For several years, the financial independence retire early (FIRE) movement has been all the rage in the personal finance world. It’s a great concept. Imagine saving boatloads of money (>50% of annual income) in order to build up your retirement cache’ to the point where you can choose to end your working career much sooner than age 65. Sounds like a great deal to me!
Then There Is Reality
But wait, reality sets in. Reading the bios of these people who have achieved FIRE, a few common themes emerge. These people saved tens of thousand of dollars each year by:
- Working a demanding job and earned a significant annual income in their careers (>$100K/year and several earned >$200K+ / year). Don’t believe me? Here are some of the examples of the careers the people achieving FIRE have had:
- Doctors
- Lawyers
- Business Owners
- Worked on Wall Street
- Executives (i.e. CEO, CIO, VP’s, Directors, etc.)
- Being single OR newly married with no kids yet when they started.
- Starting a side business or side hustle “in their spare time”.
- A lot of them never really “retired”.
- Instead, they just switched to a more fulfilling job that earned less but met their needs. Any excess money needed was pulled from their investments.
No wonder they achieved FIRE so quickly! If it sounds like I am bashing them, I am not. On the contrary, I am inspired, impressed, and enamored with both their success and the hard work they put in to achieve FIRE. What I am doing merely pointing out the flaws in their arguments. Their situations are unique.
Do I believe that the average person can achieve FIRE? Yes I do. The unfortunate part is that I do not read many blogs about a single mother of 2 who is a nurse and saved $3M by the age of 45.
Oh, I do hear about an average person like Daniella from I Like To Dabble who has a career as a software programmer by day but has built a 2nd career as the Side Hustle Queen of personal finance. She still works her day job but has built a 2nd career to the point where she plans to quit her day job soon and devote her time 100% to her business which she LOVES doing!
To me, THAT is FIRE. She impresses the hell out of me and inspires me.
Or there is Jannese from Yo Quiero Dinero. In 2014, she was fired from a job that she hated. She summoned up her courage and took the plunge into the world of blogging and podcasting about personal finance for the modern Latina woman. She offers great advice, attacks a lot of myths about personal finance, and loves her job to boot. THAT is freedom!
This is the reality of people today. What people need to realize is that FIRE comes in all shapes and sizes. FIRE means different things to different people. FIRE can mean you still work but it is at a job you love that may not pay much. Your other expenses are covered by your investments.
For others, it could mean sitting on a beach in the Caribbean fishing and drinking Jamaican rum all day long. The possibilities are endless and can change over the course of your life.
There are so many different and unique situations, the average person may become frustrated with trying to achieve FIRE. All this sounds fine and dandy until a person realizes that they have many priorities to juggle. The average American household has a spouse, kids, and a mortgage to think about. On a daily basis, a person needs to figure out how to juggle advancing a career, planning for retirement, saving for kid’s college education, maintaining a house, being a great spouse, being an awesome parent, and maybe have 30 minutes a day to de-stress.
Tell the average person that they can balance all this & achieve FIRE, they may give you the baby sign language for “all done”. Lol hahaha 😊
Can FIRE Be Achieved?
Seriously, it’s a lot to consider and may seem like it is impossible to achieve. I’m here to tell you it’s not. In fact, I’m here to tell you that it can be done. Why? Because I’m on the path to achieving it. If I can do it so can you.
Achieving FIRE is more about finding your Financial Why, developing a positive financial mindset, and taking the necessary steps to achieve this positive mindset than it is about saving 70% of your income.
Oh, don’t get me wrong, earning a high income and saving a lot of that income is a great enabler to FIRE, but if you don’t have the right financial mindset, all your efforts will be futile.
A lot of people spend money as fast as they can make it. This prevents people from achieving FIRE. See if this sounds like someone you know:
I know this guy at work who was recently promoted to manager. In my company this is a BIG jump in pay and includes performance bonuses equal to roughly 40% of pay AND stock options.
He has a nice house in an affluent neighborhood. Guess what is the 1st thing he does with his increased bonus? Does he put more in his 401K? Buy rental property? Start a Roth IRA or 529 plan for his kids? Nope.
What he does is go out and buy a brand new 34-foot Bayliner and he is also shopping for a house that is roughly twice as expensive as his current house. Mind you his current house is already 2,000 square feet with a 2.5 -car garage. Not big enough for him.
He now wants a 3,500 square foot house with lake access for his new boat. When I asked him why he didn’t put some of that money towards his retirement, here was his response: “Who cares! I’m a manager now and I’m going to make this kind of money for the rest of my career.”
Here is his new dream: a luxury vacation home about 4 hours away on the Great Lakes.
This mentality will NEVER lead a person to FIRE. This mentality will lead a person down the path of financial ruin. You’ll always be 1 payment away from bankruptcy and 1 layoff away from having your family on the street. This mentality never believes that rainy days can come to them, so they spend, spend, spend until it’s too late.
Don’t be this person.
On the other hand, the FIRE mentality plans for rainy days and develops income streams so you’re not dependent on your main job to live. Sure, they are frugal at first because the purpose is to develop income streams and acquire assets to lower dependence on your main career for income.
FIRE devotees can buy expensive boats and luxury vacation homes when the time is right.
The average person can achieve FIRE if they have the right mentality and the right action plan.
