The Four Horsemen of the Financial Independence Fighter

by FI Fighter on December 16, 2013

in Thoughts


Sorry, I don’t have any pictures of horse(men)…

If your goal is to reach early financial independence, you will need a lot of firepower to do so. Your time horizon is short, so you must use this exceptionally short time window wisely. The only way to realistically get to early FI is to acquire as many assets as possible. To maximize your progress, you will need the following:

  • Earn a high income.
  • Save as much of your earned income as possible.
  • Earn additional income through side hustle ventures.
  • Start generating passive income as soon as possible.
  • Re-invest all excess funds into acquiring more income producing assets.

Of course, the above is easier said than done. After all, you have no control over how the markets will react during your working years. If you start near a market bottom, you’ll have a reasonable chance of capitalizing on substantial appreciation gains. However, if the bulk of your investments are made near a market top, you’ll be in for a rude awakening if a collapse occurs just as you are ready to exit stage left.

Cash Flow Rules

In any event, your primary focus MUST always be on increasing your cash flow. If you buy the right type of assets, the cash flow will hold steady even as the underlying principal oscillates off the screen in times of uncertainty.

Further, an added wrinkle that gets introduced is the concept of leverage. Some investors love it and swear by it since it allows them to rapidly accumulate valuable assets in a timely manner. On the other hand, there are investors who are more reluctant to take on the added risk. If the thought of using leverage keeps you up at night, it’s probably not the best strategy for you.

You must assess your own situation, and ultimately find the right balance that works for you.

Focus on the Income

I’m a firm believer that the quickest path to early financial independence is through earnings, not savings. In other words, focus on your offensive gameplan, and not so much on pinching pennies or cutting coupons.

Granted, you need to save a large portion of your income, but you don’t need to overdo it. For instance, if I have a craving for a pumpkin spice latte at lunchtime, I’ll go buy one. It’s all about finding the right balance between enjoying today and saving for tomorrow. Extreme frugality, as a strategy, should only be utilized if you know for certain it will not break your spirit. If your morale dies, so will your progress!

These days, I don’t keep tabs on a budget, and spend as I see fit. Quite frankly, my time would be better utilized trying to find the next killer investment as opposed to trying to save 50 cents off a box of cereal. In other words, if I’m trying to invest $100,000 into buying more assets, I need to focus on ways of increasing my net returns from 10% to 15%. That’s the difference between earning $833.33/month and $1250/month in cash flow. If you’re successful in finding ways to generate that extra $400/month, you can buy as much cereal as you’d like afterwards. 🙂

Compounding is absolutely at its most powerful when it’s snowballing an object of massive proportions!

1st Horseman

The easiest way to introduce offense is to get a job. Ideally, a high-paying one. A JOB will of course require your time, since it’s earned income. However, for most of us, this is unavoidable and simply the price of admission we all have to pay to help us reach the end game of financial freedom. So, suck it up and get to work! If you’re lucky, you’ll land a job that also regularly pays out: bonuses, stock options, RSU’s, ESPP, etc. Take everything they will give you. For the first few years, at least, your JOB will be your primary source of income and your most important horseman.

Full disclosure: In my own situation, I’m an engineer working in high-tech. I earn a fixed salary of over $100,000 that is evenly distributed throughout the 52 weeks of the year. My bi-weekly paychecks are always the same, regardless of how many hours I put in. My biggest pet peeve is the fact that I actually have to be in the office (physically) for 40 hours each week (minimum). However, my job does offer some pretty good benefits such as: bonuses, stock options, RSU’s, and ESPP. I am fortunate in this regard. These rewards are extra, and provide a boost to the base salary.

At this stage of the game, this horseman is still absolutely needed. My plans would fall apart without the earned income.

2nd Horseman

The second horseman is side hustle income, which is still considered earned income. It may be something you do in the comfort of your own home, without any real commitment (or consequences), but it still requires you put in hours to earn a paycheck. There’s nothing wrong with that, and a side hustle gig is a great way to add extra income into the mix. Some popular ideas are blogging and freelance writing. These are relatively easy to do (doesn’t require training or special equipment), and the barrier to entry is low.

