Escape Plan

What’s YOUR Escape Plan?

Years ago, Wendy and I kept an old three-ring notebook with a faded white label across the front labeled ‘Escape Plan’.  In it we recorded:

  • our dreams of what a typical day would be like in retirement,
  • our goals of getting out of debt, saving, and investment earnings, and
  • our detailed plans  for becoming financially independent, down to the nuts and bolts.

Over the years we would open our Escape Plan binder, record the accomplishment of each short-term goal, and refine our plans and our dreams. And then we might talk for several hours about what each of us would do when we retired. This little notebook had a powerful impact on how we spent our money over the years, because we realized that every dime we spent either went towards our Escape Plan or to some other unrelated thing that wouldn’t get us closer to our goal of financial freedom.

On December 15, 2017 (over two years earlier than our first aggressive estimate) we retired. We are now free. Our Escape Plan worked!

I’ve spent my life trying to help people see the vision of becoming financially independent.  And now that Wendy and I have reached this goal for ourselves, I suppose I’m getting even more annoying.  I want everyone to wake up.  I want others to share in the joy of being truly free.


Rant over.

Let us continue.

People don’t retire early (before age 65) by accident. They dream about it, scheme about it, talk about it and live it in their minds until it becomes a reality.  They write these plans down!  It takes real forethought, focus and years of effort to achieve.

To retire early requires that you become financially independent.

  • What is financial independence? It means that you have a passive source of income that pays you more than your monthly expenses, so you no longer have to be at work every day.  Being financially independent means you can retire, if you desire.
  • What is passive income? Passive income is cash received on a regular basis, which requires minimal effort on your part to create or maintain.  It’s an income machine that pretty much does the work without you showing up, except to make a few decisions here and there.
  • What are examples of passive income machines?
    1. Investment income from stocks or bonds you own.
    2. Rental income from property you own and rent out.
    3. Royalty income from music or books you have published.

Reaching financial independence is very simple, in concept. Save each month. Invest your savings into one of the three passive income machines above, and when it produces more income each year than you will be spending each year in retirement, you have reached financial independence and can now retire.  Or you can keep working because you enjoy it, whichever you choose.   Simple right?  But easier said than done.

What are the necessary ingredients for becoming financially independent?

  1. Find your dream. What will you do each day when you no longer need to go to work? What is your ambition? What will bring you happiness? Figuring this out is critically important. Your dream must be big enough to motivate you to sacrifice today so that you can live your dream tomorrow. Some have creative juices that have been put on hold while they toil away to earn a living and they can’t wait to unleash their creative energy full time. Others keenly yearn to spend their time serving others full-time in their community or on missions. Others want to build an airplane or a boat and explore the world. Some want to play golf, play the guitar, or just goof off.  What is your dream? Figure it out!
  2. Set your goals. Begin with the end in mind. When will you retire? How much will you spend each year in retirement? How much will you need to put in your passive income machine each month so it will become big enough to fund your retirement? What will you need to buy or sell (e.g., airplane, boat, house, motorhome) in order to live your dream? What do you need to learn in order to run your passive income machine? Make a list of to-do’s with deadlines that will lead you to your goal of becoming financially independent.
  3. Pay yourself first. What do I mean by that? In order to reach financial independence, you must save money each month. Put it aside and put it to work to build your passive income machine. You will not be successful at saving if you try to put aside the money that’s left over at the end of each month – because there won’t be any left. Paying yourself first means to set an automatic deduction that goes directly from you paycheck at the beginning of the month into your passive income machine. Learn to live on what’s left, not the other way around.
  4. Get out of debt. All the way out of debt. Forget the mortgage deduction, pay the ($#*!) thing off! Until you rid yourself completely, and I mean completely of debt, you will not become financially independent. There is some kind of magic that happens when you no longer owe anyone, when you no longer make payments, and when you no longer pay interest on loans. Get out of debt! Make it a priority. The day you pay off your last debt is one of the seminal days of your life!
  5. Learn to live within a budget. Isn’t this obvious? Find a budgeting tool and use it. Wendy and I have used and wallet.   These budget systems regularly synchronize with our bank accounts so we can see, just by looking on our cell phones, where we stand in each budget category as we spend money throughout the day, week and month.  This allows us to ration our fun evenly over the month for categories like “Entertainment” without blowing a hole in our budget.
  6. Develop expertise in one of the passive income systems (investment, rental or royalty income). Learn how to become a master at your passive income machine by reading, attending classes, and experimenting with your passive income machine. These machines are not built in a day. It will take years to learn how to run your passive income machine, so get started at a young age. Create a financial journal that records your successes and failures each year so you can learn from them.
  7. Write down your plan for becoming financially independent. Put it in a binder. Review it regularly and make adjustments. This is your personal ESCAPE PLAN.
  8. Do all of this as a couple. Your dream must make both of you excited. Thrilled! Otherwise you will find that one of you will start sabotaging the system (busting the budget). If you find that one of you is having problems staying within the budget, go back to the beginning. Review the dream and make adjustments to your retirement plans so that BOTH of you are excited about being financially free. Just like raising children, working toward financial independence requires that you talk about it a lot and make changes in the goals and methods until you are both truly excited, committed, and in sync. Then divide and conquer as a team. The two of you will become a powerful force!

