Hello, I'm your host, Mr. Chuck. I'm a retired accountant, turn truck driver, I have reduced my debt to zero in a short matter of time, debt reduction to achieve financial freedom takes commitment, confidence, determination, the fire movement, is it something for you, or maybe be too much for you to achieve that goal, we'll be back in one moment to discuss these options. Together, we're going to explore our finances and figure out how to improve them. reduce debt increase wealth is a podcast to inform those to improve personal finances, whether it's eliminating debt or making smart investments, the fire movement, what is it, and maybe it's something you want to give a try. The fire movement, fire stands for financial independence, retire early. As I see it, it's a two part movement. Part one is to gain your financial independence. What is financial independence? financial independence is the ability to make any decision without the worry or concern of the financial costs that may be associated with it. Such as going out and buying a new car. What type of car do you want to buy, be able to pick whatever you want at any price range and either have enough credit to pay and buy it put 50% down and finance the rest and have no worries on where the money is going to come from. to do that. That would be financial independence. And my view, in order to achieve financial independence, and to build up your emergency fund, and build up your investments, you have to reduce your debt. If you can get 100%, debt free, that would be a great step and to achieving financial independence. Also, it would be a great step and to moving towards retire early. If that's what you want to do. Now retire early means different things to different people doesn't mean that you quit working altogether and never have another job. Not necessarily. So we're going to talk about that later on in this podcast. I've been work in the last year plus, and trying to help people reduce their debt. And by doing that they're working towards financial independence. Maybe the first step is to get rid of your credit card debt, then this next step is to get rid of student loan debt, then the next step is to get rid of your car loans. And then the next step is to get rid of your mortgage. That's all very important if you're going to do fire. So the fire is once you get into it and get started, it simply comes down to reducing your spending as much as possible, so that you can save at least 50% of your income. The more of your income you can save, the more money you're going to have invested. The more you're going to have, the quicker you're going to achieve the retire early portion and it comes down to some numbers. You need to save 25 times your yearly living expenses. The higher those expenses, the longer is gonna take you and the more you need to say once you retire, then you're limited to only drawn out 4% of that money to live on per year. So let's say your expenses are $30,000 a year times 25. that is $750,000, you need invested times 4% would give you $30,000 per year to spend, of course, you need to adjust that for inflation, over time, maybe every five years take out a little bit more. But that should be offset by the investments, you should be earning eight to 10% every year. Now, that's not gonna happen every year, but over the average life of the market, he should get eight to 10%. And you only taken half of that out. So you should always have your principal should always stay intact. That's the theory on the fire movement. Of course, the younger you are, the more you have to save, because you're going to be lit living retirement not working for a longer period of time. Now, this is a two step thing where they say, when you're working and saving all this money, you're eliminating your expenses, and you're living as frugally as possible. But once you retire, you got to continue living the same way. So what are you willing to give up? Are you willing to give up that dream home, your dream car, maybe having children, and having a family. So all those things got to become into consideration when you're thinking about the retire early, and the fire movement. I'm all for the financial independence. Everybody should work towards that. But to retire early, I'm not 100%. And I'll give you some reasons here. I'm assuming that you're 20, something mid 20s, maybe even early 30s. And you're trying to work towards an early retirement for whatever reasons, maybe you don't like your career path. Maybe you don't like where you're working, whatever it is, it doesn't matter. So you are thinking, if I can save as much money as possible, I can retire early, and I can get our IRAs, maybe you just don't like working for somebody else. I don't know. By doing that, if you're 20, something you probably just got out of college you got you have student loans. You maybe just started your career a year or so ago, maybe you're still at the entry level salary, maybe a little bit above it. Let's say that you do and less than 10 years, save enough money where you could retire. The first problem is if he hasn't worked 10 years, you're not ever going to receive Social Security benefits. Now, I know everybody thinks so security won't be around. But they've been saying that for the last 50, 60 years, and it's still there. Why is getting so social security benefit should be a factor. Because all this money that you're saving to live off of for the next 60 years cannot be in a retirement plan. Because you can't start withdrawing from retirement plan until you're 59 and a half. So if you put it into your 401k or some type of retirement plan, you're going to pay early withdrawal penalties and you're going to be paying tax on it. So you don't want to do that. So you need to put it into a taxable investment. So that you can bring it out and knowing taxes you have to pay would be capital gains taxes, which vary over you know, different administrations. And you're not going to get any social security and why is that important? Well, let's say that your yearly living expenses are 30,000 a year and you get zero security. That means you need 30,000 a year, but once you