Chapter 1
You're Worth More Than You Think

Since you're reading this book, chances are that you can relate to my story in some way. Maybe you have what is considered a "good" job by most standards, yet you feel like you don't have much to show for it. Your net worth seems to be growing slowly, or not at all, and may even be negative . and to make matters worse, it's not like you hop out of bed in the morning skipping to work. Or maybe you love your career, but you can't figure out how to meet your financial goals. At times you may wonder, "What am I doing all this for? I imagined life to turn out a little differently than this."

You're not alone. Nearly 70% of Americans don't like their jobs, according to a Gallup study,1 and 65% of Americans lose sleep over their financial worries, based on a CreditCards.com poll.2 Career and money woes appear to be especially prevalent among young professionals. In fact, a LinkedIn survey found that 75% of people in their 20s and 30s had experienced "insecurity and doubt" around work and money (no duh, right?) - or what they might call a "quarter-life crisis."3

While many of us have tried to improve our careers and our finances, we may have done so by approaching them as two totally separate problems. But in reality, decisions you make in one of these areas can have a huge impact on all other areas of your life. When I came to this realization for myself, it totally changed how I thought about work and money, and how I chose to live my life.

Net Worth Is Not the Be-All and End-All

"You are not your job, you're not how much money you have in the bank. You are not the car you drive. You're not the contents of your wallet."4

Yeah, that's a line from the movie Fight Club, but it's true: your net worth doesn't define who you are as a person or equate to your self-worth. Yet, early in my career, that's exactly what I thought. It was a pretty demoralizing mindset, especially when I stacked myself up against the billionaire corporate titans who graced the covers of Forbes and Fortune.

I was so focused on the dollars and cents (or lack thereof) that I neglected to account for everything else I had going for me. I was a young, college-educated professional with plenty of time to build my skills and earnings potential - my human capital. And according to the College Board, the value of your human capital can be significant, with average lifetime earnings for a college graduate estimated at nearly $1.2 million.5 Unfortunately, human capital isn't an asset that is typically accounted for in the calculations of a simple net-worth statement - but maybe it should be.

If you think about your total wealth as being made up of both your human and financial capital (Figure 1.1), it becomes clear how your work and money are connected, and why it's so important to find a job you like. In the beginning of our careers, our ability to work and earn income actually comprises the majority of our wealth. As we work, we begin to convert part of our earnings potential into real dollars, which allows us to fund our living expenses, save for our financial goals, and grow our financial net worth. During our prime working years, and especially early on, small improvements to our human capital, like building new skills or starting a side hustle, could have a much larger impact on our future net worth than trying to earn an extra 1% on our tiny investment portfolio.

Figure 1.1 The evolution of your human and financial capital.

Saving Money Is About More Than Just Retirement

Do you ever think about how bizarre the concept of saving for retirement is? After finally getting out of school, you enter the workforce raring to start a real job (or if nothing else, to be getting a paycheck), only to immediately be told that you should start socking away money for retirement - a point that feels like eons into the future when you're supposed to just play golf, volunteer, and sit on the beach. What the heck?

The reason this sequence of events may sound odd is because there's nothing logical about retiring. In fact, retirement as we know it didn't even exist until the late nineteenth century, when a politically savvy German chancellor invented the concept. For all of recorded history up until that point, you worked until you died - usually in labor-intensive jobs.6 Even when retirement programs did begin to gain popularity, workers couldn't begin collecting pensions until they were 65 or 70 years old. At the time, a lot of people died before they could even make it to retirement - and if they did make it, they often didn't get to enjoy it for long.

Fast forward to the present day, and it becomes clear that our attitudes about retirement haven't caught up with the times. The median retirement age in the United States today is 62,7 despite the fact that life expectancies have leapt to the 80s.8 Meanwhile, work has become much less physically taxing (gotta love the information superhighway!). While it would be tough for most 75-year-olds to toil at the steel mills all day, they might not find it so hard to consult for companies, write memos, or drive for Uber. And sure, playing golf and sitting on the beach sounds fun when you're working 60-hour weeks, but that could get old really quick (no pun intended).

Don't get me wrong - I do think saving for a potential retirement is important, but what if we could reframe our thinking about jobs, retirement, and this large financial goal? What if you could find a job that you loved doing, and that you didn't want to retire from? In that paradigm, you might still save money as early as possible in your career - but it wouldn't be solely to help fund your retirement. Instead, you could benefit from your good savings habits immediately by gaining greater flexibility to find a career you enjoy now, and even take some breaks along the way.

And get this: you don't need to amass a bajillion dollars before you can start doing this.

So, how much money do you need to gain more freedom and control over your life? That's your financial runway: the amount of savings needed to achieve your goals based on your specific situation, underlying expenses, and values.

How Long Is Your Runway?

A short financial runway is simply having an emergency fund - typically three to six months of living expenses saved in a checking or savings account. For example, if you spend $5,000 a month, you should build a target emergency fund of $15,000 to $30,000. Financial planners (myself included) usually recommend establishing an emergency fund as one of the first priorities for clients. This gives people a stash of money to tap in case something unexpected happens to them, whether that's losing your job, unforeseen healthcare expenses, or some other costly emergency.

A really long financial runway is sometimes referred to as financial independence - a concept that has become particularly popular among millennials through the Financial Independence, Retire Early movement (some use the acronym FIRE for short). Financial independence is typically defined as no longer needing to work for money because your savings and the income from your investment portfolio are sufficient to cover your living expenses. Many in the personal finance community use the 4% rule as a starting point to measure financial independence - a rule of thumb that says people need 25 times their annual expenses saved across cash and investments to reach financial independence. Building on our example above, if you spend $5,000 a month (or $60,000 a year), to be considered financially independent, you would need to have $1.5 million in cash and investments ($60,000 × 25).

How Much Is Enough for Financial Independence? Understanding the 4% Rule

The classic calculation for determining how much you need to achieve financial independence is based on a series of studies. In 1994, financial planner Bill Bengen laid the foundation for the 4% rule by publishing research on how much people could safely withdraw from their retirement portfolios each year without running out of money.9 Because the results varied based on the year people retired and the sequence of market returns they experienced, Bengen's study looked at how various investment portfolios would have fared for a 30-year retirement for start years of 1926 through 1975. His analysis found that people could safely withdraw 4% of their investment portfolio in the first year of retirement, and 4% plus a cost-of-living adjustment in subsequent years. On a $1.5 million portfolio, that would mean being able to safely withdraw $60,000 in the first year of retirement. Subsequent research, including the well-known Trinity Study10 conducted by a group of professors from Trinity University, confirmed Bengen's findings.

Thus, the 4% rule was born. From a mathematical perspective, you can calculate the amount of money you would need to reach financial independence by simply dividing your annual expenses by 4%. Because doing mental math with percentages is sometimes tricky, people typically simplify the formula by multiplying their annual expenses by 25. (4% is the mathematical equivalent...