Full disclosure: I write on a blog (obviously), and this is something I do in my spare time. I don’t yet earn much from it (maybe enough to buy a steak dinner every month?), but it is my goal to try and build up this “business”. I would love to see the day when this site is earning $1000/month (just being honest), but that by no means is the main objective of this blog. Freelance writing may be a better option to earn side hustle income at this time.

At this stage of the game, this horseman is weak and not contributing much to the offense. It’s still a baby colt! My plan is to focus on more side hustle ventures in 2014. This includes blogging, and freelance writing. Freelance writing seems like the most logical starting point to actually start earning some side income, though.

3rd Horseman

The third horseman is easily my favorite, the early FI income stream! The first two horsemen will help you get to financial independence, but this stream is the one that will allow you to enjoy it! The early FI income stream will consist of any cash flow that is generated through passive, or semi-passive investments. For most people, this will mean owning assets in: stocks, bonds, mutual funds, real estate (single family homes, multi-family apartments, commercial space, public storage, etc.). Remember, assets are your ticket to freedom, so work on acquiring as many as possible.

Full disclosure: Before I set sail off into the sunset, I would like to build a substantial investment portfolio made up of mostly real estate (single family homes, multi-unit residential properties). The current goal is to reach 10 properties by the end of 2015. Today, the rental income is right around $1300/month.

In addition, I would like to rebuild a dividend portfolio so that I have funds that are readily available and easy to liquidate. The dividend portfolio will serve dual purposes: 1) Cash flow reserves. 2) Additional passive income yielding around 3% to 4% annually.

At this stage of the game, this horseman is still young, but growing up fast! We ended 2012 with a passive income stream generating $777/month (including retirement accounts). By the end of 2013, the passive income stream will be at $1300/month (excluding retirement accounts). It sure would be amazing progress if I’m able to double the cash flow each year until I retire!

4th Horseman

The fourth horseman is my least favorite, and the one I’m starting to neglect. This is also the one your employer encourages you to invest most of your spare capital into as well, because it’s one that will force you to stick around. You might have guessed it, we’re talking about traditional retirement plans!

Traditional retirement plans are set up to promote employee retention since you can’t easily access the funds until age 59 1/2, which defeats the whole point of early retirement. Your employer lures you into investing by often times providing company matching (free money). Free money is never a bad thing, but if your goal is to reach early financial independence, you probably shouldn’t invest more than up to the free match. You’ll need the extra capital to help build up your early FI income stream, instead.

Full disclosure: When I was a young buck, I threw all my spare capital into the 401k and Roth IRA retirement accounts because I didn’t know any better. Early retirement never even crossed my mind…

In hindsight, it wasn’t a mistake because I’m now sitting on $150,000 in retirement funds. These days, I just believe I know how to better invest that capital. My rationale is, “why invest in a 401k and Roth IRA that will only feed me later in life, when I can invest in rental properties that will feed me both today and tomorrow?”

This year, I firmed up my gameplan and realized that I wanted to now retire at age 30. In order to make this possible, I decided to stop all 401k deductions in June. The retirement plans aren’t all bad though. They do give me a backup plan in case my early FI plan fails, and I have to keep working until traditional retirement age. Further, the 401k and Roth IRA count towards capital reserves, so are extremely useful when you’re trying to get loans for rental properties.

At this stage of the game, this horseman is sufficiently grown (fed)… and can probably stand to shed a few pounds. I don’t have any future plans to invest again into a 401k or Roth IRA.


To reach early financial independence, you’ll need assets that produce cash flow. In order to get to the end game quickly, you’ll need to buy up as many assets as possible.

Focus on the four horsemen! More specifically, utilize horsemen 1-3 to help build up as much income as humanely possible. Re-invest the excess into buying even more assets. Lather, rinse, repeat. Over and over again. Soon enough, you’ll have the cash flow needed to allow you to retire early.