Wealth vs. Income.

Why don’t they teach this stuff in high school? There is a huge difference between wealth and income. Each can only be measured with a completely different tool. Let’s start with income.

Income = revenues minus expenses. News flash. Most of your friends and neighbors have very little income. They may get a large paycheck (revenues), but they spend it all (expenses), so that there is no remaining income.

Some believe that only doctors and CEOs have a big enough paycheck to afford to save. Not so. Read The Millionaire Next Door by Stanley and Danko. You will find that school teachers, garbage truck drivers, in fact, people from all walks of life become millionaires. It’s not so much how big of a paycheck they have, it’s what they do with it that counts. Millionaires become millionaires because they pay themselves first, they get out of debt, and they build passive income machines with their income.

When Wendy and I moved to Georgia so she could start her career as a physician (at the age of 40), the attorney who did our house closing was shocked at the small price we paid for our house (only $150,000).  He said to us, “Well, you’ll be back to buy your castle in a few short years.”   Wendy and I knew better.  This little house was all we needed. We had financial goals that included paying off that house mortgage and all of our other debts and we had a strong desire to continue to feed our passive income machine.

Wendy and I know of many physicians who have their castles, their exotic cars and who put their children through private schools. They make big paychecks, but they have no income. They have now arrived in their 50’s and they have no hope of retiring, even when they reach their 60’s or 70’s or 80’s. They assumed that it would all ‘just happen’.

This is the world we live in, for doctors and lawyers and professionals of all kinds. It’s not that they did not have the capacity to retire, they simply did not plan and sacrifice for retirement. They did not look to their future.

Most people are arriving at the magical age of 65 and assume they will retire on Social Security. But very few people can survive on what Social Security pays. Why don’t they teach this stuff in high school?

If you want to see how much money the Social Security Administration has projected for you to get from the government when you retire, look up your personal data on It will show every dime you declared to the government from every job you worked in your lifetime and will forecast how much you’ll get if you early retire, retire on time, or retire later. Then, look at your retirement budget and see if they come anywhere close to each other. If not then you need to make up the difference with a passive income machine.

This is assuming Social Security will exist in some form when you choose to retire, which is a whole other conversation.  Their own website states: “The projected point at which the combined trust fund reserves will become depleted, if Congress does not act before then, comes in 2034 – the same as projected last year. At that time, there will be sufficient income coming in to pay 79 percent of scheduled benefits.”  In other words, it’s a sinking ship.

So what is wealth?

Wealth = assets minus liabilities. What are assets? An asset is something that has and holds value. Examples are houses, apartment buildings, retail buildings, land, stocks, bonds and savings accounts. Are there good assets and not-so-good assets? Yes. Assets which produce passive income (apartments buildings, retail buildings, stocks and bonds) are good assets. Assets which you personally use and spend money on like your home and car are not-so-good assets. They are necessary, but do not imagine that you are building a passive income machine when you buy yourself an expensive house or vehicle. They suck money, they do not produce money.

