376: My Super Simple Formula For Retiring Early (Within 3 Years) With Steve Chou

Podcast: Download (Duration: 18:51 — 21.9MB)

Retiring early in three years comes down to keeping your expenses low enough that a modest income covers them, building an asset that earns while you sleep, and structuring your days around what you actually enjoy. The number you need to hit is far smaller than most people assume, because the real goal is freedom rather than maximum income.

In this solo episode I lay out the formula my wife and I used, and why I considered myself retired even while working as an engineering director.

Below is the whole thing: what retirement actually means, why lifestyle inflation buys you a nice prison, how to find your income-generating asset, the disease of more, and how to design a perfect day.

Key takeaways

• Retirement means doing what fulfills you, not ceasing to work. I felt retired while employed full-time.
• Spending more rarely buys more happiness. Every dollar in the bank is freedom.
• Lifestyle inflation is a trap. A friend’s dream house costs $2,700 a month in utilities alone.
• A day job caps your income at hours in a day. You need an asset that earns while you sleep.
• Business ideas come from how you spend your time. Everyone is a geek about something.
• Growing fast is genuinely unpleasant. A Today Show feature 7x’d our revenue and wrecked our holidays.
• Goals are meaningless. You hit the number and move the goalposts.
• Design perfect days now. String enough together and you are already retired.

What retiring early actually means

Retirement means having the freedom to spend your time on what fulfills you, which frequently includes work you genuinely enjoy.

Webster defines it as leaving your job and ceasing to work upon reaching the normal age for it. That definition produces bad outcomes for people who have not figured out what makes them happy.

My friend Nellie Akalp sold her first company for a very large sum and thought she was finished. She traveled the world, got bored and unhappy inside six months, and started another company.

My own version: in the latter half of my career as an engineering director, I considered myself retired because I loved the job. I looked forward to the office because I enjoyed solving hard engineering problems around smart people.

The myth worth discarding is that you suffer now to collect later. There is no reason to wait until you are old to enjoy your life when you could enjoy the entire journey.

Why keeping your expenses low creates freedom

Living below your means is what makes the number you need small enough to reach in a few years.

My wife and I earn substantially more than we spend across two seven-figure businesses. We could buy a huge house, a Lamborghini, or extravagant vacations, and we deliberately do not. The result is that money is not something we think about.

The trap is lifestyle inflation. Every upgrade raises your expectations, and higher expectations require more money to sustain permanently.

A friend recently stretched to buy an enormous house. It is genuinely beautiful, and his water bill runs $1,200 a month and his electricity $1,500. Add the mortgage and property taxes and he bought himself a very nice prison, because he now has to work hard to maintain it.

The principle underneath: more money in the bank always means more freedom, and spending more money rarely means more happiness.

The test is your own memories. Buying an expensive car will never be a story I tell. My daughter’s face the first time she rode a bike is one I will always have.

How to plant your money seeds

A day job trades time for money, which caps your earnings at the number of hours in a day, so early retirement requires an asset that earns while you sleep.

The five income streams that produce over $2 million a year for me:

• Bumblebee Linens. Selling handkerchiefs online since 2007, now a seven-figure business.
• My Wife Quit Her Job. The blog and podcast together generate seven figures in profit annually, and it started as a passion project.
• Seller Summit. My annual ecommerce conference, another passion project, producing six figures a year.
• Investments. Angel investments in small companies plus stocks and mutual funds.
• YouTube. The newest stream, just beginning to earn meaningfully.

How to find a business idea from your own interests

Look at how you already spend your time, because everyone is a serious geek about something and that expertise converts into a product or course.

Three examples from people I know:

My tennis coach lost students during COVID and cannot teach when California wildfires make the air unsafe. He built an online virtual coaching business, grew a YouTube channel quickly, and launched a successful digital product.

A friend who is exceptional at Microsoft Excel created a course teaching spreadsheet mastery.

My cousin runs 100-mile races and developed a custom massager for leg cramps.

The reason this matters beyond convenience is that a business built on something you love stops feeling like work.

The disease of more

Chasing growth for its own sake defeats the point, because early retirement is about financial freedom rather than earning more than you can spend.

