Outdated Financial Rules

There are very few universal truths within personal finance, yet some ideas have persisted for so long that they’re now looked upon as financial rules that must be followed in order to succeed financially.

Take a look at these five outdated financial rules and see if you agree that these rules need to be broken.

1. Cash is Safe

Cash is what humans use to simplify the barter system. No longer do fishermen exchange their catch for fresh fruit. Instead, we all rely on and trust the cash system.

For millennia people have exchanged their goods and services in return for money, which was distributed in the form of precious metals, jewelry or other rare objects. In modern times, people rely on banknotes, or cash, to exchange value. I trade you my cash in exchange for your goods or services. It’s a win-win.

Why this rule exists

Since money is what we use to barter, it’s naturally very valuable, and people tend to protect their valuables. Nobody wants to lose their hard earned cash, so we protect it and keep it safe. Today, people feel their cash is safest in a checking or savings account at their local bank or credit union.

In previous generations one could expect to earn a respectable rate of return by parking cash in a savings account. That idea has persisted and today, checking and savings accounts are the go-to solution for the majority of us to hold our cash, regardless of the low interest rates paid by these accounts.

Why this rule needs to be broken

Cash is a great invention, but a terrible store of value because of inflation, which robs you of about 3% of your buying power each year. Think about the house your grandparents (or great grandparents) purchased for $3,000 in the 1940’s. Today that same house would cost PopPop and Nana about $200,000 thanks to inflation. Same house. More expensive today. That’s the time value of money.

A dollar tomorrow is worth less than a dollar today.  And the longer you hold onto cash, the less valuable it becomes and that’s why you need to break this outdated financial rule.

How to break this rule

You can escape the corrosive clutches of inflation by putting your cash to work. It doesn’t even need to work terribly hard. It just needs to earn an average of 3% annually to keep up with inflation. Anything over 3% means your cash will be more valuable in the future than it is today.

The best way to put your cash to work is to invest it. Investing in index funds is the simplest way to invest. Other ways to invest your money is to buy real estate or to start your own business.  Whatever you do, break this outdated financial rule and start to invest your cash rather than holding onto large chunks of it.

2. The Stock Market is Risky

Stock markets as we think of them today trace their origins back to 1400’s Antwerp, Belgium. The world’s first publicly traded company was the East India Company. Shipping at that time was incredibly risky … too risky for one company to assume all the risk. So the “Governor and Company of Merchants of London trading with the East Indies” corporation was formed; this was the East India Trading Company.

Risk and the stock market, together from the very beginning. The stock market is a way to share risk. And reward!

Why this rule exists

The free market is very competitive and companies that can’t keep up with their competition get left behind. This also applies to publicly traded companies. Even “blue chip” stocks from well known, often international companies, that typically offer lower risk to investors, aren’t immune to getting left behind. Consider this: 88% of Fortune 500 firms from 1955 are gone! If you invest in a company that can’t keep up, then you’re going to lose some or all of your money.

Layer in the fact that most people don’t understand how the stock market works to begin with, and it’s no surprise at all that many people assume that “stocks are too risky.”  So instead they keep their money ‘safe’ by putting it in a savings account (see rule #1 above).

Why this rule needs to be broken

While individual stocks can indeed be risky, the stock market as a whole is quite safe. In fact, the stock market has always gone up. Sure, there are peaks and valleys along the way, but the trend is unmistakable: up and to the right.

How to break this rule.

Since 1976 index funds have been helping people mitigate their risk by allowing them to invest in the stock market as a whole, rather than individual companies.

The stock market, on average, grows at about 7% per year, and index funds track to this average.  Sure, you’ll never hit a home run by investing in index funds, but you’ll never crash and burn either.

Avoid picking just individual stocks and instead, index and chill.

3. Renting Your Home is Like Throwing Away Money

For generations, pop culture has propped up the suburban residential home with a white picket fence and a two car garage as the ultimate symbol of status and success. Home ownership was a cornerstone of The American Dream. And wise financial advice to boot!

After all, the home is your biggest investment and renting is throwing money away, right? That’s been the consensus for a few generations now, but a growing number of people have come to the realization that home ownership isn’t all that, and it’s no longer essential American Dream – financial independence is.

Why this rule exists

From generation to generation, the same advice has been passed down: buy a home, don’t rent. For many, their home was also their greatest source of wealth. Real estate has been viewed as one of the safest investments available. And for those leery of investing in the stock market, it was easy to look at home equity that had been building for decades and think, ‘this is a great investment!’

Why this rule needs to be broken

Because your home is your home, not an investment (to be clear, this rule isn’t for real estate investors – this if for those that treat their primary residence as an investment). If you’re looking for a place to invest the majority of your wealth, there are simpler places to so.

How to break this rule

Not everyone *should* break this rule. Buying makes sense for many, but so does renting. You need to analyze your own situation, run your own numbers and determine if renting or buying makes sense for you. And you should also read Renting is Throwing Money Away … Right? from Afford Anything today. This is hands-down the best Rent vs. Buy article I’ve ever found.

4. College is Required

Almost every single office job, or white collar job description you read includes some variation of the line “college degree required…MBA preferred.” Because many of these jobs are also high-paying, it’s no wonder so many are flocking to college, taking on student loans to pay for their education. Employers demand it.

It’s easy to see this and feel like a college education is the only way to secure a good salary and a secure future. That’s nonsense.

Why this rule exists

Just a few generations ago graduating high school was rare, whereas today it’s the norm. In the past, when the masses were all competing for the same blue collar jobs, one way to increase your chances of escaping to the middle class was through college. Parents that wanted the best for their children pushed this idea. And it worked for a great many!  Today, more than than 1 in 3 people have an advanced education and the middle class is bigger than ever.

Why this rule needs to be broken

College is not the only path to a middle class (or greater) salary and lifestyle. Especially when the cost is so high. Teenagers, whose brains haven’t yet fully developed, are signing up for levels of debt they can’t even comprehend. Allowing kids to sign up for this much debt ought to be discouraged, instead, it’s encouraged.

Meanwhile, millions of high-paying jobs go unfilled in the skilled trades. Jobs like plumbers, mechanics, electricians, welders, etc. pay $45,000 – $60,000 per year. In Seattle, the *average* heavy equipment operator makes more than $95,000 per year in salary and benefits, according to Salary.com.

Don’t get me wrong, a college education is a wonderful thing. And that education no doubt leads to many fantastic opportunities. But when a college degree leaves you saddled with debt approaching six-figures, and you’re unable to find a job that lets you pay that debt off in just a few years, then something has gone wrong.

How to break this rule

You’ve got two options.

1. Go to college on the cheap. Start by attending a local community college and live at home as long as possible. Work part-time to help pay for school. Take longer than 4 years to complete your degree if necessary, just do whatever you can to avoid taking out a crushing amount of student loans.

2. Skip college and go to a trade school, or become an apprentice and learn one of the skilled trades while you’re on the job and getting paid.

Society’s plans work for many, but they aren’t the only way to lead a happy and successful life. Financing your education is just another example of this – taking out student loans to get a college degree is not the only path to financial success.

5. Retirement Age is 65

Retirement is a modern idea, first proposed by the Chancellor of Germany, Otto von Bismarck, in 1889. Understanding that, I suppose we should be grateful that we have the opportunity to retire at all. But life is short, and most of us don’t want to spend the best years of our lives punching a clock. So if an alternative is available that allows you to retire even earlier, wouldn’t you want to know about it?

Why this rule exists

Most people peg retirement to age 65 because that’s when you can claim your social security benefits from the government and/or pension benefits from your employer. Not surprisingly, as soon as someone had a stable source of income outside of a full time job, they retired. The only problem is that when the concept of social security was first introduced, life expectancy didn’t go past 50 years old anywhere in the world.

This is an interactive chart. Use the blue slider at the bottom to see what life expectancy was around the world at different times.

Why this rule needs to be broken

Because life is short and most of us don’t get a great sense of purpose or satisfaction from our jobs. Life expectancy today has climbed into the 70’s and 80’s, but the idea of working full time for 40+ years only to enjoy the last 10 years of life (when mental and physical health will likely be on the decline) isn’t an idea that many will get behind if they don’t have to.

How to break this rule. 

Thankfully, the principles preached in the FIRE movement teach us exactly how to break this outdated financial rule:

• Save and invest 25 times your expenses
• Live off 4% of the portfolio gains

With a little planning and conscious spending, many people can build a retirement portfolio capable of supporting a retirement in about 10-15 years. Depending on when you start your journey, you could retire as early your 30’s, easily in your 40’s and definitely in your 50’s.

If you got off to a late start on your retirement planning, or if you find yourself in a deep financial hole, then the principles of FIRE Finance can help you retire on time.

Update Your Financial Rules

If you’re still following these outdated financial rules then you could be adding years, possibly decades, to your working career. But if you’re interested in achieving financial independence and an early retirement, then breaking these outdated financial rules could help you achieve your financial goals earlier than you thought possible.

Chime In!

Thanks for reading! Now it’s your turn. What other financial rules exist that need to be broken?

The post 5 Outdated Financial Rules that Need to be Broken appeared first on Camp FIRE Finance.

Mike Tyson once said “everyone has a plan till they get punched in the face.” The opposite was true for me.

It took a solid punch to the face for me to wake up and realize that I needed a plan. This is the story of how my 14 months of unemployment led me down a path to financial independence and early retirement.