hit 62 or 65, your full retirement age might be 67. If you would get say $2,000 a month from Social Security, that would be 24,000 a year. Now you only need 6000 for your living expense, not 30,000 so your savings can go farther, and you can retire early with less. Another reason why you may Not once you get financial independence and even have enough money to do it. Why are you going to quit a job or career where you might just be getting to your maximum earning potential 10 years in, maybe you're starting to get some promotions, a pay raise change companies, whatever. Now you're making a maximum amount. Why do you want to stop working when you're at your maximum income level, or maybe, almost to your maximum income level, maybe you need to work another five years, seven years, 10 years, earn more money. And then you can improve and upgrade your standard of living. If you're already financially independent, that means you have no debt. Maybe you can buy that home you want put a big down payment, so you can finance it, and only have to pay $800 a month for your mortgage. So five or six years down the road, when you do retire early. You don't have a big mortgage to pay, it's manageable. And they'll take up less of your savings in your investments to make those payments. Another reason is, what are you going to do if you retire and you have nothing else going on? From what I've been reading on these fire movement people. They just quit their full time job. But they have what they call side hustles. They have maybe something they enjoy doing on the side where they're making money, maybe they have something going on where they're creating it themselves a passive income. A passive income is an income that you're earning, where you don't have to work very much. It's like having investments earning capital gains and dividends and interest income or a online business that you're getting income on, that's operating 24 seven, you don't have you have very little of your own activity on a regular basis. And you're earning, say$1,000 a month, and you're doing very little that would be a passive income activity. rental property would make a good passive activity, you rent it out to somebody for enough to pay your mortgage, your taxes and maintenance and upkeep. It's a tax benefit to you, because it's after you do depreciations, you're not going to have any income loss every year is going to offset other income that you have. So somebody else is paying your mortgage, you have positive cash flow, because you get the rent every month, and you have a tax break to a point, talk to your tax advisor about that. That is a good passive income. So while these people are talking about I retired early at age 28, or I retire early at age 32. Are they really retired, what else are they doing? Maybe they have other income that they're working on, that takes very little time that allows them to go do what they want to do. And to keep continuing paying their living expenses. So they don't have to dip into that savings early into their retirement. Or maybe they just dip into it enough to pay their travel expenses or whatever is they want to do. So retiring early on, not all four. I think it's up to the person. But I think the biggest benefit of the fire movement would be the financial independence, and they get there. It's very extreme. If you have a hard time making up a budget and sticking to a budget. And to save some money on this side, like 20 or$50 a month or pay you're definitely gonna have a very difficult time in trying to do the fire movement. Because it's more extreme. You cut your expenses down as much as possible. And then some. For those who live in a big city. It's easy because you don't buy a car so you don't have a car. You don't have insurance on it. They walk everywhere. They take public transportation, which relatively cheap, they go to restaurants right before they close, they get a discount on the food because they don't want to throw it away. And it's all kinds of extreme cost saving things they do. They are very frugal, and the only reason they're doing it is so they can save 50 to 75% of their income. Now, they're saving that after taxes, because taxes are coming out. So it's gonna be difficult, maybe if you still live with your parents, you can do it. If you want to buy a home and live or have an apartment, you know, a nice apartment, that's not a postage stamp, it's going to be difficult. Well, it may be difficult is definitely not impossible if you really want to do it. But the younger that you retire, the more money you're going to have to save that 25 times your expenses, you're going to probably have to increase that 30 or 40 times your expenses. If you're 40 years old, when you plan to retire, and you're going to live to be 80, that's 40 years. So it's gonna be 40 times your expenses. And go even higher than that just in case you lived to be 90. So the longer you live, the more you're gonna need, how you determine how long you live is based on your family medical history, and the actual rarely tables that you can see at Social Security. And they give the average life expectancy for the year you were born. That's how I determine it. I have two articles in my show notes. The first one is from money under thirty.com, the fire movement, which gives you a overview of the fire movement, and what to do and how to do it. And then my second one is from marketwatch.com, why we ditch the fire movement and couldn't be happier. So needless to say the fire movement may not be for everybody in the second article is they tried the fire movement and they cut their expenses. But they found out that there was cutting things they enjoyed. And they were depriving themselves of some small luxuries like cable TV, there's a way around that he can stream it much cheaper than paying for cable. And they decided that just instead of retiring early, they would just take longer to reach their goals, which then helps them with those social security benefits that I mentioned about earlier. The fire movement is not only for 20 something 30 somethings. If you're 45 or older, you can do the same thing and retire, say 10 