These axioms can certainly help you achieve financial independence, meaning that your income from investments is sufficient to live on, earning you the freedom to give up paid work earlier than most. But chatting to those who’ve done it and reflecting on how I got there myself, I think there are other steps you can take that will liberate you a lot sooner from the need to serve ‘The Man’…

Excel at Excel

Academics have shown that start-ups which create business plans are more likely to prosper than those that don’t. I reckon the same applies to life projects such as FIRE. The act of producing a document creates a set of commitments, and benchmarks against which performance can be judged.

I think two pages are needed: a profit and loss projection looking at income and outgoings — both today and going forward — and a balance one, listing your assets and liabilities today and projecting them into the future.

Producing such spreadsheets forces you to confront difficult questions such as: what you earn, and expect to be paid in the future; your spending; any debts; your asset allocation strategy and your expected returns on them.

Earn more

It’s surprising how often obvious solutions get overlooked. If you’re intent on building up investment assets that will one day support you, your income must exceed your outgoings. If that’s the case then boosting income by, say, 10% will enhance your savings by more than cutting outgoings by the same percentage.

As the UK labour market tightens, many people who’ve been in their jobs for a while are earning less than they might if they moved. While there are risks attached to switching employer, presenting a compelling case to your current boss for a raise might yield results. Likewise, investing in your human capital by acquiring new skills and qualifications may generate a sizeable payoff in terms of future earnings.

The same principle applies to the returns generated by your investments. As I demonstrated recently, there are funds that have historically outshone the safe option of putting everything into a low-cost tracker ETF. So review your investments periodically, to ensure you’re getting the best performance.

Spend selectively

You’ve probably guessed that I’m not an uncritical admirer of the early financial independence bloggers’ emphasis on frugalism: money invested in your skills, or paying the best active fund managers, is seldom wasted. Nor, in my view, is it reckless to pay for the things that make work bearable and hence safeguard that income stream for as long as you need it, such as moving home to reduce a commute or eating healthily to ensure you maintain stamina.

Some returns on outgoings are non-financial. Every year you spend in early retirement, not earning wages, carries the opportunity cost of the money you would have been paid had you worked. It’s all wasted, if you don’t use that hard-won time meaningfully.

Same goes for your leisure hours while you’re employed: no amount of money will bring back time. If there are things you want to do with your precious days on this planet that incur costs, such as travelling or pursuing hobbies, by all means find ingenious ways of doing them more cost-effectively. But always remember that the opportunity cost of not doing those things is immeasurable.

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Over the long run, a low-cost FTSE 100 tracker or a diversified portfolio of individual stocks stands a good chance of exceeding the first of these growth rates by perhaps 1% a year, while some of the big-name growth- and small-cap investment trusts have achieved the second. But the third? Annual mid-teens historical returns are generally confined to risky and volatile microcaps — too risky for retirement money for some — and to funds investing in specialised sectors and strategies. They’re niche products so you shouldn’t be overexposed to any one of them, but as part of a portfolio that includes some household name investment trusts, they could play a vital role in ensuring your retirement is more comfortable — and arrives sooner — than a boring tracker could achieve.

Courting success

Burford Capital (LSE: BUR) is the world’s leading litigation funder, backing corporates in commercial and intellectual property disputes and enforcing judgements for a share of the awards. It has returned a spectacular 484.8% in the past five years, a figure unlikely to be repeated as the business is now mature. Nevertheless, an average annual return of 20-25% could be within reach. Profits are dependent on judicial decisions and exchange rates (most cases being in the US), so volatility may be high, making this a choice for investors with long time horizons.

Healthy returns

International Biotechnology Trust (LSE: IBT) has achieved the highest five-year return in the hot biotech sector, at 221%. With rich countries facing ageing populations and major medical breakthroughs increasingly achieved through technology, I believe IBT’s mix of medics, scientists and financiers are well placed to continue generating 25-30% a year from a global mix of listed and unquoted investments. The trust recently introduced a 4% annual dividend — great for retirees, but those not yet in drawdown should reinvest it.

Private pleasures

Private equity-owned businesses generally outperform listed ones. But, as the name suggests, the asset class is seldom available to the public. A few listed private equity trusts represent the exceptions, Pantheon International (LSE: PIN) being the UK’s longest-established and, in my view, best. Returning 168.3% over five years, it’s hugely diversified, by fund manager, stage, scale and geography, so the 11.8% annual NAV return achieved since inception, which includes a big hit following the global financial crisis, could be beaten. Second biggest holding in my SIPP.