High School Sweethearts

In November 1998 I married the girl I’d dated throughout high school. Three months before we got married I had enrolled in my Sophomore year of college and was living several hours away from her. But after 3 weeks I couldn’t stand the thought of being away for another day, so I withdrew from school and moved back home to be with her.

A few months later we were married.  I was just a week away from turning 22 and she was 20.

Work or School?

After moving back home the plan was to get married and start creating our new life together. I’d gotten a full time-time job as a car salesmen. I’d work during the day and go to school at night. But being a car salesman provided a few challenges:

• The hours were long
• It was 100% commission-based
• The pay was good … if you could sell

Long hours on the car lot interfered with class and study time. I was making more money by selling cars than I could make anywhere else with just my high school diploma and no work experience. So although the commission-based nature of the job made my paychecks very inconsistent, the money was still decent and quitting for a lower-paying job with better hours didn’t seem like the right move.

I’d picked a job that made it very tough for me to go to school.

Choosing Work over School

So I sold cars full time for just over two years instead of going to college.

Eventually I left the car business and took an office job where I was selling merchant accounts over the phone.  The pay wasn’t as great, but at least I had an hourly rate, which made budgeting easier.  Plus, I could still earn commissions, so the potential for more money was always there.

But I wasn’t a great salesman.  So that larger paycheck never really materialized.

One day while sitting at my desk I vividly remember thinking to myself, four years from now I can still be doing this, or I can be a college graduate with more options.

Choosing School over Work

Four years later I was a college graduate with more options.

Shortly after I’d had that epiphany my wife and I took the steps necessary to get me enrolled in college.  She worked one and two jobs at a time to cover the majority of our bills, and I overloaded my class schedule and enrolled in summer semesters to graduate ASAP.

While going to school full time I took on a few part-time jobs and picked up some side hustles here and there, got student loans, and even received a scholarship to help get by.

During this time we had babies #1 and #2, so we were also both sleep deprived the whole time. Being poor and exhausted sucks in every conceivable way.

It took three just over three years to earn that degree, but we finally got it, and in the end were rewarded with our first “real” job that paid a respectable wage.

My salary was $36,000 per year and it felt like we’d hit the lottery after squeaking by financially for so many years.  This newfound wealth was also our first experience with lifestyle creep.

More money lead to a better apartment & newer car.  No savings though.

Climbing the Corporate Ladder

I consider myself to be a reasonably bright guy and a hard worker.  My boss must have thought so too because over the next 3+ years my starting salary grew from $36,000 in 2005 to just over $60,000 in mid-2008.  We were also further in debt than we’d ever been, and still didn’t have a penny saved.

2008

By this time we were rollin’ in two new cars.  And living in a brand new house (bought at the peak of the housing market).  We also had a few grand in credit card debt.

2009

In late-2008 I took a new job with a new company and got a small raise, and a lot of job stability.  I really liked this company and job. My salary was up to about $75,000 per year, which I liked quite a bit as well.  Baby number three was born in 2009.

2010

In 2010 I was recruited away by another company that was offering a 15% raise. Although I enjoyed my current job and company, greed took over and I accepted this new job, along with their raise and I was now earning $84,700 per year, with a 10% bonus and great benefits.  Baby number 4 joined our family this year as well.

In just a few short years my salary had climbed from a then eye-popping $36,000 per year, with no benefits, all the way up to $85,000 plus bonuses, stock options, a 401k, health, dental and vision benefits.

I was 34 years old.  I’d been married to my high school sweetheart for about 11 years. We had four amazing kids.  Life was good!

But the future wasn’t looking so hot. We had exactly $0.00 saved and a total net worth of negative $305,000.  Change was needed.  Quickly.

Changes

About this time my wife and I came up with our ‘Get Out of Debt Plan.’  I knew something needed to change financially and one day while driving home from work I stumbled across the Dave Ramsey radio show.  I’d never heard of this guy before, and on this particular episode Dave was, rather harshly I think, telling some poor sap to sell their freaking cars and swap them for something they could actually afford.

I was amused at the “tough love” this radio guy was dishing out, but at the same time his advice to the caller resonated with me, and a seed was planted. I’d realized that in one fell swoop I could not only eliminate many tens of thousands of dollars in car debt, but we could also free up money each month that could be used for paying off other debts.

The thought of creating a bit of financial breathing room was exciting!

Destroying Our Debt in Two Weekends

I approached my ever-supportive wife with a plan to eliminate all debt, with the exception of our house, ASAP. She was on board and within about two weeks I’d sold both of our new cars and was left with about $6,000 left over from the transactions.

My wife’s new SUV was replaced with a low’ish mileage, 9 year old minivan.  We paid about $5,000 cash for the van and with the remaining $1,000 I bought a then 20 year old car with unknown miles for $700 (it was a 1989 Dodge Ares K car).

The van, while still a used minivan, at least looked nice.  My K car however was butt ugly! I didn’t care though because both cars were paid for and it felt great!  And just like that we’d eliminated a huge amount of debt and freed up a significant amount of money in our monthly budget.

About a month later I was unexpectedly let go from my job and didn’t find another one for 14 very long months.

I refer this this time as our Dark Year.

The Dark Year: 14 Months of Extended Unemployment

The minuscule amount of money we’d managed to start saving was gone almost instantly.  Unemployment benefits were just enough to keep food on the table and lights on in the house, but not much else.  Had we not sold our cars when we did, they almost certainly would have been repossessed by the banks.

We were in serious danger of losing our home, which we’d bought in late 2008 at the peak of the housing market.  We were so far underwater on the home that we couldn’t sell it unless the bank was willing to agree to a short sale.

After a about 4 months my unemployment benefits ran out. Two more times during our Dark Year I would apply for, and receive, an extension of these benefits. But unemployment benefit extensions don’t, and shouldn’t go on forever. Eventually that well ran dry.

In an attempt to get our hands on whatever cash we could, we sold almost everything we owned that had any value at all. My wife and I took a janitorial job cleaning an office building one night per week.  An old high school friend let me work for his demolition company for a few weeks.  Another friend threw a couple of freelance projects my way.  My parents and in-laws put tires on our car and bought groceries for our family more than once.

Thank God for family and friends!

The Unsuccessful Hunt For Employment

During this fourteen month period it was my full-time job to find a full-time job. As days turned into weeks and then months, the pressure to find employment kept increasing.

That mounting pressure began to negatively impact my ability to interview well.  Knowing how desperately I needed a job, I felt the weight of the world each time I’d interview, and I’d choke.  There were times that I could feel interviews slipping way, and it was beyond frustrating.

I walk away from other interviews thinking that I’d just nailed it!  Then I’d hear nothing from that company, and it was depressing.

Extended unemployment was affecting every aspect of my life.  As a husband and provider this was a soul-crushing, humiliating, confidence-destroying time which mercifully came to an end when I *finally* received a job offer in November 2011.

A Light At The End of the Tunnel

A couple of times during my extended unemployment I’d flown out of state to interview with potential employers. In October 2011 I’d been flown to Seattle for interviews with a well-known company.  It had been a grueling two and a half day interview process, that I didn’t think had gone particularly well.

When it was all over I was at the airport, boarding my return flight home when the job recruiter called me. I’d just left their campus a couple of hours ago. “If they’re calling this soon, it isn’t with good news,” I remember thinking to myself.

I answered un-enthusiastically, anticipating the bad news, “Hello, this is Ty.”

“They LOVED you and want to offer you a position!” the recruiter excitedly responded.  My eyes immediately welled up with tears and the lump in my throat was painful.

I couldn’t believe it! I was sure I’d bombed the interviews. Could this really be happening? I hung up the phone and immediately called my wife to tell her the news. Our Dark Year was coming to an end.

Surviving Extended Unemployment

This new job would take us to another state over 1,000 miles away from home, away from our family, friends, and all that was familiar to us. But there was not a chance in hell I was going to turn it down. I’d tried unsuccessfully for a year to find work in our home state, but had no luck.

Righting our ship required us to take some drastic moves, which after being unemployed for so long we were happy to make. But even though we had this job offer in hand, actually moving to a new state and coming up with enough cash to cover first and last months rent (plus a deposit), plus moving expenses wasn’t something I could do on my own.

My final slice of humble pie came when I had to ask my dad and brother for money to help pay for a moving truck and cover our rent.

Those were some extremely tough times.  I’m glad they’re in our rear view mirror.

Present Day

Fast forward just over seven years and I’m still working for that same company.  A few weeks ago I turned 42 years old and a just a few weeks before that I celebrated my 20^th wedding anniversary with my high school sweetheart.

Our four kids now range in age from 18 to 9 (boy, girl, boy, boy).  My wife stays home to take care of our kiddos. I’m the only source of income for our family.  We live in the Seattle area, which is the 8th most expensive city in America to live in, and we’re thriving on a single income.

But it hasn’t always been this way.  Only recently, at the ripe old age of 35, did I finally get serious about finances and retirement, oddly enough because of a link I found while browsing a college football message board. That day two guys were having an online argument about whether or not Costco was worth the cost of a membership (it must have been the off season).

Discovering FIRE

Early in my Dark Year I found this link to a blog post where a guy that called himself Mr. Money Mustache had done a Costco vs. Safeway comparison. I read through the Costco post. Then read another post. Then I stumbled upon an article that literally changed the course of my financial life titled The Shockingly Simple Math Behind Early Retirement.

