Reduce Debt Increase Wealth

F I R E Retire

February 27, 2022 MIsterchuck Season 3 Episode 102
Reduce Debt Increase Wealth
F I R E Retire
Show Notes Transcript

Retirement is not an age but should be when finances allow retirement to happen. Retire early is only limited to income, debt owed, and the ability to pay all the bills. Having wealth in abundance at an early age solves this long-time problem. 

Article Links:

https://www.ramseysolutions.com/retirement/what-is-the-fire-movement 

https://www.cnbc.com/select/lessons-from-people-who-retired-in-their-30s/

How to contact Misterchuck , for questions, comments, requests use this email address. Reducedebtincreasewealth@gmai.com

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 F I R E retire, Retirement is not an age but should be when the finances allow retirement to happen. retire early is only limited to your income, debt owed, and the ability to pay all the bills. Having a wealth in abundance at an early age solves his long time problem. In met a minimum need to have financial freedom. Financial freedom, it means you're able not only to survive hard times, but to do what you want, when you want no matter what your money machine is humming along nicely. This is when you can buy that nice car or expensive vacation and not before. That's from Tony Robbins. seven levels of well, which I covered a couple episodes ago. So what is fire? What is the fire movement? It's financial independence retire early, the goal is to save and invest aggressively, somewhere between 50 to 75% of your income. So you can retire some time in the next 15 to 20 years. I'm throwing the 15 to 20 years then because all the literature says in your 30s or 40s, which means you got to start when you're like 21. I don't think too many people at age 21 are thinking about retiring early or retiring at all, as far as that goes, or they're probably happy, they just found a job and maybe just starting a career. But what do you need for this fire movement to work to achieve financial independence and retire early, you need to have a six figure income 100,000 or more. And you need to have very little expenses, personal expenses, which means your living fairly frugal 50% of your income 75% of your income, that's a big chunk of money. If you're only making 50,000 a year, and you're 25 years old, and you're spending 20,000 a year, you only got 30,000 less than that time you pay taxes. Even if you can max out your 401k at $20,500 a year and your employer is paying the maximum amount they can is believe it's 61,000. So you're putting 80,000 plus a year into a retirement plan that's gonna take more than 10 or 15 years, you need to do that for at least 20 years to have enough money to live the rest of your life. Remember a retirement plan, you can only withdraw the money after age 59 and a half. So once you get your retirement plan was we've that you can start drawing is say at age 62. The date of death could be 10 years, it could be 30 years, could be 40 years, is that gonna be enough money 60 years another 40 years away, and we're gonna have inflation and the cost of everything is going to go up. So that means that money is going to keep growing at a rate higher than the rate of inflation. In the stock market is up and down. It may average 10% Over the life over its history life. One year it could be 8%. The next year could be 15%. And another year could be a minus 10%. It's up and down. It's not consistent. So if you do an average it has to be based over 30 or 40 or 50 years. And you got to factor in compounding, you know at a rate fairly conservative say six or 7%. So it's gonna take a person starting at zero and a minimum of 10 to 20 12 years, you get that first million dollars, and then that's a that's gonna start growing much faster. But you're gonna maybe need four, five $6 million in that retirement account. Then if you retire at age 40, even if you achieve that, let's assume you achieved that, and you retire at age 40, you got 20 years where you can't touch it. So that means you need a bridge account to cover your living a car expenses. From the time you retire to the time, you can start drawing money from a retirement account. Now what do they mean by retire? I don't think they're meaning you just quit working and you do whatever you want, whenever you want. Well, that could be possible for some people, the average person that's not gonna happen. And retiring early means retiring before you can be at full Sosa's curve the age which for most people is gonna be 67 years of age. So retiring early could be at 62, could be at 60, could be at 55. Could be a 40. So it all depends on your financial situation. So how do you get started, the first thing you need to do is get out of debt. If you're paying 50 to 60% of your income, is committed to paying off debt, you're not going to be able to save 50 to 70% to invest it. So what do we get out of the fire movement? What we can learn is you got to start dreaming and planning for retirement. So this, especially since half of the Americans, 41% of Americans had tried to figure out the retirement savings need. It's like trying to aim for a target with a blindfold, define what your retirement to look like and make a plan to get there. Find ways to keep your expenses low, don't overspend. Look for