So how can the average person hope to achieve FIRE?
How to Achieve FIRE
Here are 7 steps for achieving FIRE no matter your occupation, age, or income level.
Make A Promise To Yourself
You thought I was going to say, to set attainable goals, didn’t you? LOL. While goals are good to have and is part of the path to success, the problem with goals is that people tend to set goals that are not easily attainable or easy to break.
On the other hand, a promise is more concrete. Making a promise to yourself is essentially committing yourself to achieve the desired result. From this commitment, integrity is formed and goals are created to achieve this commitment. If the plan falters or needs modifications, that’s ok because the underlying promise is still there. The only thing changing is the plan for achievement.
A promise is much more powerful than a goal and harder to walk away from. A promise can be high level (i.e. to be FIRE in 5 years) or it can be more detailed (i.e. in the next 5 years to develop passive income streams equaling $3,000 / month and to have all debt paid off). The key is to make the promise and stick to it come hell or high water.
Set A Goal of Developing Good Habits
Using the promise as a foundation to keep your eye on the prize, implementing a goal of developing good habits ensures you meet the intent of the promise.
Don’t get me wrong. Goals are good to have and at times essential for success. The downside of goals is that goals are easy to break or deviate from. The reason for this is overlooked by a lot of people.
At its simplest form, a goal simply is a way to measure both progress and eventual success. That’s it. There is no rocket science behind it. Put another way, a goal is a plan for how to get from Point A to Point B.
Once goals are achieved, people tend to feel lost or off course. The simplest way to rectify this? Set a new goal.
Goals can also be a checkpoint. Once that checkpoint is achieved, set a new one, and keep progressing towards the new goal. Rinse and repeat.
Developing a goal of creating good financial habits has several benefits. The underlying success driver is habits. Practiced over time, habits will eventually become automatic. Like brushing your teeth twice a day, good financial habits enable the achievement of a positive financial mindset and the promises a person makes.
Good habits can be used as a crutch when a person loses their way and needs to get back on track.
Finally, practicing good habits daily enable optimal performance. Don’t believe me? Ask Michael Jordan. He has given interviews in the past where he has told stories of practicing visualization techniques in his home gym portraying himself as the person taking the final shot with the game on the line. It’s been said he was the greatest practice player ever. That way, he was comfortable and ready when game time came.
How did that work out for him? 6-time NBA champion, Hall of Fame player, and arguably the most clutch player to have ever played in the NBA. All of this started with his good practice habits.
Need help picking a financial habit to start with? How about time management.
Dedicate time each week – a minimum of 30 minutes – to review finances and track your progress. Seems like alot? Not really. Millionaires, on average, spend 8.4 hours per month managing and tracking their finances. This averages out to about 2 hours a week. Want to get to where others have been? Find the habits they developed and emulate them.
In a relationship or marriage? Another good habit is to talk about finances and mutual financial goals. More often than not, couples are on different financial pages. Money conversations aren’t always smooth sailing when starting out so push through the discomfort and work on listening to each other’s needs. Alignment in communication leads to agreeing on commitments and mutual goals.
Build A Plan
Ok so you made a promise to yourself and have been working at creating good habits as a foundation to financial success, now it’s time to start building the house.
How to do that? Make a plan.
A plan provides the guard rails to your financial journey. A plan also provides the path to achieving success. If goals are checkpoints along a journey, a plan is the path the person travels along on their journey to FIRE.
So how to build a plan?
First start with the promises created and the goals written down. The plan is the path for moving from one checkpoint to another and reaching the endzone of life.
For example, if the promise is to achieve financial independence in 5 years and the goals are to create alternate income streams of $3,000/month and be debt -free in 5 years, you need to ask yourself, “How do I go from here to there in the next 5 years?”
A plan is high level and process driven. It involved thinking through the steps it takes to achieve both the promise and the goal. It also involves figuring out what could go wrong and creating backup scenarios in case needed. Finally, a plan involves creating metrics for assessing progress along the journey.
If you don’t measure what you have done how do you know you will get there in the time allotted?
Sounds difficult and overwhelming? It doesn’t have to be or need to be. Start small and simple.
For example, if you goal is to have $5,000 in passive income within the next 10 years, some questions you can ask yourself is:
- How do I plan to invest?
- What am I good at?
- What interests me?
- What do I need to still learn?
- What are my strengths and weaknesses? (or “opportunities” as they say at my job lol 😊)
- What tools can I use to create passive income?
Your plan could entail spending the next year learning everything you can about the stock market or real estate market. It may enable finding a mentor to learn from. It may include getting your expenses under control before you even start investing.
You do not have to create the entire 10-year plan right away, but it does involve looking into the future (at least 12 months ahead) and creating some basic checkpoints along the way (i.e. I’ll purchase my 1st rental property 3 years from today with a 30% down payment).
More importantly, plans should be adaptable and flexible. While trying to make contingencies, it’s unrealistic to think you’ll be able to anticipate every single situation that could possibly occur so don’t. Instead re-assess the plan every 6 months or so to make sure it is reasonable for what you want to accomplish.
Until Next Time………
Next week’s article we will wrap up the 7 Steps for Achieving FIRE.
See you then!
Live The Life You Love, Want, and Deserve!