Right there before me, laid out in shockingly simple math, was a path to financial independence. For a guy that was pretty much just going along with the ebbs and flows of life, this was like a lighthouse calling me in.  Who knows how or why these things happen, but that blog post resonated with me.

It didn’t matter that I was flat broke, unemployed, had no job prospects and was in danger of losing my house. I couldn’t stop thinking about this concept. I was curious about my own situation and what it would take to retire early, and without even knowing that it had happened, I was officially all-in on the FIRE movement.

Prior to that point in my life I was like a lot of people that know they should be saving, maybe they even do save a little bit, but they don’t know what to do with that savings.  Or how much to save, or what else they could and should be doing.

So we end up just plodding along through life knocking out one day at a time and before you know it you’re approaching retirement age and hope like hell you’ve got enough saved and that Social Security covers the rest.

How Unemployment Led me to Financial Independence

It took a solid punch to the face for me to get serious about money.  It wasn’t until I lost my paycheck that I realized just how dependent upon it I truly was.

During this time I also came to understand that the best thing money can buy is freedom.  And financial freedom really doesn’t cost that much.

When I started my new job I vowed that I’d never put my family in a situation like that ever again. It’s been just over seven years since I accepted that job and now we’re just a few years away from financial independence.

Finishing Strong

Today life not only feels good – it is good!  We’re not there yet, but we’ve got a plan to Get Rich Quick’ish, reach financial independence and retire early.  Rather than buying stuff (i.e. garbage) with our money today, we’re investing it so that we can buy our financial freedom tomorrow.

The plan is to retire early at 49. When all is said and done we’ll have gone from broken and unemployed to financially independent in 13 years.

Chime in!

Thanks for reading. Got something to say?  Say it in the comment section below.

The post How 14 Months of Unemployment Lead to Financial Independence appeared first on Camp FIRE Finance.

Have you heard that FIRE is only for the wealthy? Unfortunately that narrative seems to be gaining a bit of steam and that’s too bad, because it’s a load of crap.

Sure the wealthy will be able to achieve FIRE faster than everyone else, but the speed at which someone else achieves their financial goals has zero impact on what you’re trying to accomplish.

FIRE might be easier to reach for the well-to-do, but FIRE offers something for everyone, regardless of their income, and anyone that says otherwise doesn’t fully understand The FIRE Movement.

What is FIRE Finance?

FIRE is just a simple financial plan that’s based on two rules of thumb:

1. The Rule of 25
2. The 4% Rule

The Rule of 25 tells you how much money you need to have in your retirement investment portfolio to retire.  The 4% Rule tells you how to make that money outlast your retirement.

Together these two rules create FIRE Finance. It looks like this:

That’s it. These two rules of thumb apply to every single person walking the planet. FIRE takes a critical, yet mundane and overly complicated subject like personal finance and retirement planning, and boils it down to something that anyone can understand and strive for.

For all of us, even low income earners and those down on their luck, FIRE offers hope. Understanding exactly what the goal is provides clarity and something to shoot for.  Hitting that mark might be difficult, but at least we know what we’re aiming for.

The Phases of FIRE

Regardless of where you’re at in life achieving FIRE will require you to go through a series of steps and progressions to reach your goals. It might look something like this:

• Discover FIRE
• Assess your financial situation
• Set financial goals
• Minimize your expenses
• Maximize your income
• Build an emergency fund
• Grow your emergency fund into F-You money
• Achieve Lean FIRE
• Achieve FIRE
• Achieve Fat FIRE

The process is different for everyone because everyone has a unique set of circumstances that they’re dealing with. Your journey might take 25 years.  Mine could take 30.  Maybe someone else can do it in 10 years or less.

As you can also see from the chart above, there are different levels of FIRE.  If you want to lead a lavish Fat FIRE lifestyle you’re going to need a bigger portfolio. Getting to that level will obviously take more time and money.

However, if you want to achieve FIRE faster and can get by on less money each year then the amount of money you need to save and invest for Lean FIRE is significantly less.

Do What You Can

Today you might be in a position where you can’t save a single penny and just getting food on the table is priority number one. If you’re in that situation, then FIRE might seem like a long shot, or even unrealistic. I’ve been at that stage a few different times.

• Once I was newly married with no work experience and two kids. We were trying to scrape by on my entry level income. It was a great month if we could pay our bills on time.  Saving wasn’t even on the radar.
• Another time I was going through 14 months of extended unemployment.  During that time I was just trying to not lose my house.

Even when you can’t do much financially, FIRE helps you create a plan.  During times when you can’t save money, read books about saving money instead.  If you don’t have anything extra to invest, listen to podcasts about investing.

Do what you can, with what you have. No matter where you are at personally, professionally or financially, there is something that you can be doing to better your situation, even if that means educating yourself.

FIRE is a Progression

I happened to be in the middle of extended unemployment when I discovered FIRE. Financially I couldn’t do much, so I educated myself instead. And when my financial situation finally did improve, I had a plan and knew exactly what to do with my money.

So if you find yourself struggling financially and all you can do is keep your head above water, then just keep your head above water! If that’s all you can do, then I’d be proud as hell to call you a fellow member of The FIRE Movement, because FIRE is for fighters that scratch and claw their way to a better tomorrow.

If you’ve fallen on hard times and need help from family, friends, or social programs to keep food on the table, you’ll still be welcome at Camp FIRE Finance, even if all you have is a goal to eventually reach FIRE, because where you’re headed is just as important as where you’re at.

This is why I believe that FIRE is for everyone.  Wherever you find yourself there is something you can do to reach your FIRE goals, and not everything has to be about increasing your savings rate or cutting back on your expenses.

Sometimes all you can do is learn and plan, and FIRE provides the syllabus.

Take What You Can. Give What You Can.

Big savings rates, extreme frugality, or unique living conditions get most of the FIRE publicity but it’s regular people like you and me that make up the lion’s share of The FIRE Movement.

It’s easy to read these these extreme examples and get discouraged or feel like you’re not doing enough. When you do come across these examples just remember that extreme measures aren’t required to FIRE.

When you hear about or read the story of a person that’s living a life you can’t relate to take whatever you can from that example and apply it to your own life.  If something doesn’t resonate with you, or won’t work in your situation, then ignore it and move along.

One of the great things about the FIRE community is that there are a lot of stories being shared.  Many of the stories have a lot in common, but all are unique.  There isn’t a magic solution that works for everyone, so all you can do is take what you can from the stories and advice that others are sharing.

And don’t be afraid to share your own story and offer your own advice.  What you have to say won’t work for everyone, but what you have to say will help someone!

Helping and encouraging others is a big part of what the FIRE Movement is all about. It’s what made this community so special and it would be a tragedy if that gets lost because we begin to discard advice that happens to come from someone that we might not agree with or relate to.

FIRE is for Everyone

Membership in the FIRE club isn’t restricted to those that are able to retire in 10 years or less.  Nor do you have to retire in your 30’s to become a card carrying member of the FIRE movement.

Anyone that’s pursuing FIRE is considered to be part of The FIRE Movement, regardless of their net worth or income.  Learn what you can from the advice others offer. Share your own advice.

Regardless of where you’re at just keep progressing. Given enough time many will eventually become financially independent and can retire early if they’d like to. The worst case scenario is that you’re striving, saving, and investing for an early retirement and it doesn’t happen.

That would be disheartening, no doubt, but if you’d been working for FIRE, you’d still be in a better position that had you not done anything at all.

It doesn’t matter if you end up retiring in your 30’s or 70’s, because FIRE is for everyone.

Chime in!

Thanks for reading!  Now it’s your turn.  If you’ve got something to say, say it in the comment section below.  Like what you’re reading?  Sign up for Kindling, our daily email, and get content delivered to your inbox each morning.

The post FIRE is for Everyone, Regardless of Income appeared first on Camp FIRE Finance.

Just a few short years ago I began taking on more responsibility at work, which lead to me bringing home bigger paychecks and enjoying cushy employee perks.  That extra income and those perks got us to a point where we *finally* had a bit of financial breathing room.  We took full advantage and began to get our financial act together.

Life was awesome! But the financial progress we were making came to a grinding halt the day I lost my job.

The Importance of Diversifying Your Income

During my exit interview I was fed the line “you’ll be an asset to any future employer.” But a full year after getting fired I was still unemployed and struggling to pay bills. The pressure was mounting, life was getting harder by the day, and something needed to give.  All because I didn’t have that paycheck coming in.

My only source of income disappeared when I lost my job and I was screwed.

I wondered how different life would be if I’d started the small business I’d always talked about or maybe bought my first rental property before losing my job?  I’d have given anything to have another source of income during these desperate times.

The “don’t put all your eggs in one basket” advice made sense for investing because a diverse portfolio helps smooth out turbulent times in the stock market. But I hadn’t really heard talk about the need to diversify my income.

Having multiple streams of income would definitely have softened the blow of losing my job.

Why Multiple Income Streams Matter

If your full-time job is your only source of income, you’re flirting with financial disaster. If you don’t know someone personally, you’ve probably heard stories of people losing their jobs with no warning at all. Unless you’re out of debt and you’ve stashed a big chunk of money in an emergency fund, having different types of income streams provides not only some cash each month – but it may buy you more time to find a new job.

If you’re still hard at work at your 9-5, diversifying your income means additional money comes in each month because you’re earning money from multiple sources. And the more money you have coming in, the more money you can put to work. The most efficient way to reach financial independence is to have your money making you more money!