What are liabilities? Debts. So wealth is measured by adding up the value all the stuff (assets) you own  and subtracting what you owe in debt. That is your wealth, also known as Net Worth.

Obviously there are two things you must do to increase wealth. One is to get completely out of debt. The other is to use your income to buy more and more assets. And most importantly, these need to be smart assets — the kind that produce passive income, not the kind of asset that you personally drive or sleep in.

Choose Your Passive Income Stream.

So what kind of passive income machine will you choose to build to fund your retirement? Let me mention three:

  1. Investment income from dividends and interest produced by stocks, bonds, mutual funds and ETF’s (Exchange-Traded Funds).
  2. Rental income from property you own and rent out.
  3. Royalty income from music or books you have published.

I suppose there may be other categories of passive income, but I can’t think of what they would be.

Very few people are still alive today who can count on a company funded retirement plan. And many who have counted on them have discovered that they were underfunded and the company’s promise to them was broken. I have pilot friends, for example, who were within a few years of retiring from Delta Airlines when it went bankrupt and their retirement fund simply disappeared. There are many now who are counting on state or municipality funded retirement programs who may be deeply disappointed. Many states and municipalities have grossly underfunded their retirement funds and now face either significant tax increases to fund them or they will have to reduce the promised retirement. Caveat Emptor (Buyer Beware)!

Suggestion: Take your retirement into your own hands. Choose a passive income machine, feed it, and learn to operate it. To choose which passive income machine you will build you need to understand your own strengths, weaknesses and interests. And you need to understand what is required to be a successful operator of each of these types of passive income machines. Let’s take them one by one and see what they entail.

Royalty Income.   This takes talent, time and perseverance. Some come to planet earth with unique abilities with their voice, their mind, their fingers or their toes. And, they come with a strong desire to develop and share those talents. Be it as an inventor or a singer or a writer— they love to express themselves with their unique talent. And so they practice and practice. And then they take a risk. They perform. They put their book ideas out there for review or go for a singing audition. Most have to accept seemingly unending rejection and critique before they can produce what people will happily pay for. But in the end, some are successful. Success for them comes not only in the development of their talent, but in agreeing to a well-written contract that gives them royalty income every time their book is purchased or their song is listened to. So ask yourself: Do I have a talent and a strong enough desire to develop it? Am I willing to risk rejection and critique? If so, this may be your source of passive income.

Rental Income. My uncle had a TV repair business (way back in the day). Early in his career he created a passive income machine by purchasing small homes and renting them out. Later, when his TV repair business became obsolete (it became cheaper for people to just buy a new TV than to repair one), he and his wife retired early and lived on the rental payments from the houses which he owned. This is a common way for people to build a passive income machine. With their ‘pay yourself first’ money, they buy income producing property. They may specialize in rental homes, condos, apartments or commercial retail space. They become adept at handling responsibilities such as writing effective rental agreements, wisely selecting from rental applicants, collecting rent, and handling repairs. There are plenty of books and educational sources to help you learn to be an excellent landlord.

Wendy and I considered building a rental income machine several times in our lives. There is much I like about rental income. But we also knew ourselves. We are wired differently. Wendy and I have an oversized need for constant travel. And we knew that with a rental income machine we would need to be somewhat anchored to one place so that we could respond to lessee needs and stay abreast of the local real estate market. This is an important point. Understand what is required by an income machine and make sure, like us, that it will gel with your lifestyle and temperament. The rental income machine is very doable for most people and I highly recommend this approach for passive income.

Investment Income. Owning a business, but not being the manager, is awesome. That’s what happens when you own shares (stock) of a publicly traded business. As a part owner (shareholder), the company pays you a percentage of its income four times a year, in the form of dividends. And over time, if the company is successful and grows, that dividend will increase.