In regards to horseman #4, if your plan is similar to mine (you want to use leverage to acquire properties), it may be worth building up this colt, to some degree. From my own experience, I stopped funding traditional retirement accounts when their total value reached $150,000.

The great thing about the 401k is that all contributions are made with pre-tax dollars. If you get a company match, even better. This makes the task of building up this portfolio even easier… and when you get to underwriting, the pre-tax dollars will count ~70% towards capital reserves! The 401k is a great tool to use to get through closing.

Here’s my own visual aid to help summarize:


For fun, here’s a far-reaching goal for me to aspire to (not my actual numbers):

About $198,000 in yearly income. One can dream, right? 😉



{ 23 comments… read them below or add one }

1 FI PilgrimNo Gravatar December 16, 2013 at 10:43 am

Love this post, I’m actually mulling over Horsemen 1 & 2 right now, since I am also employed in the technology sector and must also be at the office for 40+ hours/week (exempt). The biggest difference is that I have 2 kids, with another on the way. 🙂


2 Fast WeeklyNo Gravatar December 16, 2013 at 12:35 pm

Congrats Pilgrim, our first…a son….is due in March. The very thought leaves me wanting a better life/work balance than I’ve had in the past. You’re putting out some good content. Keep it up


3 FI FighterNo Gravatar December 17, 2013 at 7:55 pm


Congrats on #3! I can easily see how you would have all the motivation in the world to get to early FI. 🙂 Being stuck at work 40+ hours each week is not exactly the best way to maximize our time in this world…

All the best!


4 JC @ Passive-Income-PursuitNo Gravatar December 16, 2013 at 12:51 pm

I’m at horseman 3 right now just riding along and picking up steam. That second chart sure would be awesome. In some situations the numbers do work out better for tax-deferred accounts even if you’re pursuing early FI. But it largely depends on what kind of investments you want to use. I still prefer the method of collecting the match and that’s all that gets contributed. I’m around $125k in traditional retirement accounts and that’s just going to be left to compound until I can easily withdraw them once hitting the age requirement or just left as inheritances/donations upon my passing. I can’t wait to switch over to Horseman 4. Although at the rate you’re going you won’t be too far off from that.


5 FI FighterNo Gravatar December 17, 2013 at 7:57 pm


Yeah, there’s definitely a time and place for retirement accounts. As someone who spent their first 6 years or so maxing out these accounts, I can see the returns they generate in an up market. However, since my timeline to FI is so short, I really need to focus on #3 now.

Let’s keep stuffing this colt and make sure it keeps on growing!



6 Done by FortyNo Gravatar December 16, 2013 at 1:06 pm

What a cool analogy. My side hustle colt is just a twinkle in his horse-mother’s eye right now, and the rental income colt can barely stand…but I’m working on them!


7 FI FighterNo Gravatar December 17, 2013 at 7:58 pm

Done by Forty,

Thanks! You’ve got a plan and that’s half the battle!

All the best!


8 EvanNo Gravatar December 16, 2013 at 1:58 pm

Can’t do anything about the 401(k) unless your company has in service withdrawals, but why not distribute your Roth or Traditional IRA through 72(t) distribution?,-Employee/Retirement-Topics—Tax-on-Early-Distributions


9 FI FighterNo Gravatar December 17, 2013 at 8:00 pm


Thanks for the link. I’ve looked into SEPP before and might actually consider doing it someday. Right now, my plan is to not rely on the 401k at all, and just let it grow up until traditional retirement age… If I encounter some hiccups along the way, most definitely, SEPP would be a good idea.

I’m hoping the third horseman will be strong enough soon so that I won’t need to fall back on this.



10 ElroyNo Gravatar December 16, 2013 at 2:47 pm

I focus mainly on 1 and 4. 3 manifests itself in the form of taxable investments – I don’t really worry how much income they generate at this point.


11 FI FighterNo Gravatar December 17, 2013 at 8:02 pm


Yeah, if you focus on 1 and 4, then 3 is kind of inevitable. I started out with just 1 and 4, but have been honing in on 3 these last few years.