Different Types of Income

Before we talk about great ways to put your money to work, let’s review the two main types of income.

Earned Income

Earning an income implies you are actively doing something to receive that income. The most common type of earned income comes from working a full-time or part-time job. Each day you go to work, you’re trading your time and energy for money. And many people have a love-hate relationship with earned income; they hate their job but love payday!

Your full-time job is your biggest and most important source of earned income. As you consider different types of income streams, don’t neglect your full-time job in pursuit of side hustles or passive income opportunities. Remember, your full-time hustle is your most important hustle!

In the pursuit of financial independence, walking past dollars to pick up spare change rarely make sense.

The pros of earned income?

• Even though it takes your time, it’s an easy way to make money. You also don’t need money to generate more earned income, you just need time.

The downsides of earned income?

• The biggest downside is giving up control of your time. And when you stop trading your time, you stop making money.
• Your earned income is also typically taxed at the highest rate possible.

Passive Income

Generating passive income is much more hands-off because it requires little to no effort on your part to keep making more money. And who wouldn’t want that? Having your money making you more money is the holy grail!

Investment income is the most common and easiest type of passive income to generate. Once you buy dividend-paying stocks, high-yield bonds, or deposit money into high-interest savings accounts, your money starts making more money without any more help from you.

The pros of passive income?

• You make money 24/7 – while you’re sleeping, on vacation, or when you’re at your full-time job or side hustle. No matter what you are doing, your money continues to make more money. And the passive income you make is taxed at a lower rate than the money you earn by going to work.

The downsides of passive income?

• It takes money to make money. And if you don’t have a lot of capital to invest, it takes a long time to build a substantial amount of passive income.

There are plenty of click-bait headlines and misleading articles adding to misconceptions about passive income. Remember, to truly be passive it requires little to no effort to maintain the income stream.

Blogging and podcasting are NOT examples of ways to make passive income. Driving for Uber and being an Instacart shopper doesn’t create passive income either. If you are a real estate investor who leaves all the work to a property manager, your profits qualify as passive income. But any landlord will tell you that while there are days where your profits feel passive, dealing with tenant and property problems is definitely work.

Different Types of Passive Income

There are many ways to improve your financial situation and diversify your income streams through passive income. Below are a few different ways to get started.

Interest Income

Interest income is generated when your cash is out there earning you money.  Most people earn a little bit of interest income from their checking and savings accounts.  Here are a few ways I’m earning interest income, and some other options for you as well.

Checking and Savings

• T-Mobile Money’s tagline is “Not Another Bank. A Better One.” Everyone is eligible to sign up for T-Mobile Money regardless of their cell service provider, but T-Mobile customers get a whopping 4% on their first $3,000 and 1% on everything else. Non-T-Mobile customers get a flat 1% interest on deposits.  As a T-Mobile customer myself, I’ve been using this service for a couple of months now and have been pleased with the experience and love the 4% interest I’m earning on my emergency fund stash.

• Marcus (by Goldman Sachs) offers an online savings account currently paying 2.25% Annual Percentage Yield.

• Beam is an online bank account that pays 2% interest but allows you to earn up to 4% through gamification.  You can read my in-depth review of Beam right here.

• CapitalONE 360 offers a savings account paying 1% with no games or balance limitations.  This is where my family has done our primary banking for years.  We’ve been very pleased and I can recommend CapitalONE without hesitation.  Use this link to create your account and get up to $100 in bonus incentives.

• Depending on the amount of money you have to invest and your timeline to keep it invested, Certificates of Deposit (CD’s) are becoming popular again. Ally currently offers 2.75% interest for a CD with a 1-year term and no minimum investment.

• Stashing some funds in a money market account is another way to earn interest. Money markets are interest-bearing accounts usually paying more than traditional savings accounts. For a $100 minimum deposit, you can open a money market account at CIT bank and earn 1.85% APY. Higher opening deposits can earn you a higher rate at other online banks such as Capital One or Ally.

Lending

• If you have a paid for property you plan to sell, you might hold the mortgage and act as the bank for a new buyer. You’ll typically get paid a down payment and then principal and interest payments for a period of time before a large “balloon payment” is made to pay off the property. I’ve not done this myself, but it’s a good option for some if you’re looking to generate some passive interest income.

• Peer-to-peer lending may come with higher risk but you’ll be rewarded with higher interest rates too. An initial deposit of $1,000 sets you up to invest on LendingClub’s platform. Depending on the loan grade, interest rates on loans varies from almost 6.5% to just over 27%.  Tempting, but a bit too much risk for me personally.

Dividend Stocks

When you own dividend stocks, you get paid a portion of the company’s earnings for each share you own. You can earn dividends when you purchase individual stocks paying dividends or through a dividend mutual fund.

Want an even simpler option? Buy index funds!

Real Estate

Rentals are one of the most popular and stable ways out there to earn income, but remember it might not be a passive income stream! Renting out a room or your whole house on Airbnb falls into that same category. It’s not really passive income if you are spending time booking guests, meeting with them, and cleaning up after they leave. If you hire the work out, it becomes a much more passive form of income.

You might consider investing in real estate investment trusts (REIT’s) too. They give you many of the benefits of investing in real estate without the hassle of owning physical property.

Capital Gains

If you sell an appreciating asset like your home or stocks that are worth more than when you bought them, you might consider your profit to be passive income. Just keep in mind the IRS has its own definition of passive activity when it comes to paying taxes.

Profit From Product Creation

Writing blog posts or a book, recording a song, developing an app, taking photos, or creating an e-commerce store are all active ventures. But after you put in the initial work, when people pay for the use of your property or buy your product – it becomes a form of mostly passive income.

Adding display advertising, getting paid per download, or using affiliate marketing probably take more work than buying a CD or dividend stock – but they’re meeting your goal of different types of income streams too.

Camp FIRE Finance has started to dabble in this by selling some FIRE merchandise on Amazon.

Bank Bonus Hacking

Sticking to one bank is a thing of the past! Opening bank accounts for the bonuses they pay out is another passive income opportunity. While many require a direct deposit, a minimum balance, and leaving the money in the account for a certain time period – you and your money may be able to make hundreds (or even thousands) of dollars each year from opening new bank accounts.

Credit Card Hacking

We’re not talking about hacks that lead to fraud – but those putting money in your pocket for little to no work! There are plenty of ways to “hack” credit cards and earn passive income through sign-up bonuses, cash back, and other rewards.

Some cards offer bonuses of up to $500 cash back after meeting a minimum spending requirement. Others offer 6% cash back on grocery purchases or 5% on rotating categories throughout the year. You have to pay off your monthly balance each month or credit card hacking can cost you money, rather than making it!

In the past year alone I’ve used credit card travel hacking to take my family of six to Hawaii for a week, and my wife and I spent two weeks in the Mediterranean, visiting places like Athens, Santorini, and Rome.

For the European trip, we used rewards from our American Express Hilton Honors (150,000 bonus points) and Delta SkyMiles (40,000 bonus miles + statement credit) cards to cover airfare and hotels.

Putting Passive Income To Work For You

You probably see the importance of diversifying your income streams now, in addition to your investment portfolio. Don’t neglect your full-time job because it is such an important income source, but embrace the saying “expect the unexpected” too.

Adding different types of passive income is incredibly important in your goal of reaching financial independence.

The post Diversify Your Income with These 7 Types of Passive Income appeared first on Camp FIRE Finance.

This Contributor article was written by Just Start Investing.

Learning how to save 50% of your earnings is a great way to set yourself up for financial independence. Maximizing savings is something anyone can do, regardless of income.

Learning How to Save Money

Obviously, I understand that it’s much easier for someone making $100,000 a year to save 50% of their income (and spend $50,000) than it is for someone making $30,000 a year to save 50% of their income (and spend $15,000).

In either situation though, maximizing your savings is possible, and the closer you can get to 50% (or higher) the better off you will be in the long run.

With that in mind, it’s important to be in the right mindset before trying to save a large portion of your earnings. An easy way to do this is to set firm goals. You’ll never accomplish a high savings rate if its a secondary goal, because short term things always come up. Spending the extra $20 to eat out or $30 to go to the movies is second nature when you aren’t thinking of the opportunity cost of that money.

If your main goal is to save 50% of your income, then do that and prioritize that goal.

If your main goal is to retire at age 35, or to save $100,000, or to double your net worth, then put together the plan to get there.

Build Your Budget

In this article, we’ll be walking through exactly how to get to a 50% savings rate, but the same principles and budget outline can be applied to any financial independence goal.

Step 1: Determine Your After-Tax Income

The first step in building any budget is to determine your after tax income. This should include your total income plus any contributions you make to a 401k (this will count towards your savings!).

Step 2: Analyze Your Situation

The next step is to analyze where you stand today. So, break out the pad and paper (or excel doc or use free Personal Capital software) and rack up your spending for either the past month, 3 months, or year. The goal is to get realistic view of what an average month of spending looks like. Common expenses could be:

• Housing
• Transportation
• Other living expenses
  • Utilities
  • Internet / Cell Phone
  • Groceries
  • Dining Out
  • Travel
  • Entertainment
• Savings

Step 3: Free Up Money Wherever Possible

After determining your after-tax income, and analyzing your current financial situation, step three is to tweak your spending where possible to shift money from your expenses to your savings.

