Published by Hamilton Software, Inc. on November 1, 2009 | Comments

The true key to becoming wealthy and retiring at a young age is a lot simpler than you would expect, as I discovered by doing it myself.

In my career as an engineer I learned the importance of spending time up front to produce a good design. All too often, projects are rushed into construction without adequately completing this crucial first step, under the assumption the sooner the building starts, the sooner it will get finished. But any experienced engineer can testify a project ends up taking much longer to complete if the planning and design phase is glossed over in the beginning.

What really amazed me was the smart engineers surrounding me in the workplace, who understood this concept and took it to heart in their jobs, failed to apply it at all in their financial lives. Like the vast majority of people, even the most well trained strategic thinkers plod aimlessly through the most important project in their lives without any clear objectives or timetables. Ask the average engineer when he or she expects to be financially independent and you’ll get a shoulder shrug.

Certainly it’s true some people don’t want to stop working. But even those who love their jobs would like the freedom and peace of mind that comes with financial independence, and have other dreams like owning a vacation home or taking a sabbatical. Most of us care more than we’d like to admit, but very few have addressed this concern in a meaningful way. People instinctively shy away from this problem due to ignorance, lack of confidence, or fear of what they may learn.

Our parents’ generation could reasonably claim that architecting one’s financial lifespan was too complex and contained too many unknowns to be practical, but today’s computers and layman-friendly software have eliminated that excuse. Not only is it possible to design a reliable strategy for becoming wealthy, the efficiency of doing so can accelerate it by many years.

Thomas Stanley and William Danko’s now famous book, “The Millionaire Next Door” dispelled the myths of wealth and revealed to us how common it really is for an average working class American to become wealthy. Becoming wealthy is not a pipe dream, nor an impossibly difficult task. It does not require one to sacrifice family or integrity or to possess unique skills. But like any significant human feat, it does require planning.

In my first job out of college, I sat next to an old man who was about to retire. He gave me an important piece of advice: every young person should identify their financial goals and what will be required to achieve them. “Draw a line on a graph from where you are now to where you want to be”, he said.

When I tried to draw my line, I discovered the line is really a curve with a number of variables influencing it, and depending on the values of these variables, can have many different shapes. The old man's advice was simple in concept, but easier said than done. To adequately address the problem would require a computer.

To create the “line” my friend had suggested, I needed a program that allowed me to solve for any one of the many variables that define the line. Since I was young, everything was flexible. I could retire at any age, I could increase or decrease my rate of saving, I could invest aggressively or conservatively, and I had several choices of tax-advantaged savings vehicles, all with complex tradeoffs and hidden consequences. There was also the question of how rich I wanted (or needed) to be. The choices for any of these variables had complex effects on the others, and since I didn’t know what those effects would be, I needed a program that would show me. Ultimately, determining the ideal “line” was a process of finding a mathematically-derived compromise that was practical and consistent with what I wanted out of life.

My solution was a program called EarlyRetire (from Hamilton Software). By allowing me to instantly solve any of these variables (i.e, examine every line), the program allowed me to continually explore my options and immediately see the long-term effects each would have. It allowed me to see what things would make a difference and what wouldn’t, how much I could afford for big expenditures like a vacation home, and at what point I could stop working.

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