If my timeframe was much longer, I probably wouldn’t be worrying about 3 so much either… But I might need it as soon as next year 😉



12 The First Million is the HardestNo Gravatar December 16, 2013 at 5:25 pm

Great post, one of my goals for the new year is to focus more on #2 & #3. I have to start working more on those than on #1 and 4 if I want to get to where I want to be anytime soon.


13 FI FighterNo Gravatar December 17, 2013 at 8:05 pm


Thanks! Same here, 2 and 3 will be my main focus in 2014. 1 just needs to hold steady, and I’m about done focusing on 4.

Best of luck!


14 Financial SamuraiNo Gravatar December 16, 2013 at 6:25 pm

Good stuff man. Any plans to relocate to a lower cost place ?


15 FI FighterNo Gravatar December 17, 2013 at 8:06 pm


Thanks! Definitely do have plans to locate out of the Bay Area and into a cheaper location post FI.

I’ll save the details until I get closer to that day… 😉



16 Financial SamuraiNo Gravatar December 21, 2013 at 6:04 pm

Coolio. $200,000/year is my passive income goal as well. Fun to have goals!


17 theFIREstarterNo Gravatar December 17, 2013 at 1:18 am

“Full disclosure: I write on a blog” – that line made me chuckle

Great summary of how to formulate a retirement plan with the various strategies available! I’ve been pondering the whole “Traditional retirement accounts” and avoiding the tax vs paying the tax now and having the money to invest in property (etc) a lot recently, so it is interesting to hear you’ve stopped the 401k payments completely!

We can access our 401k equivalent at 55, so for me I think it at least makes sense to keep paying into it up to the employer match. I might also pay some more to bring me down to the next tax bracket, as the 40% tax rebate just seems to much to pass up on! I’d still have other income to pile into other investments, just not quite as much. Hmmmmmmmmmm…. time to run the numbers and formulate a solid plan at the start of 2014 methinks!!!


18 FI FighterNo Gravatar December 17, 2013 at 8:08 pm


haha, just stating the obvious 😉

Yeah, it definitely makes sense to contribute up to at least the employer… Hard to pass up on free money, right? If my early FI timeline was like 5 year out or longer, I probably wouldn’t have stopped so soon…

Work those numbers and let me know what you find. I’m curious myself…



19 Michelle @fitisthenewpoorNo Gravatar December 17, 2013 at 7:57 am

I’m working on horesman #1 right now. I work in nonprofits, so I only make roughly 40k a year. Pretty small pickings compared to those with higher earning potentials. I’m hoping to get a second job over the next month and continue growing the blog and freelance business to the $500/month mark.


20 FI FighterNo Gravatar December 17, 2013 at 8:10 pm


Earned income will be different for everyone, but as long as you stick to a plan, you’ll accomplish your goals. For instance, I know many people at work who make more income than my far reaching goal (~$200k), and they don’t have anything in savings! A high income is useless if you spend it all…

Good luck on the blog and freelance business. That’s a great goal, and similar to what I’m aiming for.

Take care!


21 Happy Life and MoreNo Gravatar December 30, 2013 at 7:09 pm

Great post! This year my plan is to get started on blogging and fuel #3 and start generating some passive income. Check out my site at


22 ForrestNo Gravatar January 1, 2014 at 11:50 am

Fifighter – traditional 401ks can be rolled over to Roth and then withdrawn 5 yrs after the conversion. ERers of course pay very low or no taxes on these, assuming no other income. SEPP is a also a more complicated option.

Of course the benefit here is no tax on deposit and low/no tax on withdrawal.

Best, Forrest


23 Joe CarnationNo Gravatar March 15, 2014 at 6:29 am

I’ve thought about suspending the 401(k) contributions as well but I think it might be better to max it out at 17,500 each year and then borrow against that balance to fund the purchase of rental properties. The interest rate on 401(k) loans is usually cheaper than traditional bank loans and I’d rather pay 3.25% to myself than 5.0% to a bank.


Leave a Comment


{ 2 trackbacks }

Previous post:

Next post:

Copyright © 2012 FI Fighter