years younger than what you thought you could instead of working to age 67, your full retirement age for Social Security, you could retire maybe at 57 nothing says that you have to work till you're 65 nothing says you have to work till you're 67 you just cannot start receiving Social Security benefits until those ages. But if you can afford to retire and you have the money to live on and not drawn so security, that's what I would do. Now you're gonna have gaps in their zeros, it's gonna it could reduce your Social Security benefit. Because it's based on a for the highest 35 years out of the last 40 years. So it's definitely gonna hurt your calculation on your benefits. And that's why it's important to have a side hustle while you still pay in some at being a self employed person, you still pay Social Security. And if you have a side hustle where you're making 20 or 30,000, that's gonna be better than zero, even 12,000 a year is better than zero. When it comes to determine Social Security benefits. Let's assume you're 45 you have a house couple children, cars. The first step on the fire movement is would be to reach financial independence. And in order to do that you need to pay off your debt. You also factor in there that your children may go to college and you're gonna have to help them pay for college. So you need to save for that also. But when you're starting at age 40 to 45 you have significant amount in Social Security, you may already have a 401k through work, and you got to keep doing that max out the what they match as the minimum, then you need to save some money outside of that 401k, or any retirement plan you may have. But if you retire at age 55, you're not going to be able to start withdrawing money out of that retirement account until you're 59 and a half. So you need about five years, four and a half, five years, before you can start tapping into that account. And it will grow that whole time you're waiting on anything that's holding you back, you should be at a higher level of income By now, you should be making the most maximum or getting close to what your profession would pay. So you should have maybe some college savings funds set up for your children, that's gonna help you have some life insurance, whole life where you're building up a cash value that will help lots of things you might have already done to set yourself up. But you need to focus on keeping the credit card debt to zero, have the least amount of personal loans as possible. And if you can refinance your home and refinance a smaller amount, so you can lower your monthly payment, your savings for your retirement is going to become easier and easier over time, you're going to have more than enough money, let's hope. So you could retire at 55 or 57. Or somewhere in that range. You don't have to go to extremes to do this. The people in the second article why we just the fire movement and couldn't be happier is they took it too extreme and cut their expenses as much as they could. So once you get your debt under control, and pay down to zero, that will allow you to put a bigger chunk of your income and to investments and savings. So if you just add up, go look at what are you paying in debt, what's your mortgage, what's your car payments, what's your credit card payments, add that all up the multiplied times 12. That's how much money you could be saving. Instead of paying off that debt. It's a lot more than you think. And that credit card debt goes down slow, because this guy has such high rate of interest. So you need to work on that first. So you need to step one is identifying your spending habits. And try to minimize your spending as much as you can, but still be happy throughout your life with your life and what you're doing. Step two would be set up a budget to help you stay everything under control. And a big thing about the budget is identify things you may no longer be using. And you can cancel it and quit paying for it. And step three is make sure you have that emergency fund build up and make a bigger and bigger and bigger build it up to one year's worth of income. That way you could quit work at one year earlier, he got the money in your savings account to pay your living expenses for the first year. While your investments are still growing. Hopefully, the market will still be going up eight to 10% a year. So it is achievable. And you can maybe retire at age 55 or 57. You don't need to have social security. And you could probably retire a couple years earlier if you have a passive income activity going on, such as rental properties, or some type of business online or some type of business where it doesn't take a whole lot of your time or effort and it just keeps on generating income for you. So you're basically getting away from this providing a service to create your income to providing something else. That's not a service to create your income. When you're doing a blog and you're making money doing YouTube videos and getting advertising fees. Everybody seems to be doing all this kind of stuff you want to have tried to be original or this working odd jobs helping out your neighbors and doing stuff on the side and make 50 bucks here 100 bucks there and when you're retired on it gives you something to do keeps you active Here's your money. If you listen to this podcast using an apple podcast app, please rate and review this podcast for all your non Apple users, you can download iTunes on a Windows machine and go to the upper left hand corner, select podcast, do a search, reduce debt increase Well, you can subscribe to the podcast. And you can also rate and review the podcast. I appreciate any feedback that I get. It's never too late to start working toward your financial independence. Whether you're going to retire early or not. The fire movement may be a good thing. You can Google or do some searches on to read some blogs and get some ideas on how other people are reducing their costs and saving money. It might give you some ideas on what you can do to help you get your budget under control, reduce your debt and get to financial security. And then maybe if you wish to have that earlier retirement