Bumblebee Linens replaced my wife’s six-figure salary within a year and grew to seven figures. We hit our actual financial objective in year one and kept pushing anyway.

The aggressive sales goals we set were genuinely stressful. One year we were $50,000 short of an artificial holiday target, ran a last-minute email blitz to close the gap, then worked 12-hour days through the holidays fulfilling those orders while short-staffed.

Another time the NBC Today Show featured us and our daily revenue went up sevenfold. We spent the aftermath scrambling to ship everything, and none of it was enjoyable.

What nobody tells you about growing fast is that your infrastructure will not be ready and the growth will consume your life.

Goals are the mechanism of the problem. You hit an arbitrary milestone, congratulate yourself, and move the goalposts further out.

The replacement: calculate how much you actually need to be free, then work toward that number and stop letting money drive your decisions.

How to design your perfect day

Identify what makes you happy and schedule it into your week now, rather than deferring happiness until some future endpoint.

My parents taught me that paying your dues and suffering now produces success later. I agree with the first half and reject the second.

What goes into my own perfect day: lunch with my wife, neighborhood walks with the whole family, ultimate frisbee, tennis, my kids’ volleyball, tennis, and basketball practices, and computer games with friends.

The effect is reliable. As long as one of those is scheduled, the daily grind of running two businesses does not bother me, and the journey stays enjoyable.

Stringing enough perfect days together in a row is my working definition of retiring early. Stop telling yourself you will be happy at the end, and structure your life so you are happy along the way.

Why finding meaning matters more than quitting

I have no plan to retire in the traditional sense and intend to run My Wife Quit Her Job until I can no longer type, record, or produce video.

In my own mind I am already retired, because I enjoy the work. As a former electrical engineer who spent his days with computers, teaching is the last thing I expected to love.

The part that keeps me going is specific. When a student tells me they quit their job because of something I taught, that lands somewhere real.

Retiring early is finding activities you love that do not feel like work, even when they technically are.

The steps to retire early

Here is the sequence: understand what you need financially and psychologically, study people already living that way, build an income-generating asset from your existing interests, and schedule perfect days into every week.

Start with three questions:

• How much money do you need to survive comfortably?
• How do you want to spend your days?
• Who do you want to be around?

Then make two lists: the activities that make up your perfect day, and the things you hate doing.

Then find role models and study how they actually live. Mine were my friends Polly and Ed, who built Boku and Tiny Prints into multimillion dollar companies while still spending real time with their kids. They appear in episodes 15 and 6 of this podcast, early on because they were part of why I started it.

Frequently asked questions

What does retiring early actually mean?

Having the freedom to spend your time on what fulfills you, which often includes work you enjoy. I considered myself retired while working full-time as an engineering director because I looked forward to the job. The dictionary definition of ceasing to work leaves people bored and unhappy.

How much money do you need to retire early?

Less than most people assume, because the number depends on your expenses rather than your income. Calculate what you actually need to be free and work toward that, instead of setting growth goals that keep moving further out.

Why is lifestyle inflation a problem?

Every upgrade permanently raises what you need to sustain it. A friend’s dream house costs $1,200 monthly in water and $1,500 in electricity before the mortgage, which means he now has to work hard to keep it. More money in the bank buys freedom, and more spending rarely buys happiness.

What is an income-generating asset?

Something that earns money while you sleep, which is necessary because a day job caps your income at the hours available in a day. My five are an ecommerce store, a blog and podcast, an annual conference, angel and market investments, and a YouTube channel.

How do you find a business idea?

Look at how you already spend your time, since everyone has deep knowledge in some area. A tennis coach built virtual coaching, an Excel expert built a course, and an ultramarathon runner built a leg cramp massager. Building on something you love keeps it from feeling like work.

What is the disease of more?

Chasing growth after you have already met your financial needs. My wife and I hit our objective for Bumblebee Linens in year one and kept setting aggressive targets anyway, which produced 12-hour holiday workdays and a Today Show feature that overwhelmed us.

What is a perfect day?

A day with activities you genuinely enjoy scheduled into it, so the work around them stops feeling like a grind. Mine include lunch with my wife, family walks, tennis, ultimate frisbee, and my kids’ practices. Stringing enough of them together is what retiring early actually looks like.