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F.I.R.E- Financial Independence Retire Early
So imagine this you wake up in the morning its beautiful sunny Monday morning and you have just had a great weekend camping at your favorite spot in the mountains. Now if you are a normal average person you most likely woke up in your bed at home and now you have to get ready to go to work. But there is another scenario another option for you to consider while you are playing out this idea in your head. What if instead you wake up in your tent on your sleeping pad and the great weekend is not over what if you could stay out there camping for another day, two or ten.
What if by some miracle you didn’t need to go to work?
Well for most people in America and the rest of the wealthy western world it’s not a miracle but is instead something that you can accomplish much faster than you think.
How is this possible?
This is possible through the application of the ideas and principles outlined by the FIRE movement. The FIRE movement is a group of people that have taken the narrative of go to college, get a job, work till 65 and then retire and chucked it completely out the window.
The way they do this is so simple is seems absurd that you didn’t think of it yourself. I know that I really beat myself up about it when I first became exposed to the ideas found in FIRE. I like to break it down into 3 guiding principles that if followed will get you on the path to financial independence.
Principle 1- Be severely allergic to debt
Every debt that you have no matter how good (mortgage/college) or bad (credit card, personal loan, car loan) is a weight that is slowing you down from achieving financial freedom. All debt should be avoided unless the benefits of that debt far outweigh the negatives.
An example from my life where having a debt was better than not having a debt was buying a house. Many people in the FIRE movement will tell you that it is never a good idea to get a mortgage and in a lot of cases they are correct. In my particular circumstances, I think they would side with me because of a few extenuating factors. My mortgage is around 650 dollars a month for a 2000+ square foot house on a quarter-acre lot. To rent a comparable house in the town that I live would cost on average 1500 dollars a month to rent. On top of that, I am married, have a dog and a cat and I like to garden and grow as much of my own food as possible. Plus I am also a very DIY person and am capable of handling most home repair and improvements. In my case having a place where I can follow my passions and not be limited by a rental agreement give me much more satisfaction than I would gain by living a smaller cheaper apartment even if I could find one that would let me have both pets.
I also felt that the benefits of going to college outweighed the debt cost of doing so especially in my case because I only carried my college loans for about 13 months before I paid them off.
Thankfully I never fell into the trap of credit card debt or car loans so have never had those leeches sucking on my bank account. That being said I do use credit cards but I never let them carry a balance and I never buy anything that I wouldn’t buy with my debit card.
Principle 2- Save like you mean it.
The average savings rate in the US according to the US Bureau of Economic Analysis as of November 2018 was 6%.
Are you freaking kidding me? We live in one of the wealthiest most affluent nations in the world and yet the citizens of American and a lot of other wealthy nations can’t save more than that. If you really want to pursue FIRE you need to come to grips with the notion of saving like you mean it. So what am I talking about here saving 10%,20% even omg 30%.
I am talking about saving more like 50%,60%, 70% of your gross pay. Impossible you might say and for many people it might be difficult to save that much of your pay. But I would be willing to bet you money that if you take a good hard look at your expenditures you would find areas that you can save some money to the amount of at least 30% of take-home pay.
So in my current occupation, I make around 33,000 thousand dollars a year which is right around the commonly reported median income in the United States. So this is the point where I admit that I not quite saving the vaunted 50+ that I profess above. That is not to say that I couldn’t but instead, choose to pay extra on the house mortgage vs saving more money. Now an argument could be made that paying extra on a house is a form of saving since I am reducing the overall interest I will have to pay and I am gaining “equity”. That however is a much larger topic that would require a whole post or 10 to fully cover.
So back to the saving in order to get my 27% and pay more on the mortgage, I take advantage of some benefits the job gives me.
So that was before I even see my paycheck. What I save after my paycheck is another 275 dollars mostly going to investments which I will get to next. Now just covers my mandatory saving I do every month most month I also end up with some slush leftover in the budget that gets moved into savings/investments as well.
I do realize that not everyone has the same job-related advantages I do but there are many ways to increase savings outside of this avenue as well.
Principle 3- Invest in low cost index funds
The way you really make this work is that you can’t just leave all the money you are saving in the bank. Unfortunately due to a little devil called inflation bank saving won’t keep up with the cost of living unless you have a bank that will pay you 3% interest on savings. So there are many companies and services out there but the ones that have most of my money are Lending Club and Vanguard.
Vanguard has some of the lowest-cost funds out there and unlike most other companies the people who invest there are the owners of the company. There number one goal is to make the investors not shareholders money. They also have the lowest fees typically because they invest in the whole stock market and are not trying to find and pick individual stocks. Less overhead is more money in your pocket.
I also like Lending Club for two reasons. One it does give me some feels goods to be helping out people directly and two I honestly believe that adds a nice element of diversity to my total portfolio.
By following those 3 principles you could also have a retirement much earlier than you would have thought possible.