Episode 83
Financially Independent, Retire Early (FIRE) is a movement that started more than 27 years ago.  It’s an interesting approach to retirement, but is it a sound retirement plan, and more importantly, is it right for you?  In this episode of GMR, we’ll explore this growing movement and what if any aspects of it might benefit you.

SHOW NOTES

FIRE - Financial Independence, Retire Early 

Kara in Keller, TX asks, “Hey David and Leo, I’m really curious to know your thoughts on the FIRE movement. Do you feel like it’s a realistic and balanced approach to retirement?

Fun fact: David Sandhu is sponsoring a movie here in the DFW area called: “Playing With Fire”, it’s a documentary focused on this movement of Financially Independent, Retire Early community.  

What is Financial Independence, Retire Early (FIRE)?

Financial Independence, Retire Early (FIRE) is a movement dedicated to a program of extreme savings and investment that allows proponents to retire far earlier than traditional budgets and retirement plans would allow. 

  • Dedicating up to 70% of income to savings, followers of the FIRE movement may eventually be able to quit their jobs and live solely off small withdrawals from their portfolios. 

  • It requires extremely high rates of saving at the expense of current quality of life and lifestyle (must be considered).

 

How Financial Independence, Retire Early Works

  • Movement started with the 1992 best-selling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez.

  • It came to embody a core premise of the book: comparing expenses and time spent at work against hours of your life. Every expense is compared to the time spent at work in order to earn the purchase.

  • Proponents of the extreme-saving lifestyle often begin by remaining for several years in the traditional workforce in order to save up to 70% of their yearly income. Once their savings reach approximately 25-30 times their yearly expenses, often roughly $1 million, they may quit their day jobs or completely retire from any form of employment altogether.

  • To cover their living expenses after retiring at a young age, FIRE devotees make small withdrawals from their savings, typically around 3% to 4% yearly. 

  • Depending on the size of the savings and desired lifestyle, this requires extreme diligence to monitor expenses and maintain and reallocate their investments. 

  • The danger is when stock markets fall and/or interest rate environments are low, the FIRE plan may fall short.

 
Additional facts from our friend David

  • The FIRE movement is marked by frugality, debt elimination and avoidance, minimalism, financial independence and extreme saving / investing. 

  • One of the most influential currently in this space is Mr. Money Mustache, a pseudonym for Pete Adeney he was an engineer (him and his former wife were) and writes about extreme frugality, paying off debt, extreme saving/investing and became extremely famous after writing a blog post titled "The Shockingly Simple Math Behind Early Retirement".

  • He makes his current income by ads on his blog. What’s funny is that many more FIRE bloggers have found that to be a successful way of ea sing into FIRE (starting a blog, making ad revenue and then not actually using the full 4% from their portfolio, it's very common as you'll see from the bloggers featured in the documentary coming out and have the same trend: Mad Fientist, Go Curry Cracker, Root of Good, Millenial Revolution

  • So "retirement" in the traditional sense of "no income from a job" is kind of redefined with hobbies or other activities (blogging, rental real estate, house hacking etc.) that actually produce income. 

  • Another trend you'll see is credit cards that have huge sign up bonuses or rewards for funneling all purchases through the credit card to then be used for no/low cost vacations / trips, which a certain blogger (Richmond Savers) made popular by writing a post titled "Take Your Family to Disney World For Free: Step-by-Step Instructions", who then merged with another blogger and created ChooseFI, an network of facebook groups and people dedicated to "travel hacking".

  • Another influential writer is JLCollinsNH, who became famous in the subculture after writing his Stock Series, and then subsequently followed it by writing a book "The Simple Path to Wealth", he's a huge Boglehead and the summation of the book is to simply invest into Vanguard low cost Total Stock Market Index Fund (VTSAX) and use that as your only investment option.

Extreme lifestyles won’t fit most people. If you are already living at a certain level of lifestyle, it will be very difficult to switch.

Income

  • Most have a fairly high income

  • Usually dual income, both in the $70K a year or more range, typically at least a household income of $100,000 a year, but often up to $150K - $200K in peak earning years (engineers, coders, banking).

  • Because of this high income, they live on less than half (be extreme), but still have necessities met.

  • The formula of living on 50% will allow anyone to retire in 17yrs, however it’s a lot harder to live on 50% of $40K than it is to live on 50% of 100K.

  • It is still possible on $30K, you can find ways to live on $15K a year, it’s just going to be extremely counter-cultural.

  • So education, hard work, and good income is a big part of this equation.

  • If you want to be FI, realize that there are two parts to the equation, raising your income will often get you to FI much faster than simply lowering your lifestyle. If you’ve got a great income, then it’s definitely time to start focusing on lowering lifestyle though.

Recommended take-aways:

  1. The percent of income you save will dramatically impact how soon you can stop working full-time.

    From Mr. Money Mustache (MMM) stats:

    • Save 10% = Retire in 51yrs

    • Save 30% = Retire in 28yrs

    • Save 50% = Retire in 17yrs

  2. Don’t let FIRE bring you discontentment across your whole life, don’t envy other people's lives, don’t overspend to match someone else’s life, but don’t necessarily dramatically change your life to match someone else’s life.

  3. Start working on the thing you’re most passionate about, the thing you love, that can provide a small amount of income. You might find that it’s easier to switch over to your passion full-time than you think. You can live on less, when you’re fulfilled by what you do.

 

Remember the We always recommend:

  1. Spend on Purpose

  2. Save before you Spend

  3. Increase your Financial Margin

  4. Invest Wisely

Resources

Budgeting and Debt Elimination Tools
Jesus on Money by David Thompson - stewardshippastors.com
Episodes 72 & 73 - The 4 Steps to Purposeful Living
David Sandhu website - DAVID$ DOLLAR$