ways to boost your income. If you're not making at least 100,000, you need to get that money up. The more you make, the faster this can happen for the financial independence retire early. And you got to make savings and investing a priority. You got to pay yourself first and then pay everybody else after that. It may not be for everyone. You don't have to be 28 years old to do the fire. You could be 45, you could be 50, you could even be 55. The idea here is to get yourself prepared for retirement. And if you're 50 years old, and you don't have a lot of money saved up for retirement, and you're struggling to pay off your debt, your first step is get your debt under control. You don't have to get it all paid off at your high interest rate that get it under control, which will allow you to increase your savings, increase your savings to the max you can do you have a budget, you look at what it's in your budget, you try to minimize items that you have to pay for and reduce what you're paying on things that you need. So the fire movement, they're looking only at third needs, housing, transportation, food and clothes, and a little bit of their wants. Not everything they want. And they're minimizing their what they're paying out. So the downside to that if you start young, and you live that way for 20 years, and now you can retire. What number you're basing your retirement needs on that minimize spending amount that you would then do it for last 20 years, or an increased spending amount. Did you save enough money? Maybe you did. Maybe you didn't. We all know that credit cards could get you burnt and get you in trouble in a hurry. So you got to stay away from credit cards. If you got to do any early retirement. You need to have a plan in step one is get out of debt. And finish up your emergency fund. Make sure you have at least three months. Invest 15% And then tax advantaged retirement account, save for your children's college and pay off your mortgage as early as possible. That's the pay off your mortgage after you pay off all your high interest debt first. Then step four once you achieve your college savings and your mortgage pay down, you're going to have more money, you increase your investment beyond the 15%, so that you can max out what you're putting in your retirement accounts. And then you got to build a bridge, open a taxable investment account that you say money in. And that's money, that's gonna bridge the gap between the age you retire 50 and the age, you can start trawling out your retirement plan 59 and a half, you got nine and a half years, let's just call it 10 years. So you'll need money there to bridge that's all assumed that everything you're doing is in you investing in the stock market. So I got my show notes, two links. One's David Ramsey, what is the fire movement, and the other one is cnbc.com lessons from people who retired in their 30s. And Lesson number one is focus on participating in the market. Rather than beating it, you're never gonna beat the market. And if you tried to time the market, to buy when it's low and sell when it's high, good luck, because not very many people are successful, of achieving that. And you'll never do it, you end up losing money in long term. And then find whichever method works best for you. Maybe you're older, and you ruin retire when you're 60. And do some traveling. Maybe that's your goal. But that can happen. If you plan for ahead of time, and you minimize your debt, your bills, you maximize your investments, and you can reach those goals, he don't have to make a six figure income to do this. He just got to start early, you got a let the compounding effect work for you. You got to put your money to work. Instead of having the money working against you, which is high interest debt that's working against you, because you're paying interest. You gotta flip that around and have money working for you, where you're getting the return the higher rate of return. Even having a savings account with very low interest rate, your money is working for you. A high yield savings account, your money is working for you money invested in the market, stock market should be diversified. He should cover all segments and industries so that you are less vulnerable to the downturn. Your money is working for you. Even if you're not planning on retiring early, he should be doing these types of things. retiring in your 30s or 40s isn't necessarily a good thing to do. Maybe you can. But I believe most of these people may be quitting their nine to five job. I never had a nine from nine to five jobs, always eight to five. And now being a truck driver, it's even worse than that, you know, 1112 hour days, six days a week. But now I enjoy it. So I do want to enjoy this not all that bad. The idea is to have a budget, minimize your spending, keep track of your spending, increase your savings, increase your investing, and you're gonna be focused on investing instead of spending. And you can do that even if you're 50 years old, in your entire next 10 years. The next 10 years if you're making 75,000 a year, you and your spouse each that's 150,000 a year. You can get your debt under control be step one that continue to make contributions to retirement plan while you're doing this. And then once your debts under control, you can maximize