I know, step 3, easier said than done. Let me help bridge the gap. Below is a typical budget, based on a couple budgeting principles (including the 50/30/20 budget and the five category budget), with the percentages being how much of your income gets assigned to each bucket:

• 35% Housing
• 15% Transportation
• 25% Other living expenses
• 25% Savings

Woah, 25% savings, this “typical budget” is already off to a good start!

Adjusting Yourself Into A 50% Savings Rate

Stick with me as we push this even farther. Here are the adjustments you’d have to make to get to a 50% savings rate

• 30% Housing – barely any change, you can live like a King or Queen at 30%
• 3% Transportation – start taking public transportation (or enjoy the cyclelogical benefits of riding a bike and this becomes 0%!)
• 17% Other living expenses
• 50% Savings

How would this play out for an average American bringing home about $40,000 a year in after-tax income? Let’s see (monthly figures below):

• $1,000 Housing
• $100 Transportation
• $566 Other living expenses
• $1,666 Savings

Not so bad when you see an example, right (I hope)? Here’s some more explanation on why this budget could work for you:

• Housing: Average rent in the U.S. is about $1,200, but obviously more affordable cities will be lower. If you want to get to 50% savings, you’ll either have to live in an affordable city or increase your income.
• Transportation: You can get a public transport pass in almost any city for $100 a month (some employers, especially in major cities, will either cover your public transportation costs, or will reimburse you for them).
• Other living expenses: This is a catch all bucket, but includes everything from groceries, utilities, internet, dining out, entertainment and more. Arguably, this is the easiest bucket to pull from in order to increase savings, but also likely has the biggest effect on your quality of life right now.
• Savings: The rest (50%) goes to savings.

Obviously, you would scale these numbers up or down based on your earnings. Or would you?

One of the best things about your income rising over time (again, hopefully) is that you don’t have to increase your standard of living. You could spend more on rent, dinners or groceries, or you could increase your savings rate to 60%. Then 70%. And so on.

It’s completely up to you how to evolve your budget and savings over time.

If you need some further inspiration, here are some easy tips on how to save more money.

Options to Invest Your Savings

Alright, you made it to a 50% savings rate. Now what?

Here are some of the common places to store your savings:

• Emergency Fund: Many experts advise building up an emergency fund of 1-6 months of expenses. This may be a wise first spot to store your savings (a high yield bank account works great) if you are a conservative investor.
• Tax Advantaged Investment Accounts: A 401k and Roth IRAs are great places to invest extra savings (up to the allowable contribution limits).
• Personal Brokerage Account: A personal brokerage account gives you the ultimate flexibility over your investments (there are no limits on contributions or withdrawals). It’s a great place to invest extra savings once your tax advantaged accounts have been maxed out (or before that).

You can learn more about your investment account options here.

Don’t Get Carried Away

I will leave you with one last thought.

Saving for financial independence is great and something most Americans do not do enough. However, not enjoying yourself today in the hope of enjoying yourself tomorrow is also a risky game in and of itself.

If you’re killing yourself to increase your savings rate, you may need to reconsider you original goals you set out to accomplish. Saving only 25% for now may be fine, and when that big pay raise comes your way, you’ll have more money to save later.

The bottom line:

Don’t set a number and get to it at all costs. Set a reasonable goal, strive to get there, and re-adjust your plans as needed. If you are in the saving mindset, that’s half the battle!

The post How to Save 50% of Your Income (or more) In 3 Simple Steps appeared first on Camp FIRE Finance.

Who doesn’t want to get rich quick then ride off into the sunset to live the life of their dreams? I do – that would be awesome! And based on the Google search results that drive people to this website, I’m not alone either.

Here’s the good news/bad news reality: it is possible to get rich quick.  But you shouldn’t spend much time or money trying.

Two Ways to Get Rich Quick

I know of two ways to get rich quick:

1. Break the laws of probability
2. Break the laws of the land

Like I said, you shouldn’t spend much time or money pursuing either of these options. 

Breaking The Laws of Probability to Get Rich Quick

While it can be fun to try and break the laws of probability with the occasional lottery ticket or trip to Vegas, the math just isn’t in your favor.  In fact, when compared to you winning the lottery, you’re more likely to

• get murdered in the grand canyon
• die from an asteroid strike
• or pass away from chronic constipation than you are of winning a jackpot

Here are 7 other crazy things that are more likely to happen than you winning the lottery (not all of them are death related).

Best to keep the gambling limited to entertainment purposes only and far away from your retirement plan. Same goes for breaking the laws of the land. If either of these options are part of your financial plan, then you need a new plan. 

A couple of years ago I witnessed someone trying to get rich quick by robbing a bank.

Breaking the Laws of the Land to Get Rich Quick

A few years ago I happened to be standing outside of a fast food restaurant, talking with my wife on the phone, when I witnessed a bank robbery. Because of where I was standing I happened to be looking in the direction of the bank, about 30 to 40 yards away.

While we were chatting on the phone the dual glass doors of the bank suddenly swung open and a man came running out.

What first caught my attention were the white gloves this guy was wearing as he ran out of the building. Then I saw the velvety blue bag that he was carrying in one hand.  Last I noticed that he was wearing a hoodie pulled up over his head (this wasn’t hoodie wearing weather) and, even from a distance I could tell that his mustache was fake.

It didn’t take long to figure out what was happening and I said to my wife “I’m witnessing a bank robbery!“

The Great Escape

My heart began to race as I realized that this guy was running directly at me.  He was looking right at me.  I was on my phone.

Oh $#!7, I thought.  This guy thinks I’m on the phone with the police and he’s coming for me.

I had no idea if he had a gun (nor if he’d used it to rob the bank and was willing to use it on me)? I just kept staring at the guy, taking it all in and telling my wife what I was seeing:

• Big sunglasses
• Hoodie
• Fake as hell mustache
• He’s running right at me!
• Jeans
• Work boots
• About 5’10 to 6 feet tall
• White gloves
• Blue velvet looking bag
• He’s getting closer!

Before I knew it, he was right on top of me, about 10 yards away.

Way too close for comfort, when suddenly he turned to his left, ran up an alleyway then darted off behind some shrubs.

Phew!

Crime Doesn’t Pay

My heart was pounding. I’d just witnessed some clown get rich quick! 

Or did I?

Based on the size of the bag he was carrying, the thief wouldn’t have nearly enough cash to disappear forever and live a life of luxury with Andy Dufresne down in Zihuatanejo, Mexico.

Doesn’t matter though because the guy got busted about a week later. I know because I was called to do the police lineup.

While I couldn’t ID the guy (because that fake mustache, big sunglasses and hoodie was a surprisingly good disguise), I found out later that the police caught their guy. Case closed.

How To Retire Early Without Breaking Any Laws

So if you need to get rich quick and the odds of hitting a jackpot aren’t in your favor, and if robbery is out of the question, then what’s a guy to do?!

First, you need to accept that getting rich quick takes time.  But it doesn’t need to take a lifetime either. And it won’t if you’ve got a plan.

I don’t know many people that have an actual plan, other than the cookie-cutter, one-size-fits-all strategy that society has defined for you. But society’s plan sucks and it costs too much in terms of time.  You need to Get Rich Quick’ish, because slow’ish sucks.

My Plan to Retire Early  

I don’t want to work till I’m 65 or 70, so this is my plan to Get Rich Quick’ish, reach financial independence and retire early.  I’ve broken my strategy out into five main categories, with ten total steps.

The steps are simple to understand, but actually taking the steps can be hard. Check out my plan below and see if I’m doing anything that you can duplicate that will help you Get Rich Quick’ish too!

My Plan to Get Rich Quick’ish

This plan is unique to me and my situation. Hopefully some of it will be useful or interesting to you, but the details in each step would need to change from person to person, and from situation to situation.

So your plan will look a bit different. With that said, here’s my outline, with full details below:

1. Avoid Lifestyle inflationDeflate lifestyle whenever necessary
2. Bank all financial gainsSave half of all raises at work
3. • Save half of all bonuses at work
4. • Save one percent more than the year before
5. Take advantage of free moneyInvest at least the minimum into 401(k) to get full employer match
6. • Increase 401(k) contribution until it’s fully maxed out
7. • Participate in ESPP program
8. • Increase participation in ESPP program until it’s maxed out at 15% of salary
9. Put our money to workInvest all extra cash into a Roth IRA or a traditional IRA
10. Avoid debt

If followed, these steps would help anyone build a solid financial foundation. Here’s a bit more detail on each step in my plan.

Avoid Lifestyle Creep

Lifestyle creep happens when you spend more money as your income grows.  It’s also known as lifestyle inflation. Avoiding lifestyle inflation is one of the things that I can control, and so I do.  By starting my plan to Get Rich Quick’ish with ‘avoid lifestyle inflation’ I’m guaranteeing that, regardless of where I’m at today, I won’t lose any more ground.  There’s nowhere for me to go but up.

Thankfully I think my family is already living a pretty good life and there’s not much temptation to inflate our lifestyle.  We live in a decent house, in a good neighborhood, within a very good school district. We drive new cars. Everyone gets to wear new clothes. Christmas morning looks like the North Pole exploded in our living room. We go on a handful of weekend getaways each year and try to do one family vacation as well. 

Our life is pretty dang good right now. If all we do is maintain this current standard of living, then ten years from now we’ll still be living a pretty good life!

