Below is a guest post from Early Retirement Extreme. As you might imagine from the title of his blog, he writes about extreme ways to retire early. This article serves as a good introduction to that philosophy. I encourage you to sign up for the Early Retirement Extreme RSS Feed.

Being wealthy means having lots of opportunities. It means that you can do whatever you want. You have connections to people, you know how to get things done, and you have all the resources to do so.

On the other hand, being rich merely means having a lot of money to spend. You can only be rich at a high level of income, and the only way for a rich person to accomplish anything is to pay for it. Obviously, paying for it makes the person less rich and therefore rich people have to work hard or eventually run out of money.

To make the distinction clear: You can make someone rich by giving them a lot of money, but there is nothing you can give to anyone to make them wealthy. Wealth only comes through your own effort.

Yet in our consumerist society, most people dream of being rich, or alternatively famous or powerful, although I suspect those are merely seen as short cuts to getting rich. Far fewer dream of being wealthy and even fewer dream of being wise. There exists now, in our society, a prevailing attitude that you can get something for nothing. Just witness the free lunch people expect in the stock market where anything below 10% APY is considered bad performance. Contrast this with the attitude of just two-three generations ago, where TANSTAAFL prevailed and successful money management was mainly about preserving principal rather than using money to magically make more money with no apparent effort.

No, you must give something to get something. In my experience as a blogger, the main points of resistance towards change, that is, where people argue the most that it is impossible for them to change, are their house, their driving habit, their food, and lately their cell phones. These are also the areas that make the biggest impacts on their life and prevent them from becoming wealthy.

Here’s a sure-fire way to achieve financial independence in a handful of years.

1. Go to craigslist.org and click on housing and enter $200 minimum and $400 maximum in the search form. Pick something that lies so close to your work that you can walk or ride a bike there. Also make sure that this also holds for the nearest supermarket.
   
2. This place will likely be smaller than what you are currently living in, so get rid of everything which does not fit and that you are not using anyway on freecycle.org — you might want to start this process early, since it is a lot harder to get rid of stuff than it is to buy it.
   
3. Sell your car. You don’t need it anymore.
   
4. Stop buying stuff. Make the stuff you already own last. Trust me, by the time you wear it out, you will be financially independent.
   
5. Decrease your other running expenses. First, learn to cook. If you think of meat and cheese as treats you can easily stay under $100/month. For instance, I eat meat about once a week (There’s a reason they are at the top of the food pyramid along with candy). Drop superfluous insurance. Drop your expensive cell phone plan. Drop your cable TV.
   

Calculate your new monthly expense level (E) and compare it to your monthly after-tax income (I). Now, compute 25*E/(I-E). This is the number of years it takes you to reach financial independence).

Now this may seem harsh — especially the thing about selling your car, right? ;-) — and it is difficult when someone is completely inexperienced and used to spending money on everything and most people either say “that’s fine for you, but I could never do it” (think of the children!) while others try for a little while but then give up because it feels too challenging. It is in many ways like taking the bottle away from an alcoholic. He does not know either how he could possibly be happy without being inebriated. The non-alcoholics are just fine without getting drunk on a daily basis, but for the alcoholic getting through the emotional hangover of preconceptions and prejudices about life as a sober person is hard.

However, after about a year (Hey, I said it was not going to be quick and easy), an amazing personal transformation takes places. What always happens is that you will think of your new home as home rather than a sacrifice, much like when you move into a place with a nice premium dollar view yet after two weeks, you hardly look out of the windows anymore. Too, at that point you will be used to walking and biking everywhere that such simple “exercise” does not seem like a strenuous and boring labor (the average American only walks 400 yards a day). A year of not running down to the mall to buy a gadget every time there is a problem and the accumulated experience successfully finding ways to bodge and improvise solutions, and you will see new problems as challenges to be overcome with the resulting feeling of accomplishment. Conversely, having to buy anything will be seen for what it is, a failure to competently solve your own problem; buying new things will feel positively bad.

Many, who has initially seen such extreme frugality as deprivation, will come to see that consumerism is merely another form of deprivation aimed at reducing personal creativity. For instance, buying a chemically treated 4 hour log at the store and lighting it with a Bic lighter prevents you from exercising your skill in stacking up a fire with kiln, twigs, and real logs, which you may also have use a maul to split yourself, and starting it with a cotton ball dipped in vaseline; or learning that trick in the first place.

Hence, first, you become wealthy in terms of experience. Do not confuse experience with experiences. Experiences is typically something you buy for money like flying to Africa to observe a tiger or two, going to a concert, or eating something at a fancy restaurant, but all those are merely events. The experience I am talking about is akin to when one speaks of an experienced engineer or an experienced carpenter, when a lot of experience means that the person have seen and successfully solved a lot of problems and that he or she can be expected to produce quality work.

Once you have that kind of low-impact frugal experience, you can expect to live a quality life with far fewer expenses than a regular consumer. If you are still working and saving 75% of your paycheck, savings go up rapidly. This means that financial independence is achieved in short order. For instance, after 5 years I was able to cover all my expenses with interest and dividend income from my savings and investments. This significantly increased my freedom and opportunities. As I was no longer tied to my income, I decided to focus more time on things that were more meaningful and interesting to me rather than spending most of my time building my resume and concentrating on my career. Thanks to this I replaced my stressful salaried job with an hourly but equally well-paid high-skill job that I work at for about 15 hours a month; I blog for fun rather than income which also gives a lot of freedom in terms of posting schedules and advertising; I spend a lot of time on sports (about 5 times a week); and I now have the pleasure of working with (no longer for) people from a wide array of interesting fields.

Although being frugal is the best way to attain your financial freedom decision making also plays a big role. Be sure to educate yourself regarding all investments you choose to make. Annuity Straight Talk’s pros and cons of annuities is a great example of a site that helps its members make the right decision prior to any investment. This way of thinking will essential get you ahead on your path to financial freedom.

That is what I call wealth and there is no secret to it. Anyone can be wealthy, but not everyone can be rich.

Be sure to read more about How Jacob became Financially Independent in 5 Years.