your contributions to your retirement plan and keep on working. Just when you hit your financial abundance. That's when you have the ability to do whatever you want, when you want and how you wanted to do it. I'm also taking this one extra step. He don't have necessarily unnecessarily invest all your money in the stock market. If you see a need and you can fulfill that need and start a business and make a profit, you're better off, you can create a business, pay people to work for you pay the person to manage it, that runs like clockwork, you sit back, you oversee it. And you can make a healthy income. And you can do whatever you want, whenever you want. That's the money machine working for you. So having your money machine working is number one priority. A don't have to be a business that something has, that creates passive income. Another example would be rental properties. Once you have all your credit card debt, your auto loans, your personal loans, your line of credit on your home, paid off. And the only debt you have is maybe your first mortgage, and it's three or 4%, or lower. And the monthly payment is something you can handle fairly easy. He can save up 100,000 50,000 20,006 months or so start looking look into specially if you're handy, and you have the ability to fix things. And you don't mind getting yourself a little dirty cleaning and painting to simple stuff. He pays somebody to put the carpet in, you pay somebody to fix the things that you can't do. buy rental properties, and you put your down payment. And then you can generate enough rental income that pays all that mortgage for you, pays your taxes on that property pays for the maintenance on the property and pays for the insurance. And it may be on paper at tax loss. Because time you depreciate it, you're gonna create a negative cash flow for taxes, that you're going to have a positive flow of income, going into your checking account, every month, everybody else is paying your bills for you. That's the idea of this the rental property. So if you don't mind dealing with people, managing people collecting rent, fixing things being bothered in the middle of the night, rental property may be a way to go because everybody needs a place to live. But to do an early retirement so that you can stop that eight to five job, do whatever you want. Maybe you'll still work part time, maybe you still work full time to pay the bills, that you're not forced to do it. Maybe you'll change careers, maybe you'll change career multiple times, maybe you'll take your hobby and tried to expand that into some type of business. What ever it is, you will have the ability to do it. Because you have the money to survive a downturns in the economy. You have the money to survive, to pay all your bills. And you have a money machine, putting money in your pocket every month. And you can now enjoy life once you achieve financial freedom. And once you achieve financial abundance, that's when you get to a point where you're creating wealth for the next generation to pass on to your children. For whatever reason, maybe they don't want them to struggle like you did. And make sure you teach him how to achieve these things to keep out a debt, minimize that unless the debts being paid for by somebody else a rental property. That's what the fire movements all about. If you're in your 20s and you're making 30,000 a year in you live in apartment that cost you $850 a month and you don't have anything he got to pay for clothes and food and everything else in life. It's going to be difficult. He need to have have a high paying job. For the fire movement to achieve that success doesn't mean it can't be done. But if you use what the fire movement is talking about to your Vantage, maybe you can't retire when you're 30 or 40, then maybe you can retire when you're 50 to 60, maybe 55, you can follow the same principles, you can do the same thing. And you can stay smart with your money. So you got to know where your money is coming from, and where it's going to, that's tracking, he got create a budget. So you know, make sure you know where you're spending it. Do away with things you don't really necessarily need. He may want it, but you may not need it. Stay on top of everything, just like I've been talking about. If if your goal is to get out of debt, that's the first step of achieving financial freedom, get your debt under control. The once you get your debtor in control, you can increase your savings. Once you increase your savings, then you can increase your investing. Once you increase your investing, then you can keep doing it. And you'll have more money, it's gonna take a person a while more than 10 to 2015 to 20 years to have enough money to retire on. It's just a fact of life. Because even if you max out a 401k, even if your employer is maxing out what they can contribute on your behalf, which is 61,000, you can put in 20,500. So that's what 80 81,500 Even if you do that, starting with zero, pretend 15 years, you're not going to have enough money to retire on the rest of your life. You may not even have much money to retire when you're 60 to live the rest of your life. Why inflation, the longer you can invest, the more you can invest, the longer you can invest, the more you're gonna have called compounding is going to compound much