort to raise the
financial I. Q. of an entire community. We have also taken our message
to college students in a seminar we've designed specifically for
that age group. Unfortunately, our seminars, magazine articles, and
newspaper coverage can only scratch the surface of our strategies
because of time or space constraints. This book tells it all-- how one
average family went all the way to financial freedom in only a few
short years and how you can do it, too.
Financial freedom is a vague term meaning different things to
different people. Some might think they aren't really free unless
they're so rich they can buy anything they want while never needing
to work again. Is that financial freedom? There are probably
some free-spirited vagabonds out there who are free with only a
tent and whatever will fit into a backpack. Is that financial freedom?
We have given this matter considerable thought in our own
situation and arrived at a definition that probably isn't too far off
the mark for most families:
A family has achieved financial freedom when they are able to pay for all of their living expenses, for the rest of their lives, utilizing their assets and 10 to 15 hours of work per week, per spouse, until Social Security, Medicare, and pension eligibility.
Millions of middle-income families can achieve that goal. But
wouldn't it be better to pile up enough to be free from the need to
work at all? We don't think so. Here's why:
- Work has value beyond a paycheck. We all need to get out of
the house and be with other people on a regular basis. Without
interpersonal contact, life would be dull, and work provides
an excellent opportunity for the regular social interaction we
all need.
- The workplace provides access to information. "Who's a good
car mechanic?" "Where's the best Italian restaurant in town?"
"Where can I find some professional grade lawn edging?" "I
need a pediatrician. Who's good?" We've saved a ton of time
and money, and have avoided many headaches by consulting
coworkers.
- Work keeps us sharp. It forces us to exercise our brains in complex
and rapidly changing situations. It provides stimulating
challenges and the opportunity to solve real problems and
help others.
- A job provides the opportunity to develop lifelong friendships.
- Work is an excellent way to contribute something to the world.
We all want to stand for something and a job is a good place
(though certainly not the only place) to do that.
- Work contributes to happiness. In his book The Pursuit of Happiness:
Who Is Happy-- and Why? David Myers states: "Happy,
too, are those who gain the sense of control that comes with
effective management of one's time. Unoccupied time, especially
for out-of-work people who aren't able to plan and fill
their time, is unsatisfying. Sleeping late, hanging out, watching
TV, leave an empty feeling."*
*D. Myers, The Pursuit of Happiness: Who Is Happy-- And Why (New York: William
Morrow, 1993, p. 116).
In my work as a rehabilitation counselor I've learned that most of
us really want and need to do some work. People with severe disabilities
usually choose to work, even if they have disability income
or family support. They may not need employment to pay the bills
but still they choose to work. Our 22-year-old son, Tim, is a good
example of this. He works part-time as a Wal-Mart greeter. He loves
his job and could care less about money. His coworkers are like
family to him. What about wealthy people like Bill Gates and Warren
Buffett? Surely they don't need to work! But they do. Although
many in the workforce may dream of quitting altogether, most who
really have the choice to quit, don't. So, we have concluded that, for
us, work is both good and necessary. But there are two problems
with work that just cannot be ignored:
1. Work consumes far, far, too much of our time and life energy.
As a couple, Mary and I work about 75 hours per week in our
regular jobs. That doesn't include preparation time, commuting
time (minimal for us, but significant for city dwellers),
unwinding time, and other work projects, in addition to our
regular jobs, that we pursue on the side because we love doing
them. For most of us, work is our life and that's not healthy.
2. When we are totally dependent on a job to provide all of the
necessities of life for ourselves and our children, we give our
employers far too much power over us. We've all read about
factory workers who have wet themselves because they
weren't granted permission to use the bathroom. We've all seen
safety violations resulting in injury and death. We've all experienced
pressure to be productive or out the door.
The solution? Accumulate enough so you can cover all living
expenses utilizing your assets and 10- 15 hours of work per week
per spouse. You'll reap most of the benefits of work while avoiding
most of the problems. You'll be working one or two days a week
and pursuing your passions the rest of the time, while your peers
are slugging it out to hang on to their full-time jobs. Your life will be
better. Less worry, less anxiety, less fear-- time to do what you
really want to do. It's possible. You can make it happen.
This book breaks new ground. It is unusual for families with children
to accumulate enough wealth to make a difference in a short
time unless they are high earners. Our family has a formula that
works. It could work for your family, too.
Are you a little cynical about the personal finance industry's
hype and exaggerated claims? Does the whole area of personal
finance conjure up negative images of things like boredom, complexity,
and hopelessness? If you don't trust professional money
managers but want to know how to manage your money and
achieve more freedom, this book is for you. We have no conflicts of
interest. Although we recommend specific investments, we do so
only because we feel they're the best. Our strategies are based on
real life experiences, involving day-to-day issues faced by most
families. Unfortunately, the financial services industry doesn't
understand these issues and has left middle-income families behind.
They're using strategies designed for the wealthy and applying
them to average families even though they usually fail.
This is not a radical or extreme book. It will guide you and your
family toward financial freedom using sensible, realistic, logical,
and reasonable strategies. Yes, it may seem radical to suggest that
families with children earning modest incomes can achieve financial
freedom, but we won't propose that you implement extreme
changes to get there. In fact, the point of this book is to provide
strategies to achieve financial independence without earning more
money, relocating, or changing jobs. Ours is a moderate, non-threatening
approach. What we have done, you can duplicate, and you
won't need to make extensive changes or even suffer to do it.
We won't mislead you by claiming that this process is easy. It's
not. Doable, yes. Stimulating, yes. Incredible relief if you make it,
yes. Easy, no. For example, some of the concepts you need to learn
to invest your money appropriately might be difficult to grasp. But
you can do it. All you need to do is read, then read some more, then
read some more. When we were just getting started, we took a week
off work, got a pile of books, and plowed through them. We can
recall the howling wind and subzero temperatures as we sat in our
comfy recliners with the pile of books at our sides. It was a week
that changed our lives. You can do that. We include a list of excellent,
carefully hand-picked resources.
This book is understandable, informal, and conversational: We
say what we'd say if you were sitting in our living room. It will
challenge you to analyze how you do things and make creative
adjustments so you can build assets without suffering. Because you
aren't paid a lot, you simply can't afford to make big mistakes with
your money, so you need to keep your head in the game and make
smart choices. Learning, thoughtful reflection, and creativity lead to
smart decisions and financial freedom without suffering. Anyone
can just stop spending their income and pile up money, but it takes
careful planning and creativity to build assets while still enjoying
life. We built a large nest egg, we did it fast, and we did it without
suffering. Your family can do that, too. You, too, can take your average family all the way to financial freedom. This book will show
you the way.
