Playing with FIRE

How? Dont you have to earn at least enough cash first to get yourself some housing before you can start this living modestly thing?

On the other hand, my son the Fitness Trainer only earns about that much in a year after paying the gym fees, insurance and licencing fees.

 

Like wylie, I was a bank teller in a previous life. At first I used to work full time upstairs in Admin in the city head office. I got sick of spending 1.5 hours commuting into the city each way (the new trains are much faster) so I tried to get transferred to a suburban branch. The pretty blue bank had only recently allowed married women to retain their jobs, so a transfer for a married woman was out of the question. The solution was to resign and then apply for another position in my local area.

I worked for a local business part time for six months then the boss's wife got me a job at her bank, what is now the black and red one. I was employed as permanent part time, they didn’t employ married women full time. I didn't get ADOs, I got to work when the manager said. My roster was altered every three or four months depending on requirements and around covering other staff on leave. That is why I left 15 minutes after the front door was locked and I had balanced my cash for the day.

I really enjoyed my work there. I finally left as there was no child care available in those days even though I qualified to return to my position after unpaid maternity leave.

 

It is savings rate that matters to the FIRE community, they aren't into leverage so aren't at the mercy of lenders.

With FIRE you base your estimated retirement date is based on your savings rate along with estimated investment returns and withdrawal rate, not your income. The only variable that can be controlled is your input/expenditure (a good FIRE disciple buys total market index funds). Remember your savings rate is a reflection of your expenses so it reflects how much you need to fund your retirement.

Starting at zero (or a set multiple of living expenses) someone earning $30k pa with a 50% savings rate is closer to retirement than someone earning $200k a year with a 25% savings rate.

The beautiful thing is that your living expenses are accurately reflected in the calculations and you are living the life you will in retirement so it encourages loving your life now and in the future.

I don't follow the strict FIRE way, isn't for me. There are valuable lessons that can be learnt however so understanding the philosophy and math can be helpful IMO.

 

Thanks @Hodor
That all makes sense. (I read mmm a long time ago but dont remember much at the moment other than parking a motorhome in a caravan park).

Is it possible for a person in Australia earning $30k to save 50% of their income and cover their cost of living concurrently? Secondly for a disabled pensioner living on $20k, can they save anything in order to have a better life in the future? We can PM if this is derailing the thread.
Cheers

 

Be tough in Sydney. There are plenty of stories of people been amazing efficient with their incomes, I read about a family of four on $60k a year. Their breakdown was $15k living, $15k mortgage and $30k investment purposes. Whatever one might think they were happy and didn't want for anything.
Pensioner would be tough, if they managed to save at some point the government will take away/reduce their pension - maybe they could save and buy (outright) a house to live in as I would presume this wouldn't get means tested, might reduce pension due to no rent assistance. This is a sticky point as the pension is a safety net, not something designed to help someone invest, at the same time we are penalising someone that puts more thought into their spending.


Happy to PM if you have specific questions, not sure how much light I can provide we certainly aren't examples of fruggleness

 

Would love to read about this family of 4 living on 60k! Love reading these stories about peoples spending habits as well as their needs v wants as well as investing tendencies.

Cheers

 

That is one of the most fascinating parts of my work, we experience a wide spectrum of situations with clients. The superhuman savers, the spenders, the battlers, the privileged, etc... and you know what becomes blatantly obvious over time? Long term wealth & freedom from the rat race is far more a function of basic savings and money management (largely a behavioural trait) than it is of total earnings capacity or chasing above average investment returns (which involves additional risk).

Discipline, savings habits, cash flow management, efficient structure, common sense risk management and above all else sheer determination and focus are the key characteristics we see in the most successful.

 

The wisest of words Alex Straker. Why didn't I meet you or someone who echoed your thoughts thirty years ago!

 

Totally agree but what still really amazes me is how few people actually track/measure this stuff.

As the old saying goes:- “What gets measured, gets managed”.

I started recording (and graphing) our Net Worth in January 2004. I have been doing it at the end of every Quarter ever since. It is mind blowing how it has increased over the last 15 years.

We are now in pension phase, paid from our SMSF. So, what I call “free cash” is important to us (some would say critical). Free Cash is cash outside Super and excludes cash buffer that is available for us to spend on living, after taking all known bills in account. I record (and graph) this twice a month (mid-month and EOM). It is so gratifying watching the trend of this KPI increase over time. If we want to take a big splurge on something expensive, we know what the impact (if any) will be on our lifestyle.

It is all about making decisions with confidence. That is, informed decisions.

None/not many of my family and friends follow our footsteps in this regard.

 

This is so true, and yet, you will constantly hear from people on this very forum that the only way to get ahead is to earn more money. It simply doesn't matter how much you earn if all you are going to do is spend it all on consumerism.

 

We haven't been as diligent as you, in as far as tracking the net worth, but I do regularly take a peek, and love to see how it's grown.

Funny you should say this. Hubby has a very large extended family & is the youngest of 7 siblings. They all know we've invested, and they all know he's retired early. Two of his siblings are retired (note, age related retirement), the other's are not. Not one has asked how we've done it, nor have the younger generations. I believe we have been deemed 'lucky'.
.

 

Ha, I thought only I did that.
I do in annually not quarterly though. I find not enough changes in a quarter.

Blacky

 

Didn't keep a link, terrible for that. There wasn't a breakdown and they were just getting started on the investing side of things so not a lot of info.

 

You are spot on here.....it is easier for someone on 30k gross to FIRE than someone on 200k gross. Most on 200 gross would find it a lot more difficult to FIRE. 30k gross is about 28k net.

The ideal is someone on 60k gross income...they could fire when they can fire on about $1m comfortably. as with imputation credits they would keep most their income.

 

Doesn't everyone do this?
(sarcasm emoji)

 

Mr T

 

This made me laugh. I feel my family believe the same - that we have been lucky it maybe dodgey .

 

You need to lift your game .

 

Well said and I agree. Unsure whether you read, 'The Millionaire Next Door' where this was exactly the point. The classification of millionaire wasn't income based but rather their net worth. Then someone earning $1M a year who had net worth of $1M wouldn't be classified as millionaire, yet someone who earned $60K and had net worth of $1M would be (that would represent at least 16 times their earning capacity).
It is a combination of regularly saving then investing certain about of your money over a long period of time, taking true advantage of compound growth. So chasing above average returns becomes less relevant, as no one has a crystal ball, instead investments compounding in growth so unrealized income permits to pay less tax hence can make people richer.
Assume someone making $1M from income and hence paying tax on that, and someone else who obtained $1M only in capital growth (regardless whether share or IP) without selling or realizing the gain. Now assume this scenario for the next say 30 years....who will get faster ahead?
Interesting point also pointed out in that book, how the wealthy pay less tax since most is really invested, they don't actually realize so much more income like many assume....

 

One of the "flagship" articles from Mr Money Moustache.

The Shockingly Simple Math Behind Early Retirement

Couldn't find the link to the calculator behind the chart, it's probably still floating around somewhere

The "mind blown" moment comes from the table of savings rate vs time to FIRE, which shows that earnings power is completely irrelevant if the savings rate is the same.

That is, assuming both invest at the same rate of return, a personal earning 50k per year will reach FI at the same time as another earning 500k per year, if both have a savings rate of, say 50%.

Why? Well, person A making 50k a year can live off 25k while person B on 500k needs 250k to live off. Person A needs a tenth of the cash flow.