Bank All Gains

For years (for more than a decade actually) our family was living paycheck to paycheck.  There simply wasn’t enough money in my paycheck to cover rent, transportation, food, medical, clothing and other unexpected expenses AND to save money on top of all that.

During these times the only way for us to get ahead financially was to save any unexpected bonuses, commissions and pay raises that came our way. Theses unexpected gains were rare, but when they came along we were able to get a bit of breathing room, and saving these gains for long enough allowed us to slowly start making financial progress.

Today we’re able to thrive on a single income and those paycheck-to-paycheck days are in our rear view mirror. Because we’ve avoided lifestyle inflation and have saved all of our financial increases, we’re able to save like never before.

Under this ‘bank all gains’ category, I’ve got three steps:

1. Half of all raises at work go into savings
2. Half of all bonuses I get at work also go into savings
3. Each year, increase our overall savings rate by 1%

We’ve been banking the gains in these three ways for a few years now and our stash, and our savings rate, have skyrocketed.

Take Advantage of Free Money

My employers offers two ways for me to get free money: a 401k program and an ESPP plan.

Almost everyone has heard of a 401(k) plans and knows they are valuable for two main reasons:

• You’re contributing pre-tax dollars into your account, and
• Many 401(k) programs offer an employer match … a.k.a. free money for you!

Luckily my company does offer an employer match (with immediate vesting!), which means I’m getting several thousand dollars per year, for free, simply by participating in the program.

A big part of my Get Rich Quick’ish plan to take advantage of free money, and to help that money grow by investing it. And speaking of free money, I’m lucky enough to have access to an ESPP, an employee stock purchase program.

An ESPP allows you to buy company stock at a discounted rate.  That discount is applied to the stock price at the beginning or ending of a six month period, whichever is lower.  There is potential here to get a steep discount on stock, which can them be sold immediately for a gain. Free money!

The ‘take advantage of free money’ part of the plan has four more steps:

1. Invest the minimum amount required to get the full employer match (i.e. grab that free money!)
2. Increase participation in the 401k until I’ve maxed it out at $19,000 per year.
3. Participate in my employer’s ESPP program.
4. Increase participation in the ESPP until it’s maxed out at 15% of my salary.

Put Your Money To Work

It’s not enough to just save money, you need to put your money to work by investing it. Otherwise you’re losing buying power each year due to inflation.

Understanding this, we are investing our cash into our 401(k), into a Roth IRA, and into a traditional IRA as well.

We personally don’t invest in real estate, or fine art, or in anything else other than stocks (that’s not true, I have a little bit of crypto currency). If you invest in things other than the stock market, that’s fine. What’s important is that you are investing in something.  You need to put your money to work and let it grow for you.

Again, the formula to reach financial independence is simple, but the execution is not. It takes discipline and the development of good habits. But by following our plan to Get Rich Quick’ish, and assuming the market continues to deliver historical average returns of about 7% on our invested dollars, then I’ll be set to retire early in 2026.

I’ll be 49 years old at that time, and while the thought of being a 9 to 5 cube jockey for another 6 years is somewhat depressing, it beats the HELL out doing this until I’m 65!

Avoid Debt Like The Plague

Up to this point, everything has been an attack strategy. But it’s defense that wins championships, right?

That’s why the last step in my plan is defensive: avoid debt.

When you have zero debt, you get to keep every dollar you make. Imagine that for just one second: what if you got to keep your entire paycheck?

How quickly would your financial situation change if you got to keep the money you make rather than give it way to others by paying bills? I’m guessing your financial situation would change for the better very quick’ish!

This last step in the plan is simple. Avoid debt!

When you’re doing all of these things, and you get to keep all of your money because you have no debt, then suddenly you’ve got a 10 point strategy to Get Rich Quick’ish, reach financial independence and retire early.  It looks like this:

My 10 Point Plan to Get Rich Quick’ish and Retire Early

1. Avoid lifestyle inflation
2. Save half of all raises at work
3. Save half of all bonuses at work
4. Each year save an additional 1% more than the year before
5. Invest at least the minimum required to get a full 401(k) employer match
6. Increase 401(k) contribution until it’s maxed out at $19,000 per year
7. Participate in my employer’s ESPP
8. Increase ESPP participation until it’s maxed out at 15% of my salary
9. Invest our cash in a 401(k), Roth IRA, or Traditional IRA
10. Eliminate, then avoid debt

I Love It When A Plan Comes Together

I’ve estimated that I’ll be working till I’m 49. That’s a lot older than many of the people you’ll hear and read about in the early retirement world, but considering that I didn’t get started until my late 30s, it’s not bad at all.

Besides, I stay motivated by reminding myself that this is just the minimum amount of saving and investing that I need to do. I can always speed up my FIRE clock by getting more aggressive, taking on another side hustle, being more frugal, etc, but for now this is our plan and I’m happy with it.

Chime in!

Is this plan perfect? Not by a long shot. But it’s worked for us for several years. If and when our situation changes, then we’ll simply change our plan to make the most of our opportunities and challenges.  Do you have a plan?  What does it look like?

The post My 10 Step Plan to Get Rich Quick’ish and Retire Early appeared first on Camp FIRE Finance.

Happy Halloween, Campers! Today is the day when much of the Western world celebrates an ancient Celtic harvest festival by donning costumes of all sorts to ward off evil spirits and ghouls.  Actually, much of the Western world has no idea why we celebrate Halloween, they just like to dress their kids up and send them off to ask strangers for candy.

This particular Halloween might be a bit spookier than most, especially for those of us new to The FIRE Movement that have enjoyed massive stock market gains since deciding to get our financial act within the past decade or so. That’s because this massive bull run appears to be slowing down. For many investors this could be their first bump in the road.

Most of this year has been great, but October has seen year-to-date gains wiped out.  The market is now at a lower point than when the year began (at the time of this writing, we’re down -1.21% for the year after seeing highs over 8% a short time ago).

Spooky times indeed!

Every Stock Market Recession

While we’re only down a mere 1.21% right now, let’s take a quick a look at every single recession the United States stock market has experienced.  Just to spook ourselves a little.

Since 1927 there have been a total of 14 recessions.  Here’s what they look like on paper.

The Most Recent Recession

The most recent recession happened in 2007 and it lasted 18 months.  This was the Great Recession and the market pulled back a whopping 50% during this time.

Can you imagine how terrifying and gut wrenching it would be to watch your stocks plunge by half?!

The Worst Recession

The Great Depression which began in 1929 not only lasted a whopping 40 months, but it was the most severe pullback ever seen, dropping as low as 86% at one point.

Holy $#!7

The Shortest Recession

The recession that took place in 1945 was the shortest, lasting just 8 months.  If were headed for a full blow recession right now, I sure hope it resembles 1945.

But what if we’re are headed for a period of prolonged recession?  What if were headed straight for another 2007 or 1929?  Have you got the stomach for that nightmare?

Stocks Get Spooked Sometimes

In the chart above I showed you all 14 recessions. Now take a look at this chart that shows S&P perforce year by year since 1927.

That’s a lot of red.  Kind of looks like blood running down your monitor.  Or like money disappearing from your account.

So what then is an investor to do when the index gives you those terrifying chills?

Here’s what I’m going to do: index and chill!

I’m not going to do anything different than I’m doing today.  I’ll keep investing as I always have, and for the most part, that means stock piling index funds.

The Stock Market is Like a Zombie

Just when you think the stock market is dead, it comes back to life. It’s like the un-dead because you can’t kill it!  You can knock it down temporarily, but the stock market ALWAYS goes up.

Despite fourteen recessions, a number of major political and natural disasters and everything else we’ve thrown at it, the stock market continues moving in the unmistakable direction of up and to the right.

Yes, there have been, and will be down times (some of there are terrifying!), but the ups far outweigh the downs.

Our current 1.21% dip might be spooky, but it’s not apocalyptic.  Not even close.

Index and Chills

Stay the course.  Don’t panic and do something foolish like killing your golden goose.

Just index and chill.  Keep buying those index funds and put up with the tricks so that later on you can enjoy all of those tasty treats!

Chime in!

Were you an investor during the Great Recession? Did you bail out or ride it out?  Do you think we’re at the beginning of another stock market correction, or is this a tiny bump in the road?

The post Index and Chills – Don’t Get Spooked When the Market Does appeared first on Camp FIRE Finance.

As more people become aware of and join the FIRE movement, the definition of FIRE continues to evolve.  So just exactly what does FIRE stand for in finance terms?  Well, that really depends on who you ask.

What Does FIRE Stand For in Finance?

Originally FIRE was accepted as ‘the point at which your living expenses could be covered by the revenue generated from your investments.’  Personally, I feel like this definition works just fine for most people.

This traditional definition works well because it’s flexible enough to cover everyone. For example, if you’ve got a lot of expenses it goes without saying that you’ll need a bigger portfolio in order to have those expenses covered by your portfolio returns.

The inverse is true if your expenses are minimal.

Financing Your FIRE

Regardless of your financial needs, the way to calculate how much you’ll need for retirement is the same.  FIRE people use the Rule of 25 to figure out how much they’ll need to save for retirement.  And they use the 4% Rule to figure out how much of that portfolio they can spend without ever running out of money.

But you can just use this calculator.

• To use the calculator start by entering the amount of your expense in question (by default this is $100).
• Next, use the drop down menu to choose whether this expense is daily, weekly, monthly or yearly.
• Finally, use the slider at the bottom of the calculator to choose your safe withdraw rate. 4% is the default, but some plan on withdrawing more or less from their portfolio. Pick the SWR that works for you.

