The whole FIRE (Financial Independence Retire Early) movement is becoming popular right now in the mainstream media. I don’t actually think this is a new idea, people have sought a simpler life on their own terms for a long time, but I believe several factors are contributing to the popularity.
For one, the internet and social media are making it possible for more folks to share their frugal ways and investment goals. In addition, I believe after the 2008 recession folks are less trustful of big business and government and are determined to take matters into their own hands. This is greatly American! Whatever the reasons, the chart in this post will help people visualize the rough numbers folks in this movement use to make their plans to “catch FIRE”.
GUIDE TO EARLY RETIREMENT
If you do one thing today, print out this handy chart. Most people go their whole 30, 40, 50 year careers and never imagine what amount of money they will need to live comfortably and achieve financial freedom. It is very powerful to have a rough idea of that number and to visualize it! No tool is perfect, but utilizing the 4% rule is very helpful. The concept is that you can withdraw 4% of your savings and investments each year, and it will take a very long time for that money to run out. In other words, if you only withdraw the 4%, then you can live off a certain amount of principal.
We talk here at The Money Vikings about achieving a “critical mass” investment and savings number. From that number you can determine about how much you can withdraw. This handy chart is very helpful for this!
WHAT IS YOUR WHY?
Suze Orman recently laid down a harsh criticism of the FIRE movement. Although, in her defense she came back later with an essay stating she did not fully understand the meaning of the movement. I believe for most folks I have met in this movement it is not about sitting on a beach all day long sipping cocktails and doing nothing. In fact, I think to most FIRE folks that would seem very boring.
It is about having a say and a stake in your own life and how it is designed. It is about freeing up space for family, creativity and side businesses. I think most people can agree those are very worthy pursuits and investments.
NET WORTH & FINANCIAL FREEDOM
To make the most out of this chart, you need to calculate your net worth. I do not like to use the equity in my primary residence for this because our houses in the medium term are mainly consumption.
Add up the value of all assets like 401k, stocks, bonds, savings accounts, dividend stocks, rental properties, etc. I also do not include the value of a car or vehicle.
Subtract all loans and other liabilities. The bottom line number is net worth and can be compared to this chart. This will give a sense of how much income you can derive from your investments.
SAVE, SAVE, SAVE, AND SAVE AGAIN
We like this saying above because it really drives home a key aspect of retiring early, we have to become savers over consumers. All the folks I know that gained financial independence and retired earlier than the traditional 67 saved over 20% of what they made. Next they took those funds and prudently invested them for the long haul.
A big question mark for Americans is what to do about health insurance. We have some of the most expensive health care in the world compared to other industrialized nations and we just can’t seem to get our act together to make this right. Every debate becomes fraught with our silly little partisan squabbles that simply waste time and energy for the benefit of a few.
Lately I have been checking out e insurance. I am not saying the rates are low, but it least offers options for folks who choose to work part time or pursue careers outside the traditional 9-5 corporate thing.