Stellar strategy

A handful of fund managers aim to achieve private equity-like returns by investing in small firms where they believe they can exert influence on management to execute strategic change. The shining star among these is Strategic Equity Capital (LSE: SEC), which has generated a 177.2% return for investors over five years. Its share price fell slightly in 2016 because it moved from trading at a premium over Net Asset Value to a discount, as the small-cap IT sector fell out of favour. This makes it a smart buy now, raising the probability of achieving 12-15% a year growth going forward.

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Mark Bishop owns all four shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But there are catches, linked to the fact that the scheme is intended to incentivise saving for a first home deposit or for retirement. So is it for you?

Born at the right time?

If you were born before 7 April 1977, stop reading now: you’ll be 40-plus when LISA goes live, meaning you’ll be too old to participate. There’s a minimum age, too (18). But once you’re in, you can contribute, collecting bonuses, until you’re 50.

Property owner?

If you own (or have ever owned) residential property, even jointly, taking money out of a LISA to buy a home will cost you a 25% penalty. The same deduction will apply after 2017/18 for all other withdrawals made before the age of 60 (there’s a compassionate exemption for people expected to die within 12 months). The penalty is deliberately greater than the original top-up. Property owners may still benefit from LISAs for retirement planning, however.

How much tax do you pay?

If you’re a higher- or additional-rate taxpayer choosing between a LISA or a pension for retirement savings, bear in mind you’ll get more upfront tax relief with the latter (40% or 45%). LISA contributions could still make sense if you’ve used your pension allowance for the year, expect to hit the lifetime allowance or might need to access your savings before the age of 60 – albeit with the 25% penalty, except for qualifying property purchase or terminal illness.

There’s also a big difference in how drawdowns are treated in retirement. With a pension, 25% can be withdrawn tax-free, whether as a lump sum or as regular payments, while the rest is taxed as ordinary income. In contrast a pension-age investor will be able to withdraw as much as he or she wants from a LISA tax-free.

When do you expect to retire?

Currently pension savers can access their money from age 55. This is expected to increase to 57 by the time those born in the late 1970s come of age. But this limit could easily rise, especially for those only just old enough to open LISAs. In contrast, the LISA rules are clear that the drawdown threshold is 60. This could change in the future, but it would be politically controversial to backdate it to apply to contributions already made. So a win for pensions, but only on points.

Conclusions

• Saving for a first home? If you’re aged 18-39, you’d be a fool (as opposed to a Fool) not to save for a deposit in a LISA. Couples can have one each, raising the saving power to £10,000 a year, including the top-up;
• Planning for retirement? For most higher- and additional-rate taxpayers, it makes more sense to pay into a pension than a LISA. But if you’re lucky enough to be able to use your full pension allowance and put money into a LISA, go for it! Basic and non-taxpayers will normally do better with a LISA, especially if they expect to pay income tax in retirement;
• Nearing 40 and undecided? To protect your right to contribute to a LISA, you must start doing so before your fortieth birthday. My view? Invest a small sum while you can and keep your options open. It’s a cheap insurance policy!

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Mark Bishop has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Keynes was mistaken!

The economist overlooked three factors:

• The more disposable income people have, the more products and services companies create to target wants rather than needs. As time progresses, our expectations change and those items become perceived (wrongly) as must-haves;
• One of the greatest gains from affluence has been longevity, driven by healthier lifestyles and diets and great healthcare. When the first state pension scheme was introduced, in 1908, only one person in four lived long enough to claim it. Now, the Government predicts that girls born in 2016 will live to 93.5, and boys to 90.6 and has commissioned a review into whether future generations may have to work into their seventies to avoid old-aged penury;
• Over the past 40 years, affluence has driven up the prices of goods in short supply — principally, residential property. Increasingly, younger people are forced to devote much of their incomes to buying or renting property — boosting the wealth of the baby boomers, but impoverishing themselves

How you can profit

Every cloud has a silver lining, and you can turn each of these challenges to your advantage. Follow these three simple steps and you really can retire earlier than Dad:

1. Spend less, save more. Step off the consumerist cycle of constant upgrades of items you probably never needed. Buy what you need, and choose items that last. Turn down the heating; put on a jumper. Drink tap water, not bottled. If you don’t own a home, think hard about whether you want to jump onto the property ladder — and if so, where. With a little planning, you can live more comfortably than any previous generation, while putting aside more money than they could ever have achieved;

2. Start early. Longevity is a blessing; additional years of life can’t be bought. Turn them to your advantage by starting your journey to financial independence early. If you’re aged between 18 and 40 when the Lifetime ISA scheme opens in April, you can save £4000 a year, get a 25% Government top-up and access the whole lot tax-free aged 60. Or contribute up to £40,000 a year into a pension, if you have qualifying earnings, and get tax relief at your marginal rate. You can withdraw 25% tax-free 10 years before you qualify for the state pension and draw a taxed income from the rest, or forego the lump sum and the first quarter of regular income will be untaxed. Finally, the ISA limit rises to £20,000 in April; there’s no tax break on the way in, but income and capital growth is tax-free;

3. Invest wisely. While assets such as property now look expensive, technology is driving down the capital intensity of many businesses. Stock-pickers such as Nick Train believe this will supercharge the returns available to investors over the next 20-30 years, as affluence and low interest rates boosted the returns on property for the previous generation. In the accumulation phase of your investment journey, pick stocks that generate high and ideally rising returns on capital employed and are great at converting statutory profits to cash — or invest in collective schemes, such as Train’s Finsbury Growth & Income Trust and arch rival Terry Smith’s Fundsmith Equity Fund – that will do the job for you.

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Mark Bishop holds both stocks mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Investment trusts are a great way to fund such a lifestyle. They’re publicly traded companies, listed on the London Stock Exchange, that specialise in buying shares in other companies. Unlike Unit Trusts and Exchange Traded Funds, they can hold dividend income in reserve in good times, potentially enabling them to maintain payouts if things get tough. Many hold more than a year’s income in reserve, which is reassuring. They can also borrow, which boosts returns when things go well (though it can also accentuate the impact of downturns on the share price). What’s more, an investment trust’s share price reflects market sentiment and not just the underlying value of its assets. So there are times when they trade at discounts. Combine this with the effect of gearing, and it’s clear that well-timed purchases can boost returns.

Here are three I think make great buys right now:

Perpetual Income & Growth

A classic case of a great investment trust going cheap right now, Perpetual Income & Growth Investment Trust (LSE: PLI) has underperformed the FTSE 100 in the past year because its manager, Mark Barnett, has made a conscious decision to be underweight in capital-intensive and volatile commodity and energy stocks, which feature prominently among the UK’s largest firms. What’s more, its discount to Net Asset Value (NAV — the worth of its underlying holdings) stands above 8%. With biases toward healthcare, consumer goods and financials, Barnett selects firms that are able to increase their dividends faster than inflation, achieving a 125% rise in payouts between 2007 and 2016 and holding eight months’ dividends in reserve.

Finsbury Growth & Income Trust

A conviction-driven fund, Finsbury Growth & Income Trust (LSE: FGT) typically backs no more than 25 companies, holding them for many years and buying on the dips. Manager Nick Train focuses on businesses with what Warren Buffett calls ‘wide moats’ — intellectual property such as brands, technology or network effects that insulate them from competition. In recent months market sentiment has turned bearish on some of these holdings, resulting in the trust’s share price merely matching, rather than outperforming, the FTSE 100. At 2.01%, the yield is low, but it grows at typically 7.5-8% a year, while the 10-year annualised share price return, at 10.61% , makes it a great choice for those still working or in early retirement who seek returns biased toward capital growth.

Princess Private Equity

Combining a generous 6.19% yield with attractive capital growth (above 19% a year between 2014 and 2016), Princess Private Equity Holding (LSE: PEY) is a different beast to my other recommendations, since it invests in unlisted companies. Managed by global private equity firm Partners Group, the Guernsey-domiciled trust deploys half its capital in Europe, a third in the US and the rest in Asia and elsewhere, across a mix of sectors and situations (buy-outs, growth investments, turnarounds and debt). Traded in Euros, the sterling price is influenced by the exchange rate, which has regained around half its post-Brexit losses. The valuation techniques used for the unlisted investments are cautious, with most realisations exceeding carrying values.

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Mark Bishop holds all three stocks mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.