Using the Rule of 25 and the 4% Rule to figure out your retirement numbers is simple enough. Still, new FIRE terms and definitions keep popping up.  In addition to the traditional definition, the other two types of FIRE that you’re most likely to hear about are Fat FIRE and Lean FIRE.

More on these two terms below.

How Much Money Do I Need to FIRE?

You are considered “FIRE” when your expenses are covered by returns generated from your investments.  At that point you are financially independent because working for a paycheck is optional and an early retirement is possible.

Because everyone’s expenses and lifestyle expectations are different, it’s impossible to pinpoint a one-size-fits-all number.  People of the FIRE movement have three main types of FIRE that are loosely defined by your lifestyle costs and needs during retirement.

Most people chasing FIRE will retire with an average lifestyle, which can be financed for $50,000 – $100,000 annually.  This is “Traditional FIRE” and it looks something like this:

A portfolio of $1.25 to $2.5 million is required to meet this Traditional FIRE lifestyle.  A portfolio in that range would generate between $50,000 to $100,000 per year, plenty for most people to live on, especially if you’re debt free.

But what about people what want to live a fat or lean lifestyle?  They’ll need a larger or smaller portfolio to fund their respective lifestyles.  These other two groups are known as Fat FIRE and Lean FIRE.

What is Fat FIRE?

Fat FIRE is for the early retiree that wants a bit more out of their retirement.  Perhaps they plan to travel more, maintain multiple homes, have toys like boats, dirt bikes, or other hobbies that will inflate their annual expenses.

People that want Fat FIRE will need to retire with a portfolio of at least $2,750,000 – $5,000,000.  A portfolio in this range will generate $110,000 – $200,000 annually, and should be enough to live a fat lifestyle.

What is Lean FIRE?

Finally, there are a group of people that want their freedom more than anything else.  Even if that means sacrificing their lifestyle a bit. The idea of owning their own time and livin’ the FI Life ASAP is more appealing than living a fat lifestyle later on, which would require them to continue working, saving and investing for many additional years just so they can have more money to spend each month once retired.

People pursuing Lean FIRE will need a portfolio of $250,000 to $1,000,000 in order to generate $10,000 to $40,000 per year.

Personally, I don’t want to attempt a $10,000 per year lifestyle, but if that’s your thing then you’re definitely lean and mean and I wish you the best of luck.

The Different Types of FIRE

Whether you’re going after Lean FIRE, Fat FIRE or a more Traditional FIRE, the end goal is the same: financial independence.

The more money you need to meet your desired lifestyle, the more you’ll need to have saved and invested.

Striking The Right Balance

Lean FIRE can be achieved faster than traditional or Fat FIRE, but you give up the luxury of having more money at your disposal. Additionally, those pursuing Lean FIRE don’t leave themselves with much room for error should an unexpected financial or health emergency show up.

On the other hand, FIRE and Fat FIRE will both have more wiggle room, but both required you to work longer.

Personal finance is personal, and nobody’s situation is exactly like yours, so it’s up to you to figure out what it is you want and need.

Chime In

What type of FIRE are you going after?

The post The Newbies Guide to Understanding FIRE Finance appeared first on Camp FIRE Finance.

People are funny creatures. We quickly become accustomed to new luxuries and then we can’t seem to live without that thing we’ve lived our entire lives without.

Cell phones are a good example. Just a few short years ago cell phones were expensive nice-to-haves. Today they are must have items that people have become addicted to and can’t seem to function without.

The Luxury Trap

In the book Sapiens, author Yuval Noah Harari explains this phenomenon well and shows that people have been falling into The Luxury Trap since our hunter-gatherer days:

“…The pursuit of an easier life resulted in much hardship. It happens to us today. How many young college graduates have taken demanding jobs in high-powered firms, vowing that they will work hard to earn money that will enable them to retire and pursue their real interests when they are thirty-five? But by the time they reach that age, they have large mortgages, children to school, houses in the suburbs that necessitate at least two cars per family, and a sense that life is not worth living without really good wine and expensive holidays abroad. What are they supposed to do? Go back to digging up roots? No, they double their efforts and keep slaving away.

One of history’s few iron laws is that luxuries tend to become necessities and to spawn new obligations. Once people get used to a certain luxury, they take it for granted. Then they begin to count on it. Finally they reach a point where they can’t live without it.”

This is The Luxury Trap and it’s a lot like lifestyle inflation.  Both can wreak havoc on your finances, your pursuit of FIRE and your personal freedom.

Personal Finances and Personal Freedom

Those caught in this trap find themselves upgrading their lifestyle with each pay raise. Earn more money, spend more money is the cycle. Sure they get to wear the latest fashions and drive newly leased cars, but are they any closer achieving financial independence?

Rather than buying our freedom, the luxury trap keeps us focused on maintaining, or inflating, this luxurious lifestyle. It’s such an easy trap to fall into, regardless of your income level because people at all income levels want nicer things.

A Few Examples of The Luxury Trap

It’s not hard to think of examples where it’s easy to fall into the luxury trap:

• Bigger homes
• Nicer vehicles
• Better food
• Luxury hotels
• First class airfare
• Fancy jewelry
• Name brand clothing
• Frequently dining out

While there are many examples, I’m going to focus on two of them.

The Amazing, Expanding Home

The average size of a home in the 1960s and earlier was just 1,500 sq. feet. Today the average new home is over 2,200 sq. feet. That’s an increase of more than 45%.

But the interesting thing is that while homes have increased in size, our families have gotten smaller. In 1960 the average number of people per household in the United States was 3.33; today that number is 2.54. That’s a decrease in family size of 31%.  Shouldn’t homes be getting smaller as well?

We don’t need the extra square footage to accommodate larger families, so why are home sizes growing while family sizes are shrinking?

Why are people going into massive debt to by more home than they need?

Is it because we’ve fallen into a luxury trap of more square footage, high vaulted ceilings, guest bedrooms, floors made from exotic wood or stone, custom crafted kitchen cabinets, high-end stoves, powder rooms, and more?

All of those things are very nice, but are they necessary?  Or are they slowing down your journey to financial independence?

The Incredible Automobile

Modern vehicles are truly incredible machines. Have you been in a brand new car recently? They’re amazing machines that ooze modern conveniences, safety features and niceties. It’s no wonder we’ve fallen into the luxury trap of needing these upgrades in our cars and trucks.

We “need” power windows in our vehicles because ain’t nobody got time to crank a window up and down by hand. And what about power seats, keyless entry, cooled leather chairs, heated steering wheels, moon roofs, entertainment systems, HD monitors built into head rests?!

All extremely cool items to have in a vehicle! And once you’ve had them, it’s tough to go back.  Seriously, when was the last time you hand cranked a window in a vehicle? The next time you are shopping for a car, would you consider a stripped down version that had manual everything and zero convenience upgrades?

Most people won’t. I know this because I sold cars for several years and watched as buyers up-sold themselves to nicer and more luxurious cars.  Just more evidence of the luxury trap in action.

Keep The Money You Make

If you live in the developed world, make a good salary and are still living paycheck to paycheck, then you’ve almost certainly fallen into the luxury trap. It’s easy to do!

And breaking free is simple enough; you just need to change your priorities around. You’ve got to want “stuff” less than you want financial independence.

The good news is that once you break free of the luxury trap and start pursuing FIRE, you can become financially independent in a relatively short amount of time.

Escaping The Luxury Trap

It’s dangerously easy to continually upgrade and inflate your lifestyle. And to be honest, it’s also kind of fun (that’s one reason it’s easy to do). But few of us ever go in reverse and deflate our lifestyles.  And that’s too bad because lifestyle deflation is the secret to breaking free of the luxury trap.  Those that do are poised to reach financial independence much sooner.

Here are six examples of people that have seriously deflated their lifestyle to shatter many luxury traps that were holding them back financially.

How to Deflate Your Lifestyle

Deflating your lifestyle and breaking free of your own luxury traps begins with self-reflection and taking an honest inventory of your life.  As you do so keep in mind that luxury traps aren’t limited to big ticket items. Your habit of eating out multiple times per week could be a luxury trap that you’ve fallen into.

Identify the luxury traps you’ve fallen into

Identifying the luxury traps in your life is something that only you can do. Nobody but you gets to decide if that new car you’re driving is a luxury trap or a necessity. And even if your car is a luxury, that’s nobody’s business but your own.

Eliminating all the fun, cool and admittedly needless stuff out of our lives sounds awful, and doing so just to reach FIRE a few years sooner sounds like a terrible trade-off to me.

However, if you feel your lifestyle has become over-inflated, and if you want to speed up your journey to financial independence, then you’ll need to be honest with yourself.  And the truth is that *most* things in our lives are wants, not needs.

The key is finding a balance between being overly excessive and extreme frugality.

Prioritize the luxuries in your life

After identifying your luxury traps it’s time to decide what gets to stay, and what gets eliminated.  Start by putting things into one of three categories:

1. Stuff you’re unwilling to live without
2. Things you’d like to keep, but are open to eliminating
3. Items that add no real value to life

This is the hard part because it’s easy to justify our luxuries and you might find yourself putting everything into that first bucket.

