Reduce Debt Increase Wealth

Retire Early

November 07, 2021 MIsterchuck Season 2 Episode 86
Reduce Debt Increase Wealth
Retire Early
Show Notes Transcript

The FIRE movement is strong with the younger generation wanting to retire early. Maybe at age 35 to 40 is this possible and how is it done. Then what will a person do in retirement, most likely work of some kind.

 Article Links:
 https://www.playingwithfire.co/whatisfire 

https://www.businessinsider.com/personal-finance/why-ditched-traditional-fire-movement-2021-6 By Michelle Jackson

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination. retire early, the fire movement is strong with the younger generation wanting to retire early, maybe at age 35 to 40. Is this possible? And how is it done? Then what will a person do in retirement most likely work of some kind was my initial thoughts. Before I start talking about fire, I want to start talking the typical path. Everybody takes we all go through high school, when we graduate from high school, hopefully, then that's the first major choice we all make. Do we go to college, spend more time in school and spend more money and get more debt start out getting debt? Or do we go and get a job, perhaps we get a job in the trades field where we can get experience and learn the job, the occupation doesn't matter which path you take. One may be better than the other. It used to be that going to college, you were pretty much guaranteed of making more money throughout your total working career, then not going to college. I'm not so sure that that stands today. Because somebody who takes the path of a trade, the four years that somebody is in college, that's four years experience in that trade. And four years is a lot they probably would learn that trade completely, and that they're smart enough to pass the test and get all their licenses, then they're ready to start their own business. with little or no debt, the only debt they would have is what they spent on their personal lives. Did they buy a house? Did they buy a truck, automobile? Things like that. That would be their only debt. Go to college, you're gonna spend four years learning something, and then you have to start getting your experience. But not only are you getting your experience, maybe you start at $10,000 higher a year, but you got $40,000 in debt to pay back. Are you any better off? I don't know. It's up to each individual to decide. That's the traditional path. The traditional path, we are faced with the same thing. housing, transportation, food, clothing, the basics. We all need the basics. How do you get housing and transportation, you have to go in debt to achieve that. So if you're just out of college, your first working career job, not only do you get student debt, but then you may have to in the next five years, buy a home you have housing debt, and you have automobile. Transportation debt. Need I say more. The fire movement stands for financial independence, retire early. financial independence is the ability to make any decision without having to worry about the financial and or terms of that decision. That you have the means to do whatever you want to do. Once you achieve that financial independence that gives you the freedom to leave your job. Now my first article is playing with fire calm, what is fire. We're gonna give a brief history of the fire movement, how it got started, and what it's all about. Why We Need Fire. Fire is catching on because society we need more than land financial advice. We need a new way to live. financial advice can be boring. I I'm not 100% agree with that. We've all seen the headlines credit card debt student debt are piling up faster than ever in history, the average family is saving less than 10% of their paycheck. Nearly 40% of Americans have difficulty paying for a $400 unexpected expenses, American are facing a financial crisis, we see these headlines and yet nothing changes. We still trudge off to jobs that we don't like growing more discontent and disengaged each year. We don't say when we live on the edge, many of us are one emergency away from financial disaster. If the current system of earning spending and barely saving isn't working, then why is everyone reluctant to try something new? Good question. And why are we earning spending and barely saving is because we're all inundated with advertising. advertising is gonna lead us to buy things that we don't necessarily mean need. And then traditionally, everybody thinks you got to work to at least 62 to retire, or 66. And whatever number of months depending on the year you were born, or that used to be age 65 when Social Security first started. And why was 65 the retirement age? Well, it's fairly simple because at the time social security was enacted, the average life expectancy was 61. And setting the retirement age at 65, would mean that most people would never live to retirement. This would make it cheap plan that could be sustained with moderate taxes, which is not the case today. So that's why 65 was the set as the retirement age, because they didn't think people would live long enough to eat to claim and collect on Social Security. Or if they did, it would be a short matter of time. The standard narrative is to get a job, buy a house worked until you're 65 and get a pension, be loyal to the company and they will take care of you in your old age. You have to throw out that outdated advice and create a new rule book. And I agree with that 100% you don't want to be loyal to anybody. You got to be loyal to yourself. Fire. Financial Independence retire early, gives you back your time. Imagine this you've been offered $10 million dollars, but it comes with a catch. To take it you have to miss out on the next 25 years of your life. Would you take it? Would you skip those years where your knees are still good and you don't grown and you can get out of bed every morning? Would you miss your child's first step or walking them to their first day of school? I doubt it because time is more valuable than money. The world is designed to take your valuable time from you. Your time is sucked up by meanings and calls and no need to happen. It's spent sitting and long car rides commuting and traffic with when everyone else is spent decompressing after a tough day at the office time is spent like it's not the most valuable currency in your world. We only live so long. So time should be the most important thing for everybody. And fire gives you back your time. We have a spending