faster with bigger numbers. Simple math, if you're interested in knowing how much you need for retirement, or how much you would have, from your current age to your projected retirement age based on what you already have invested. And based on how much he can contribute. And based on our rate of return of six or 8%. He goes to David ramsey.com, this fire movement. And then now there is a link to how much you need for retirement. And it's a free tool you can use that give you an idea of how much will be available. I'll be back in one moment. If you find this podcast useful, and you know somebody that might be able to benefit from listening, please refer them on your app where you listen to this podcast, check to see if you can rate and review, if you do so I really appreciate and thank you for your time. If you're interested in the fire movement and think you want to give it a shot, I don't want to discourage you. But I'm here to let you know the reality of life. As I see, retiring early may be everybody's goal, that maybe it's not the retiring that you should be after. And you definitely don't want to do this if you hate your current job. So if you hate your current job, and thinking that he can retire early so you can get out of your current job, you're not thinking correctly. A should be thinking about changing job, finding a job or career that you enjoy to do first, because sticking with the job, where you're not happy, trying to minimize your spending, trying to get out of debt, trying to save as much as possible, is gonna be calm to I'm not to be discouraged here. But your goal should be to invest and save enough money so that you can do whatever you want, when you want and how you whether that's working part time for somebody else, whether that's finding a need and creating a business, whether that's doing rental properties and buying rental properties, and having enough to provide you the income to sustain your life. Whatever It is to go for it. There's no sense being unhappy in life, you need to do what makes you feel good. So before you can get started on the fire movement, you need to have no debt. This is so you be successful country get started. If you have zero debt, very low monthly expenses, can maintain that for a long period of time 15 to 20 years. Focus on saving and investing instead of spending successful in your investments, where you can actually make money every year. So you're diversified in the market, you don't take big risk, but you're taking some risks. You can be successful, it may take longer than what you think. That's why I'm saying 15 to 20 years, it could be 25 to 30 years. But any age retire before your sister Kirti. Retirement Age, you're doing good. For most people, that's going to be 67 years old. If you can retire when you're 60, he don't have to start drawing on Social Security, we have the income and the resources to live off of. And then so security is this little bit extra money you put in your pocket, you're not reliant on Social Security, you're not reliant on the government to pay you. That's financial freedom. That's doing what you want, when you want and how you when you become reliant on anything or anybody, you're not having freedom, you're constrained to those rules and policies. Is that what you really want? Probably not. I don't discourage you, I'm just trying to warn those who are thinking about starting the fire movement, it's gonna be tough. He's gonna be hard. And if you already got your debt under control, maybe have a debt reduction plan and you're working on it? Well, that's the first step. Maybe you're building up an emergency fund, that's a second step. Maybe you got enough money in your mercy fund for three to six months, that's great. So you should start putting money in the stock market. Now. Maybe you have a 401k at work, or a traditional IRA that you're putting money in, that's great than a traditional IRA, where you putting $5,000 a year in, you're not gonna achieve financial freedom fairly fast. Especially if you started with zero in that account. If you started with 300,000, in that account already, and you put $5,000 a year in, you're well ahead. But you're still far away. Because you probably only still have less than a million dollars, it's gonna take you about 10 years to get that first million dollars. Then after that is bonus, the compounding effects is going to speed up. So the sooner you can start saving, the more you can start saving, the better off you're gonna be. And the earlier you will achieve a natural freedom. And once you achieve that, if you have a money machine making money for you, whether it's investments in the stock market, whether it's a business on the side, maybe a part time job, whatever it may be, you're getting ahead, you're going to be better off than 75% of people in the United States. United States is the richest country in the world, but yet nobody can afford financial freedom. Everybody is living paycheck to paycheck. Why? Because they have too much debt. So the first step, get your debt under control is number one. But if you're concerned, I'm happy for you, cuz you're thinking ahead. You're planning ahead. And the more control you have over your finances, the better off you're going to be and down the road. You're going to be happy and glad you did that.