As a part owner of a business do you need to show up to work?  No.  Do you need to hire or fire people?  No.  Do you need to wear a suit?  No.  In fact, you can stay in your pajamas or wear shorts and a t-shirt like me.  So what is your job as a business owner?  Keep tabs on the business.  Understand its competitive position and financial health.  This is easily done once you learn some accounting, and it is made easier if you can find trustworthy stock analysts who are your ‘feet on the ground’ at these businesses.  (See my list of suggested websites at the end, which reference Morningstar, SimplySafeDividends, etc.)

A wise investor has a diversified portfolio (i.e., shares in a a variety of businesses) so that all their eggs are not in one basket. The idea of investing using this fundamental analysis method is to research businesses and build a portfolio of strong companies. A portfolio may include stocks and bonds in 20 to 50 different companies in a variety of business sectors (i.e., health care, energy, utilities, real estate, etc.).

Another method of investing, called technical analysis, ignores the health a business, but instead, focuses on the rise and fall of  stock market prices to anticipate whether they  will rise or fall in the future. There are a huge variety of technical analysis methods and a plentiful supply of books and classes that you can study to become familiar.

Fundamental and technical analysis can be used to buy and sell stocks, bonds, preferred shares, ETFs, mutual funds, etc.

Eat the Tree or Just the Fruit.

Regardless of which of the three passive income machines you build for your retirement (investment, rental or royalty), you will have a choice to make when you’ve built your nest egg and are ready to retire. Will you eat the tree or just the fruit? Here’s what I mean:

  • For investors, will you sell a portion of your investments each year for your annual income, or will you live solely off your dividends and keep all your stocks so they can produce more dividends the next year?
  • For real estate investors, will you sell a portion of your properties each year for your annual income, or will you simply live off the rental payments and let all your properties continue to produce?
  • For those with royalty income, will you continue to receive royalties each year, or will you sell the rights to your royalties for a lump sum payment which you will then live off of each year?

There is no right or wrong answer here, but it is a decision you need to make. I find that most retirees sell a portion of their investments each year to cover their yearly expenses. For me, that’s like chopping down a fruitful tree, a key part of your orchard, which will reduce the orchard’s crop in subsequent years. I prefer to live on my dividends alone and leave the orchard untouched. To each his own. What will you do?

Ambition and Energy.

How many people take charge of their lives? And how many people float along like a leaf in the wind with no real plan, just banging into things that seem to ‘happen to them’. You have a choice. It is your responsibility to find happiness. Take charge! Working toward financial independence is taking charge of your life.

A book Wendy and I read when we were in our 20’s that changed our lives was Your Money or Your Life by Joseph R. Dominguez, Monique Tilford and Vicki Robin. Some of the principles they taught were related to time and energy.

Think about what we do every weekday. On average, we as Americans spend five days a week submitting ourselves to a company and a boss, 48 to 50 weeks each year, for most of our adult lives. We do what they ask us to do, and in turn, they pay us. We exchange our life’s energy for money. What do I mean by our life’s energy? There are two things we have very little control over in this life:

  1. Time. How much time do you get to live? You don’t know. It could stop at any moment. But you can hope for the average 75 to 85 years. And you can increase your odds of a long life on planet earth by exercise, healthy diet, avoiding harmful substances and high risk activities. But your time in mortality is limited, and there’s not much you can do about it. It’s a fixed variable, which makes it precious.
  2. Energy. Some people absolutely vibrate with energy until the day they die. Most of us, however, have an energy peak in our twenties with a gradual decline until our 50’s or 60’s, at which time there is an energy cliff. Our stamina just disappears. Again, we can marginally affect our energy level with exercise, etc., but nature has a bigger say here.

So we only have so much time and energy to expend in this mortal life. Every day at work, we’re exchanging our limited supply of life’s energy for money. With that money we eat, we house ourselves, we buy the clothes we wear to work and the car we use to get there. Much of what we spend our life’s energy for is so we can be productive workers. We buy a home near the office, a reliable commuter car, clothing to look competent, and then we take vacations (and seek therapy, take mood medications?) to recover from work. Much of our weekend is spent decompressing. It’s a loop.

