In this post I break down what is the FIRE movement, why people are interested in it, how to achieve it, and my thoughts on the financially independent retire early movement!
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What is the FIRE Movement? MY THOUGHTS on the Financially Independent Retire Early Movement
Transcription
Below is a transcription of the podcast. This transcription was taken from Otter.ai so it might not be completely accurate:
Sharon Tseung 0:02
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design the best lives. Hey guys, it’s Sharon from digital nomad quest. And today we’re going to talk about what is the fire movement, and we’re going to cover the basics around the entire movement. So if you guys are new to this channel, welcome. I’m all about teaching y’all how to build passive income, become financially free and design your best lives. So if you guys are interested in that, make sure to subscribe and hit the bell button to be notified of my latest videos. So I pretty much learn about this movement. Maybe in the later half of my Nomad journey, or maybe even after the Nomad journey, it was just an acronym I wasn’t aware of. But essentially, I’ve been moving towards this anyway, where I wanted to become financially free, and build passive income streams, right. So what fire really means is financially independent, retire early, the movement is a simple model, you’re essentially trying to save a majority of your income to put into low fee investments like index funds. Now normally people retire in their 60s as around 62 is when you can start taking benefits allowed by the Social Security Administration. But with fire, you’re essentially going to retire around your 20s to 40s, which sounds insane and impossible, but it’s doable, because you can see a lot of bloggers and vloggers actually retiring in those ages, because they have figured out how to be financially responsible and to invest their money. And to reduce their expenses. It sounds like a dream come true, right. Because if you can retire early, you can do so much with your life, you have so much more time. Whereas if you retire in your 60s and 70s, you’re not as youthful, as you know, when you were younger in your 20s, or whatever your body won’t be able to handle as much. If you wanted to do more travel, if you wanted to do more extreme sports or things like that it’s not as possible in those later ages. So that’s why the fire movement is so appealing, and gives you more time to do the things you love. So there’s really two parts to this movement. First of all, you have to be financially independent. So that’s the fi part, right. And what that really means is you’re saving a decent nest egg and or you’re making a lot in passive income to cover your monthly expenses. And then the ar e part is retire early. So essentially, rather than retiring in your mid 60s, like most people do, you’re retiring in your 20s to 40s. So that you have more time to live your life. But that really means a lot of things, you could still be self employed. But the idea is you can do whatever you want. With that time, you could even take a job if you wanted to. It’s just really about having the freedom to do what you want in life. You don’t have to worry about getting laid off or getting fired from your job or anything like that, because you have the financial means to be able to do whatever you want. I think one of the most confusing things about this movement is how do I know how much I need to save in order to retire? And that question is a difficult one to answer. And there are a lot of different ways to approach it. In an interview on my blog, I interviewed Anita Dhaka who retired at 32. And she did this based off of the 4% rule. So I’m going to read kind of what she said about the 4% rule. So I use the 4% rule, which has been written about pretty extensively, theoretically, my investments will increase 7% per year on average, and inflation will be 3% per year on average. That means theoretically, I can plot 4% and the principal will not dwindle. projected passive income is just that 4% rule that might sound confusing, so let me break that down. So after Anita saved around $700,000, she decided that nest egg would be enough for her to retire. Because with the 4% rule, she’s basically equating to around $28,000 yearly spending, right? So 4% of that 700,000 is 28,000. And that’s what she accounts for as the passive income she will generate from her investments of that 700,000. So basically, that 4%, which is $28,000 per year, is what she projects as passive income that she’s allowed to spend without using her principal, she put the majority of her savings into Vanguard index funds, which is pretty safe index fund that pays out dividends. So theoretically, her investment should give her that $28,000 per year that she needs without dipping into her $700,000 principle. So if she’s only spending that much per year, she’s pretty much safe. She doesn’t ever even touch that principle of $700,000 hope that makes sense. Here’s a chart that she had put up before of her projected passive income in the mouth she had been spending in expenses as you can see, she was over a bit and some months this is like a while back right but on her blog, she essentially proves that he has been working her projected passive income has covered her expenses so that 4% is kind of an ideal concept right? You can argue that stocks go up and down and investments can tank but if you look at what mister money mustache says he argues that 4% is actually pretty safe rule.So it really depends on you. So when I mentioned this rule, it is not like this hard rule that you know that you’re going to be saved. So don’t take that 4% as totally risk free. Okay, so make sure you do your due diligence. You want to make sure that You are completely safe if you want to retire early. That rule is not a hard rule. Okay, so I’m not a financial advisor or anything like that. That’s a disclaimer, make sure to consult with a financial advisor before you make any decisions like that. Another way to think about calculating a retirement number is your savings rate. So in reality, it’s all about how much you’re spending and how much you’re taking home, right. So if you spend zero percent of your income, obviously, you’re gonna be okay, you’re gonna retire now. However, if you’re spending 100% of your income, you know that you’ll never be able to retire. Here’s a chart from mister money mustache that really goes into that. So for example, here, it says you can retire in 10.9 years with the savings rate of 64%. If you’re saving 64% of your income, essentially, if you can keep that up, you can basically retire in 10.9 years is what it says. So technically, if I didn’t have kids or anything like that, I pretty much could retire. Now, I know that my passive income covers basically all of my expenses. I’ve made a video before talking about how I saved 100% of my income, right. But the reason I am not retiring yet is I know, I still have a lot to learn, I’m learning a lot from my day job. And I want that higher level financial freedom where I don’t need to think about these numbers at all, I’m