GUEST POST: Is FIRE Right for You?

Elle Martinez

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Published on 07-11-2019

Categories: Articles

Even though the idea of financial independence has been around for quite some time, in the past few years, it’s becoming more mainstream as members of the community have opened up and shared their progress on a variety of platforms like blog, videos, and podcasts.

They come from various backgrounds and circumstances - those fresh out of college, career changers, families, and more all looking for a pivot - the ability to have enough saved and invested to explore their options, whether it is with their jobs, schedule, or lives.

There’s a documentary on the movement - Playing with FIRE that is enjoying a traveling summer release across the country, bring more awareness to the financial independence movement.

You might wonder, ‘Is financial independence something we can do?’

It may very well be, but first, we need to look at some key components and numbers to really get an idea if it’s the right path for you. 

Understanding FIRE

First off, what exactly is FIRE?

FIRE is financial independence, retire early. The idea is that you specifically invest enough (or generate enough passive income) so that you don’t have to work a job again.

The truth is many financially independent families and those on the path do still work, but it’s more on their terms.

Whether it’s part-time, freelance projects or giving more with volunteering, they find financial independence is less about avoiding the office and more about pursuing something they’re excited about and is meaningful to them on some level.

Could We Become Financially Independent and Retire Early?

If you two are thinking about joining the FIRE movement, there are a few key numbers you two should discuss:

  • Your Essential Expenses: As CFS* financial advisor Jonah Kaufman puts it, ‘how much money do you need to be you?’ How much money do you typically spend each year? What are your usual monthly expenses?
  • Your Savings Rate: The key number with the FIRE movement is your savings rate. How much are you saving and investing each month? The higher percentage you can save, the faster you can ‘retire’.

You can pull both your essential expenses and savings rate by looking over your accounts either by downloading the transactions or by using an app that pulls and organizes all that data for you.

After you’ve reviewed both, you have a clear idea if financial independence is the path for you.

You may see that you’re in a pretty good spot income-wise, but you need to optimize your expenses.

Or you see that you have a fairly frugal lifestyle, but to grow that gap, you need to focus on growing your income, either by switching jobs, negotiating with your current employer, or taking on a side gig. 

5 Ideas to Increase Your Savings Rates

Your savings rate is absolutely crucial to how quickly you can financial independence.

Right now the average savings rate for Americans is just above 6% which is below what the 10-15% rate financial planners typically recommend for that traditional retirement schedule.

It’s not uncommon for FI families to look at the 30-50% range. Going that high means they cut their path from the 40-50 year range to about half (17-28 years).

You’re going to have to get pretty aggressive for a shorter timeframe. The good news is that there are several ways you can get there.

Here are five ways I’ve seen FI minded families approach things.

  1. Go for the big wins. Yes, little habits add us, but if you’re looking for significant savings, you have to go for the big expenses. For most families, the three biggest are housing, food, and transportation.
  2. Gamify savings. Saving more doesn’t have to be boring. See if you can partner up with coworkers, family, or friends for a little positive competition.
  3. Embrace monthly challenges. Don’t try to tackle everything at once. Instead, look at one area of your budget and try to work on it on a monthly basis.
  4. Earn extra money on the side. The sharing economy has changed how we approach things beyond our 9-5. See if there are any side hustle options that work with your schedule.
  5. Automate your savings. Once you’ve saved or earned that extra, make sure it’s actually being stashed away by setting up transfers.

However, you decide to pursue financial independence, make sure you have regular check-ins to track your progress and adjust your plans as necessary.

These money dates as I call them, are a wonderful way to review your numbers in a relaxed setting and puts your finances into perspective. 

Money is not the goal, it’s really about your time and making sure you can devote more of it towards the people and projects you truly care about.

These dates allow you to make sure your money is moving in that direction.

If you’re looking to save more and have your money work for you, check the different savings and investing options at Coastal. Depending on your goals (financial independence or otherwise), you can find an account that fits you.

You can also sit down with a CFS* financial advisor to help you craft a path towards financial independence that works with your circumstances and time table!

 


Elle Martinez is the creator of Couple Money, a personal finance podcast and site focused on helping couples get on the same page, dump their debt faster, start building wealth together. 

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor.  Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal.  Investment Representatives are registered through CFS.  Coastal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

 


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