Don’t get me wrong, I loved work (most of the time) and felt a sense of satisfaction and purpose from my efforts. But did I want to submit to the company and the boss for the rest of my life? No way. Working toward financial independence is working toward jumping out of the loop. What if you could become financially independent while you were still young enough that you would have the energy to fulfill your life’s ambitions?

Something that you don’t understand when you are 20 or 30 or even 40 years old is that ambition and energy decline with age for most of us. In fact, somewhere in your 50’s you really start to not give a (%&*#) any more. It’s quite an amazing transformation. Now this might not happen to all, but I think it happens to most. And stuff starts to not work like it did with these human bodies when we get into our 50’s. The energy level and the stamina go down the tubes. It becomes harder and harder to face the commute to work and the endless meetings. When the ambition and the energy leaves as you get older, but you still have to work because you need to make the car payment and the house payment, you begin to feel like a rented mule. You begin to feel like a slave to the system, with no hope of escape.

Begin with the end in mind! While you are young, set your date for becoming financially independent, develop your detailed plans and live with a dream of freedom that is so enticing that it motivates you to discipline your spending so that you can become financially independent early in life. Then you will be able to spend your life’s energy doing those things that bring you the greatest emotional reward and joy. If that is continuing to work at the same job you have had for 45 years, then good for you! But most of us want to get off the hamster wheel.

One of the heroes of my youth is Benjamin Franklin. Among other things, I was fascinated that he retired in his early 40’s, and the vast majority of his great ideas, his public service, and his inventions occurred in his retirement years. Why? Because he was free to think! Being financially independent allows us the creative bandwidth to study and think — deep thoughts without interruption — on any subject we desire without regard to what a boss or company needs. Financial independence gives us the ultimate freedom.

Plan and Execute.

I tried to keep my message to you simple and straightforward. Plan for retirement using these steps:

  1. Find your dream.
  2. Set your goals.
  3. Pay yourself first.
  4. Get out of debt.
  5. Learn to live within your means.
  6. Develop expertise in one of the passive income systems.
  7. Write down your plan.
  8. Do all of this as a couple if you have a significant other tied to your retirement.

My message is directed to all my nieces and nephews and to all my young friends (younger than 50). Don’t come to me when you’re old and tell me — ‘Nobody told me!’

Because, with this missive, I just did.

You now have a basic map to follow to become financially independent — to become truly free. And I promise to be here for you to bounce ideas off. I’m happy to be your sounding board.

If you’re over 50 then it’s time to really get serious about where you stand because you’re in the 9th inning and, in this game, you don’t want to have to play in extra innings, if you know what I mean. If you’re in your 50’s, it’s time to get formal about your plans.

Having said all of that, let me issue one more caveat: there is truly no financial security in this life, nor any other form of security, except for your faith in God. But putting your head in the sand just gets sand up your nose. God expects us to use our brains and manage our resources.  So work toward becoming financially independent.

Because we realize that even our best plans may not keep us secure, we also keep our eyes open for temporary work assignments in case our cash runs short.  And we have a ready stash of freeze-dried food, cash, gold and silver.  You just never know when the world is going to go completely pear-shaped.  So we have an escape plan within our Escape Plan.

Let me conclude with a few recommended books and websites to get you started. Good luck!

  • Your Money or Your Life, newest editions by Vicki Robin
  • Rich Dad Poor Dad by Robert Kiyosaki (He has a whole series of books, including books on real estate)
  • The Millionaire Next Door by Thomas Stanley
  • Can I Retire Yet? By Darrow Kirkpatrick
  • How To Make Money In Stocks by William J O’Niel (the trend-following bible)
  • Wallet by (for bank accounts in multiple currencies)
  • (for fundamental stock analysis)
  • (Useful for living off your dividends)
  • (A site to create your own trend-following system using ETFs)
  • (A Registered Investment Advisory firm that follows the O’Niel trend following system