problem. We are spending more money than ever buying things like clothes like tronic and personal care items. We're spending 20% more in clothes than we did in year 2000. With the average American buying 66 new garments each year. With the increase in what we're buying, we now have to find somewhere to put it all the average home size has increased by 23% in the last two decades, and the number of storage facility has doubled. That was the ability to buy and own all the extra thing is anyone happier probably not because you're farther down in debt. But basically we spend money we don't have the buy things we don't need to impress people we don't even know. And that's a quote from the minimalist this. Think about that. We spend money. We don't have A credit to buy things we don't need doesn't make us happy to impress people that we don't even know The Mentalist. It's a very true statement. So how do you retire early? And what's that mean, to actually retire? Are you really retiring where you just quit working, and never work another day of your life? Well, that's, you know, a lot of people's goals, but you're gonna need a lot of money. To do that, you're gonna lead a lot more money. And then you're gonna have to live the same lifestyle you live when you were saving that money. The basics of fire is middle age earners are using a simple formula of high savings rate 50 to 70% of their incomes, plus fuel living mentalist plus low cost stock index fund investing in order to reach financial independence within a short period of time, usually around 10 years. For obvious reason, fire is sometimes referred to as the Ultimate Life act. Fire allows people to choose how they want to spend their time rather than be forced to spend their time at work. And you're not retiring from something, you got to look at this, you're retiring to something. And most likely that to something will be something that you enjoy doing much more than your current situation at work, maybe it's starting your own business, maybe it's a hobby that you really enjoy, you can make a business out of it. Maybe it's a venture, maybe it's fishing or whatever. But you're gonna retire to something, and most likely you're gonna earn money, but will your earn of what you were in the past? Probably not. Or you can earn a lot more if you're successful in creating a new business. Who knows it's all up to you. But some of the pitfalls of fire have talked about this in the past. If you're 35, well, first thing you have to do is pay off all your debt. And there's no way you're going to save 50 to 70% of your income. If you have a lot of debt. If you have a lot of student loan debt, you're already in the hole, you got to pay off your student loan debt, and not be creating any new debt. So how you gonna do that you're gonna have to live off the income that you're making. So you better have a high paying job, probably more than 150 to 200,000 a year, and you got to live in a low cost area of the country. That's the first step. And then you'll be able to pay off that student loan debt maybe a year or less or two years. And then after that, you you know, you might be saving while you're paying off the debt is not coming anywhere from 50 to 70%. That's the point and cause case might only be saving 15%. And you get that student loan debt. Now you can jump up to pay off and be saving 50%. But where are you gonna live? Where are you going to live that's cheap enough to give you a shoulder and you know, someplace comfortable and nice to live. You're not going to live in a box, you're not going to live in a tent, you're not going to live like a homeless person. Or maybe you do. Maybe that's the sacrifice you got to make. And then when you add up all your expenses, living expenses, when you retire from work, or retire to something new, you still got to live the same way you wouldn't live in when you saved your money. Or you re spending a whole lot more than what you were spending unless you factor all that in. If you factor in that you need $2 million to live the rest of your life. Plus you need another $300,000 to buy a home. Plus you need another $40,000 to buy a automobile the first time they get started. I don't know what those numbers add up to been. It's 2 million about two and a half million dollars. Just out of the box to get started so you have a place to live and transportation. And then you can live frugal for clothing, food and everything else. But you don't have to have at least them Money, and you only, you're not figuring this to age, your retirement age 66 on whatever month, you're gonna figure this to date of death. Because you're What if you only work 10 years on their social security, your benefits from Social Security is going to be fairly minimal, there's not going to be enough to support you. So you're gonna have more money than what social security is gonna provide you until the day you die. So if you retire at 35, and you die, and 95, that's 60 years, you have to have enough money to live your lifestyle that you're wanting to live for 60 years, or when you retire from something to something, you got to have to earn or generate enough income to make your money last longer. Maybe you got to earn enough money where you can keep increasing your investments, and savings. Maybe not. That will be the big gamble that you're taking, to have enough money to support yourself and your family until you and your spouse pass away. It's just a note, I was gonna mention there. Well, many of us don't realize that we want to retire earlier in life until we've reached an older age, say 35 to 45. And there's a solution for that, and it's referred to as slow fire. He slowed down your savings a little bit so you can get out of debt. And I'm getting this from the article from the insider. Business Insider calm, I used to think early retirement was the only way to live my ideal life, but I found a better approach. And we're going to skip down towards the end what changed for me. I really dislike the idea that I had to sacrifice to the point of financial depreciation for the next 10 to 12 years in order to hit my fire number. Part of why I dislike this is that have already sacrificed for years to pay off more than $60,000 in unsecured debt. I sighed hustled lived in a small home and I said no more often than not to purchase than I felt would negatively impact my debt repayment goals. So she was focused on paying off her debt, which is a good thing which we all should be doing. And there are great