If you do find yourself struggling with how to prioritize things it’s helpful to remember that things you eliminate can always be replaced later.  Deflating your lifestyle can be a temporary strategy to help you get out of debt, or reach a certain net worth milestone.

Luxury items and experiences are great, but they should probably be reserved for those that are on solid financial ground.  And once you get there, then feel free to treat yo’ self all you want!

Taking action

Personally, I have zero intention of removing all of the nice things from my life.  But there really are a ton of things that I don’t really need in my life that cost me money.

Here’s a list of a few luxury traps we’ve eliminated from our life:

• Traded in our Mercedes GL450 for a bus pass
• Moved out of the fancy home with an amazing views of the Seattle and Bellevue skylines
• I drove a 20 year old car (with unknown mileage because the odometer only went to 99,999), for years
• My wife drove a 12 year old used minivan with high mileage for years
• Eliminated our second car for three years (not easy to do as a family of six)
• Temporarily moved into my parent’s basement
• We temporarily moved into my in-law’s basement
• We uprooted our kids and relocated over a thousand miles away from family & friends

All of these things were done to help us get ahead financially in some way. Most of the things we’ve given up were nothing more than expensive luxuries that didn’t make us any happier than we are today without them.

Whenever I’m on the fence about eliminating a luxury trap and deflating my lifestyle I ask myself this question: would I rather have this thing or would I rather have financial freedom sooner?

Chime in!

Have you fallen into the luxury trap?  Do you have plans to get out, or are you comfortable enough that you don’t need or want to break free?

The post The Luxury Trap: When Niceties Become Necessities appeared first on Camp FIRE Finance.

By Mike Monfredi.

I had heard that dental school was “expensive.”

How expensive… eh? Didn’t have that exactly dialed-in yet. But as my wife (Monica – then fiancee) began applying to different schools, I became increasingly concerned with those annual tuition costs.

Minimize Student Loans Before You Need Them

We had done well throughout our undergrad work and while I went to graduate school.

I had some help from my (awesome and generous!!!) parents for undergrad, I earned an assistantship during graduate school (paid tuition and some living expenses), and we came out of Monica’s undergrad with just a few tens of thousands… Nothing ridiculous by today’s standards.

But dental school presented quite a different problem altogether

Here’s today’s version of total costs as advertised by my wife’s alma mater (tOSU):

Think that’s tough??? Try the out of state:

Are you F___ing kidding me?

For those with their jaw still on the floor, the 4-year (discounted) total for In-State is a measly $291,069.

If you’re crossing state lines, you’re looking at a total of $494,723 for your 4-years in dental school.

I don’t care if the average starting salary for a dentist is 6-figures, you’re still going to need some sophistication in your financial plan to get ahead of those student loan totals and interest rates (we averaged 7.9% starting out).

When we saw what those totals could be, we took action immediately

Why wait to accumulate the student loans and then act? In that plan, you’re just blindly accumulating interest (depending on the loan type) and digging deeper into the hole. We weren’t down with that.

We decided to take action before we took out a single loan. And yes, my wife was going to dental school – but these tips are independent of the curriculum. We’re slaying this student debt dragon together. You in?

These are the 6 courses you’ll take to slash student loans before you need to borrow:

Loan Slashing 101 – Make a budget

Whether in road tripping or personal finance, if you’re not sure how you’ll reach your destination – there’s a good chance you won’t. Your budget is the financial equivalent of an atlas (that’s Google Maps for you younger millennials).

Actually sitting down and making a budget is the ‘101’ foundation you’ll need to identify what income you’ll have during the school year (if any) and what your expenses will be. And once you’ve sorted through each upcoming bill, lab fee, and tuition payment, you’ll know exactly what your financial baseline is.

So, if you’re going to need to take out student loans for tuition and living expenses or for just a portion of your tuition – your budget is the tool that will provide that information. And now that you have your roadmap, you can highlight the various interstates that will take you to your destination (just follow the blue line…).

Loan Slashing 201 – Borrow textbooks from the library

When I started undergrad (14 years ago…), one of the most ridiculous monopolies in education was the process by which textbooks were sold… It was a complete racket. You showed up a few days before classes began, the bookstore staff basically ushered you through the store and picked the titles off the shelf for you, and then you proceeded to check out. No bartering, no price comparison, just $500 credit card charges.

Why???

At least recently, the proliferation of Amazon and the like can help you with used copies and textbooks at a reduced rate. But even still, buying the books for your semester, quarter, trimester, (are there other terms for class durations?)…, can run you in the hundreds of dollars.

There was a guy I knew in college that basically lived at the library. He had great study habits, yes. But that’s not why he was there. Those same textbooks that I had just paid $500 for were also present in the library. And as long as they were available, they were yours to use – free of charge.

I would justify spending the $500/semester on the fact that I could “use the books whenever I needed to.” Which was not very often. All the while my friend got through 4 years of school only having bought 2 books (they were 1-use laboratory books that you needed to complete the course). $500/semester over 4-years with 7.9% interest…? $4,835!

Loan Slashing 301 – Identify other regular expenses to cut

This isn’t the time to live it up. Now is the time to think Spartan and get frugal. When it was our turn to scrutinize every budget line item, the process was equal parts discouraging and uplifting.

For example, we would look at what cutting $15 out of our monthly grocery budget would do in the short term and think, “Is it even worth it?” Then I would calculate that $15/month out for 4 years and apply 7.9% interest (our then interest rate), and we’d smile ear-to-ear (that’s about $873 in savings at the end of 4-years). That’s significant!

After we saw this forecasted calculation, every cut of $5 here or $20 there was celebrated with a frugal high-five! There were a lot of high-fives those days.

Loan Slashing 401 – Vow to use loans only for a portion of tuition

Back to the dental school example above. You see that both the “In-State” and “Out of State” loan amounts include, “Tuition, academic expenses, and living expenses.”

Whatever you need to do (see above and below), vow to use loans only for absolutely necessary tuition expenses. Tuition is an investment in yourself. And depending on the field, the price, and the manner in which you apply yourself – you’re likely to recoup gains on that investment.

But do you really want to pay 7.9% interest on your rent payments or groceries? No thank you. For that, there has to be another way…

Loan Slashing 501 – Work a job during school

I know you think that you’re busy during school… And by many standards, you probably are. But is your goal to be standard??? Or would you rather be extraordinary!?!?

When my wife was going through dental school, most of her days were jammed from 6:00 am – 8:00 pm.

She’d take classes, perform in her clinical rotations, stop at the house for a home-cooked meal (and a hug), and then study for hours at night. She was busy, as were all of her classmates. And she was able to keep that schedule and not take out student loans for living expenses because I worked to pay for our expenses (Option #1 – spouse/significant other works).

Alternatively, a friend of her’s in dental school used all of his breaks and many of his weekends to work part-time as a hygienist (a degree he had earned and a field he had worked in before entering dental school). Because hygienists earn a very competitive wage, our friend was able to cover his living expenses throughout the school year with this part-time work on breaks and weekends. He hustled and worked like crazy. But he saved himself tons of cash.

About $110,575 (with 7.9% interest).

Loan Slashing 601- Look at alternative options to student loans

Student loans do have some ‘benefits’ when compared with other financing options (they have more flexible payment options, can be forgiven, have borrower protections in place, etc.). But those benefits come at what cost? For us, it was an average 7.9% interest rate on a 10-year fixed term.

Mind you, this was at a time when interest rates were at all-time historical lows (3.75-4.25%)

If I had been buying a house, for example, my interest rate would’ve been cut in half. So why in God’s creation was the price of borrowing tuition money so expensive? Great question.

Your tuition payment is ultimately just another one of your bills… Probably one of the largest, but a bill nonetheless. And when bills come due that you don’t have the cash to pay for, you don’t have to just accept the first option that’s presented to you (e.g. 7.9% interest payment).

Here are some alternative options (all estimates below are based on a 10-year fixed term loan of $25,000):

• Take out a home equity loan – As of this writing, they are right around 5.78%. Compared with the student loans, you’d save about $9,625 in interest alone!
• Hustle your way to a scholarship – There are literally thousands of options out there, you just have to work to find some.
• Take out a personal loan from family – I know, “Don’t mix family with business…” I’ve heard the saying and I’ve gone against it more times than I’ll mention, but one thing holds true. If both sides are clear with the terms and relationship up front, your odds for a successful transaction dramatically improve. One of my wife’s peers in dental school took out an interest-free loan from her parents to cover the costs of tuition. Is that available to everyone? No. But it’s an option for some.
• Dedicate some time to serve your country in the military – There were a few dental students that had pledged to serve as a dentist in the armed forces after school. As compensation, the federal government covered the entire cost of their tuition, academic fees, and most living expenses.
• Agree to work in a shortage area – Some professions have state or federal assistance available if you agree to work (or practice) in a shortage area. For dentists, that was typically in rural areas or more difficult parts of the city.

Conclusion

This curriculum would be the equivalent of me taking English courses in high school… It wasn’t the most enjoyable time in my life, but because of those classes – I’m able to write for my blog and more importantly, communicate effectively as a business executive and boss.

If you’re willing to put in the work up front and slash your student loans before you need to borrow, your net worth will thank you exponentially in 30-years. Rather than taking out additional loans, paying interest, and climbing out of a deeper hole, just put the shovel away at the beginning. I hear this ‘delayed gratification’ thing pays off in the long-term…

The post Slash Your Student Loans Before You Need Them appeared first on Camp FIRE Finance.