Burning down the rule, jam tomorrow and jam yesterday – but never jam to-day.
Since looking into retirement and the TOYL (Time Of Your Life) I have become enlightened to the agelessness of the phenomenon. Essentially this is a philosophy of jam tomorrow by saving and being frugal, building up a large pot of money and then living off the income much like a traditional pension but turbocharged early so as to get jam oneday rather than in decades! It’s not for me but it does seem to work for some.
FIRE has been described as more of a life philosophy that combines personal finance with an ethic of ‘do it yourself’ (It’s cheaper and save the saving!), life hacking and the frugality tenets of anti-consumerism. FIRE’s adherents strive to save more than 50% of their income to achieve an accelerated financial independence. Compare this to the usual saving average of well under an order of magnitude less and factor in our proclivity for debt and one can see that FIRE could be seen as an indirect rebellion against consumerism. Certainly, making these austere lifestyle changes in order to achieve FIRE likely makes the outcome more possible, but to sustain this it is of course important not to revert back to the old ways once achieved! That is austerity tomorrow and austerity yesterday and always austerity today which isn’t for everyone!
Of course there are but two ways to increase your saving potential, just like with obesity – Cut the fat! Eat less, exercise more! Spend less and Earn more.
Spend less. (…and invest the surplus!)
Essentially the way of austerity and frugality. How far one takes this depends on the FIREr. Some take this to extraordinary lengths and the guru for this approach is Mr Money Mustache the pseudonym of thirty something (Well thirty twelve when I last looked!) Peter Adeney – A retiree who now writes (…and seemingly earns a good living from this, but this misses the point somewhat!) about how we can all live a frugal yet ‘Badass life of leisure.’ He retired from his ‘real’ work as a software engineer in 2005 aged 30 by spending only a small percentage of his annual salary and consistently investing the remainder, primarily in stock the stock market and a rental house or two. (First purchase some property – the days of financing with a huge mortgage with near zero interest and high rents are seemingly over!) He now lives a simpler lifestyle needing about 50% less income than most of his peers. His Blog is well worth a look but be warned you may find it ‘extreme’ with posts such as ‘Safety is an Expensive Illusion’, ‘Luxury is Just Another Weakness’ and ‘My tiny $3500 home’ – It’s a shed!
William P. Bengen a retired financial adviser first articulated the 4% Safe Withdrawal Rate (SWR) as a rule of thumb for Safe Withdrawal Rates (It does what it says on the tin!) from retirement savings which states that with a balanced investment portfolio, a retiree can withdraw 4% of his or her portfolio’s initial value each year, adjusted upward for inflation each year thereafter, with a lower probability of ever running out of money. The goal is thus to achieve a pot roughly 25 times your annual spending. The more frugal and austere one is and importantly sustaining this over time the more possible this may be.
To achieve early retirement, the basic methodology involves consistently saving and investing a good proportion of your income until your assets produce enough income to cover your basic expenses. As a rough guide, below are how long it would take to achieve this goal:
- Save and Invest 15% of your income and retire in 26 years
- Save and Invest 40% of your income and retire in 14.5 years
- Save and Invest 55% of your income and retire in 11.6 years
- Save and Invest 70% of your income and retire in 9.6 years
‘Oh no! I’m going to miss out!
FIRE is only possible if one resists the herd mentality – FOMO (Fear Of Missing Out.) particularly when it comes to buying big ticket items or expensive vacations, something many of us seemingly feel obligated to do. We often make decisions not because it’s a good investment but because of the emotional pull, feelings rather than fact. Being content with less is key and learning to seek happiness by limiting one’s desires, rather than in attempting to satisfy them.
The three biggest expenses for most of us are housing, transportation, and food so these might be a good place to start. Reduce your living expenses, a smaller home, apartment or rent a room and avoid lifestyle creep as your income (hopefully) rises over time. Reduce transportation costs by living closer to work and avoid the expense of a car – rent when needed. Cycle, walk or run and get fit too, or use public transport and save the planet too! Learn self-sufficiency skills which beyond the personal satisfaction of achieving can save money. Consider cooking, mending clothes, home/automobile/bike repair, woodworking, gardening, etc.
Avoid loans where possible as this is borrowing from “future you”.
Thankfully there are different kinds of FIRE to fit different lifestyles. There’s FatFIRE, for example, for those living in high cost cities while seeking to achieve FIRE with a “great lifestyle;” and leanFire for those capping expenses at a relatively modest rate, degrees of frugality and austerity!
Earn More. (…and invest the surplus!)
Forget get rich quick schemes there is always someone wanting to take your money – Rich? That’s more likely them, not you! However, there are choices we can make to increase our ability to generate income. Improve your education, ask for a raise, negotiate to get paid what you’re worth (…don’t ask, don’t get! – The evidence seems to be that men are better at this, and women hold back – DON’T!) create a business on the side – online selling, buy to rent etc. If you have a job, work more/harder/better/smarter. If you have the time, consider working extra hours or accepting ‘unpopular’ and challenging or long-distance assignments that are better paid. Journalism has been suggested as much of the work is at night and better paid than the day rate, but I expect this is the same for many jobs and obviously requires skills and experience.
Alison a dear friend of mine worked as a nurse but wanted to push on and to do this needed to become better educated. Where to find the time? Her solution was to work shifts in intensive care – three 12 hour shifts including night work and the handovers paid a week’s wages allowing four days to study – well maybe three after intensive rest! She now has her PhD and works her passion. She will also be able to take her skillset into a life less demanding when she cuts down and works part-time etc.
There are those out there who will do ‘anything’ (legal) for money. So long as there is a purpose passion might take a back seat. One summer I worked for a girlfriend’s uncle who had sat down with a friend to come up with a BIG money-making scheme. Being relatively unskilled their options were limited. However, after some modest research (pre-Internet) they came up with a plan and after a few years were driving around in the latest lotus sports cars, living in big houses with swimming pools (literally splashing the cash!) and taking exotic holidays. Their business idea?….wait for it, it’s not for the faint hearted….Maggot Farming for the fishermen out there! (The fish docks, chicken farms and abattoirs even paid them to take away the waste on which the profitable maggots grew!!) The smell of rotting meat was unbearable but for them was trumped by the smell of money! What would you do for FIRE?
Wherever you live there will be taxes to pay which can’t be avoided, however these should obviously be minimised lawfully. However, every government wants your money and will incentivise savings and pensions – for them jam now and let your children pay for your pension etc! There are many different schemes depending on your tax jurisdiction.
I’ve always found that the harder I work the luckier I get! Good luck!
[…] under the age of 65 rather than poor mental health being a reason for early retirement. So, the FIRE types (Financial Independence Retire Early) may well not enjoy their TOYL as much as those waiting and retiring later. Why would this […]