financial moves at the time. But I kept thinking about my life in the future. And I wanted to start dreaming about my ideal fire life would look like wake up naturally without using an alarm clock traveling around on road trips in my state of Colorado using my relatives, visiting my relatives or going abroad whenever I felt like it, pursuing intellectual interest to my heart's content, helping others financially or thought volunteering when possible. Going to a brunch and having a bottomless meal. What I found problematic Beaufighter was I didn't want to wait years to live my best life. Especially I was older than 32 when I stumbled upon this financial pursuit. In fact, I was in debt professionally burned out and tired not exactly primed for fire. And many of us doesn't don't realize we would like an early retirement. When I'm talking early retirement, I mean before the age of 66. And whatever months before you are eligible to get your full retirement benefits from Social Security. So we're saying say 50 age of yours 50 years old or older, somewhere between 50 and 60 years would be considered an early retirement. And remember, the only reason 65 was the retirement age set by social sercurity is because the average lifespan at the time 1935 was 61. And they were hoping that too many people would live that long to age 65. Or if they did they wouldn't live much past that. And that has changed. And the truth about fire here's the thing, the money the fire math, it works. If you invest at a much higher rate than most people have no debt and earn a great salary. You can easily hit your fire goals. But if you're a person like me facing a tough The financial headwinds, my access to fire wasn't the same as a 27 year old with no debt and a high paying job. Fire relies on being debt free, there's no way you can invest over 50%. If you're actively paying down debt like I was. Plus, the more complicated your finances are, the more challenging is to work towards fire. In my case, I had very complicated debt situation, and hasn't been until recently that my finances has simplified enough that I can focus on traditional fire if you're dealing with large number of creditors, etc. This impacts your ability to focus on fire. On top of that, working towards fire requires a financial skill set similar to paying off large amount of debt, learning how to negotiate your wages, etc. It takes a while to get into the rhythm that is comfortable and moves you toward your goals. And I'll contest to that I did once I decided to pay off about $133,000 a debt in three years and eight months. But it took commitment, determination and confidence in order to do that. Things changed for me when I learned about slow fire. With so far slow fire, you're investing saving and working towards your ultimate fire number. But you're likely doing this at a slower rate than the regular fire folks who tend to approach the financial steps to attain fire more aggressively. Basically slow fire practitioners, or where it would take a while to reach their final numbers. slow fire hears many still cleaning up their financial foundation, this may look like finishing up debt repayment, lowering overall expenses and looking to grow income. There are key steps in the fire journey. So you know, getting rid of debt, increase your savings, reducing your spending and increase in your income are all important steps with the fire movement. And again, once you achieve that, you got your your sacred number, you think you saved up enough money, you still got to think about having enough money to live your lifestyle until the day you pass away. The slow fire practitioners focus on designing and achieving their fire lifestyle. Now, this may include working remotely in order to create a more flexibility in their life. It's also a nod to the fact they wouldn't work longer in order to hit their numbers. There's no work shaming because work factors heavily into slow fire worked as a large part of slow fire but the emphasis is on working in a way that best works for you right now. In fact, COVID have created large opportunities for professionals to design their best lives now while earning income and focusing on their future. So what she's saying there is that since COVID, more people are working from home. And that allows you to achieve a lifestyle closer to not working at all. I'll be back in one moment with my final thoughts. If you listen to this podcast, reduce that increase Well, on an Apple device. Scroll through all the episodes towards the bottom. And you can select write a review and leave your comments. And you can rate this podcast. I appreciate all feedback. And I thank you for your time in doing so. Going back to the beginning, where we all make this decision when we're right out of high school, or right before we graduate from high school. Many of us are forced or encouraged by our parents to continue on in college. And that's what we pursue. Maybe we're thinking about careers that require a college education, such as engineering, or being a medical doctor or college is definitely a requirement. So a lot of us realize that we are not happy in our life until we're in our mid 30s the mid 40s. We already have a large amount of debt. It may be too late to start As an extreme fire movement as a male most unless you're willing to sell everything you have pay off as much debt as possible, have a high paying job so that you can say 50 to 70% of your income. Take all whatever steps to achieve that. Then maybe 10 years from now you'll be able to retire. Or the second approach is to do a slow fire procedure where you concentrate on just getting out of debt first. And then concentrate on buying the things you need to survive the rest of your life such as a home, transportation, food and clothing, the basics of everything. You can't do this without a budget. No matter what's playing you Slack, you'll have to have a budget. No matter if you are a college educated professional. Or you went into a trade right or high school you got Joe your proper licenses and you're starting your own business. You need to have a budget for your personal life. And you'll need to have a budget for your professional life. Whichever way you choose. There's no reason why you have to wait till you're 66 and one a few months in to retire from Social Security. If you keep your debt under control throughout your entire life. You'll be able to succeed and retire to doing something you want to do instead or retiring from something