The three paths to early retirement: entrepreneurship, investing or optimizing

When we first left our corporate jobs in 2015 and started travelling, I had the privilege of meeting CEOs, New York Times bestselling authors and real estate tycoons.

At the time, I was researching material for our book, Quit Like a Millionaire, and searching for a pattern among these rich, successful people. How do certain people become wealthy at such a young age? Is it just luck – or something else?

What I found is that while the ways these millionaires acquired their wealth were as individual as each person, there were three basic paths they followed.

Entrepreneurs

The first is the path of Entrepreneurs.

Building a successful business is tough work. Many successful Entrepreneurs have strained marriages because of long nights at the office, and some mortgage their homes to keep their fledgling business afloat. They do it because they have an unshakable belief in their business.

If they’re successful, however, the financial rewards are immense. In one year, the chief executive of a successful business can make more money than you or I will ever see in our lifetime.

Successful Entrepreneurs possess the ability to endure long periods of discomfort, a very high tolerance for risk and, surprisingly, a gift for understanding people. These individuals are exceedingly charming. They can walk into a room and effortlessly get everyone to like them.

The biggest obstacle to their success, however, is spending money like crazy. I’m talking yachts, exclusive country clubs and sprawling mansions. Entrepreneurs believe that if they run out of money, they can always make more, so their spending becomes ridiculous, which creates a risk of financial ruin if their business fails.

Early retirement is not about deprivation. It’s about spending money on what brings you joy

Investors

The second is the path of Investors.

Investors are experts at making money with money. There are many forms of Investors, such as stock pickers, commodities traders and real estate tycoons. I met one who made his fortune investing in farmland so he could build solar panels and windmills on it.

Successful Investors tend to have two traits: One is that they’re very comfortable with debt. To really make a lot of money as an Investor, you invest with other people’s money.

The second trait I’ve noticed is that successful Investors are nerds. When other people talk about celebrity gossip, they discuss central-bank meeting minutes, the latest dividend hike of a particular ETF or the days-on-market statistics of their local real estate market. Successful Investors eat, drink and breathe their investments.

The biggest obstacle that Investors face is an overconfidence in their own abilities. Because they know their market so well, Investors tend to reinvest any profits they make back into those same investments, setting little aside for saving. This can create a single point of failure, where one mistake can erase decades of wins.

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Optimizers

Finally, we have the Optimizers.

Optimizers aren’t CEOs or investing geniuses. They tend to have good jobs, but aren’t necessarily raking in millions. This group includes engineers and lawyers, but also teachers and nurses.

What Optimizers are good at is controlling their expenses.

Optimizers know how to get the things they need, such as food, housing and transportation, as cheaply as possible. They’re often misunderstood as cheap, but in reality they know that quality and price are not necessarily linked.

They generally distrust debt, which is why they tend not to own a lot of real estate. Like the Entrepreneurs, Optimizers are also able to deal with discomfort for long periods of time, which allows them to accumulate their savings, and like the Investors, they tend to be nerds, meticulously tracking their spending in spreadsheets.

Optimizers achieve their wealth by saving more than 50 per cent of their take-home pay. The biggest weakness of Optimizers is that they tend to be very risk-averse, which can cause them to be too conservative in their investments. If they can overcome this, however, they can use this high savings rate and turn it into passive income, which can allow them to retire decades earlier.

We are firmly in the Optimizer camp.

Choose your path wisely

The three different paths to wealth explain why there’s no single trait that predicts success.

What’s helpful for one path hurts on another. An Entrepreneur who attempts to take the Optimizer path will find themselves struggling to not spend money, while an Optimizer who attempts to be an Investor will find themselves endlessly stressed because of the amount of debt they’re in.

Therefore, the key to building wealth is knowing your strengths and weaknesses, and choosing the right path that fits your personality. Which path will you take?

Kristy Shen and Bryce Leung retired in their 30s and are authors of the bestselling book Quit Like a Millionaire.