just more of a risk averse person. And I get stressed out about things. So I want to make sure that I’m super covered. My nest egg is high, my passive income numbers are high, but I want to make them higher to make sure I’m safe. Especially if I’m going to start a family, I know that it’s going to take more money. So this goes into my personal outlook on everything right? Personally, I do worry about depending solely on that 4% rule I agree with and trust these principles. However, I’m just more risk averse. I’m just a worrier. By nature, I also realize for me, retirement just doesn’t mean I will stop completely working. If I were to just retire and like live on a beach every day and not do anything I’d probably be bored of my life, to be honest, I need to always be creating and to me making this content for you guys building on my blog, creating courses and things like that it’s been really fulfilling. And being able to work on more things in the future is exciting to me, it doesn’t make me feel like I’m working. You know, I’m not like working for someone else. I’m like, excited about doing these things. And also, I still am working a day job right now because actually enjoy what I’m learning. And actually, it feels like I’m building a project together. So with my full time work, I am working in a startup. I’m the general manager there. And we’re kind of creating the social media app. And I’m kind of leading the way to where we’re trying to go. So it’s actually exciting for me, and I’m learning a lot. And that’s where this whole retirement thing comes in is that it doesn’t mean that you have to quit everything you’re doing it just means you have the opportunity to do what you love. So essentially, even if I retired, I would still be working on projects and learning a lot. Another thing is the 4% rule doesn’t account for other passive income streams you might have or money collected from Social Security and inheritances. So for me building these passive income streams is like another security blanket for me on top of this 4% rule, I don’t want to just depend on a nest egg, I want to make sure I have multiple income streams going for me so that I always feel safe. So I had mentioned that I could technically probably retire now my expenses are not that high. However, I can see myself having a family in the future. So if I’m going to account for that, I want to make sure I am saving a lot more and making a lot more passive income so that I can guarantee a stress free life for myself, my spouse and my kid and things like that. So in order to achieve fire, it really comes down to two things, you’re going to save money and you’re going to increase your income in order to save money. A lot of financial freedom fighters focus on minimalism, they know that like clearing up your space, having less things actually creates for more happiness, as Marie Kondo puts it, you know, as I traveled the world, I only needed a backpack and a carry on for two years, I didn’t need much stuff. So knowing that you don’t need much in order to be happy, a lot of financial freedom fighters have a lot less and just buy a lot less. And then another part is reducing liabilities and those expenses. So if you have things like magazine subscriptions, that you never read an expensive gym membership, you might want to cut those down in order to have a lifestyle that you can easily support. And then another thing is you want to make sure you’re continuously tracking your net worth. I personally recommend tracking it through personal capital, I’m going to link that below. It’s an easy way to track your net worth. So these three things will really help you in that save money area. But personally for me, I prefer leveling up my financial freedom numbers, rather than depending on lean fire where I have to cut down things. I don’t want to reduce my lifestyle in order to be able to retire early. However, I am super minimal and frugal. Like I don’t really spend that much regardless. And then lastly, you’re going to need to increase your income. I’m all about building multiple income sources and just figure out ways to increase that income so that you’re safe. So in conclusion, I think the fire movements really exciting and I I totally believe in it. I think some people are extreme and that lean fire part of it and just really focus on saving money. I’m more about increasing your income. As you see in my channel, I talk a lot more about building multiple passive income streams and building that income but I’m an advocate for both. I truly believe that it’s a happier life when you know that you don’t need to buy as much stuff, you can reduce your expenses and you can just be more worryfree when you don’t have things you haveto worry about. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.Transcribed by https://otter.ai
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design the best lives. Hey guys, it’s Sharon from digital nomad quest. And today we’re going to talk about what is the fire movement, and we’re going to cover the basics around the entire movement. So if you guys are new to this channel, welcome. I’m all about teaching y’all how to build passive income, become financially free and design your best lives. So if you guys are interested in that, make sure to subscribe and hit the bell button to be notified of my latest videos. So I pretty much learn about this movement. Maybe in the later half of my Nomad journey, or maybe even after the Nomad journey, it was just an acronym I wasn’t aware of. But essentially, I’ve been moving towards this anyway, where I wanted to become financially free, and build passive income streams, right. So what fire really means is financially independent, retire early, the movement is a simple model, you’re essentially trying to save a majority of your income to put into low fee investments like index funds. Now normally people retire in their 60s as around 62 is when you can start taking benefits allowed by the Social Security Administration. But with fire, you’re essentially going to retire around your 20s to 40s, which sounds insane and impossible, but it’s doable, because you can see a lot of bloggers and vloggers actually retiring in those ages, because they have figured out how to be financially responsible and to invest their money. And to reduce their expenses. It sounds like a dream come true, right. Because if you can retire early, you can do so much with your life, you have so much more time. Whereas if you retire in your 60s and 70s, you’re not as youthful, as you know, when you were younger in your 20s, or whatever your body won’t be able to handle as much. If you wanted to do more travel, if you wanted to do more extreme sports or things like that it’s not as possible in those later ages. So that’s why the fire movement is so appealing, and gives you more time to do the things you love. So there’s really two parts to this movement. First of all, you have to be financially independent. So that’s the fi part, right. And what that really means is you’re saving a decent nest egg and or you’re making a lot in passive income to cover your monthly expenses. And then the ar e part is retire early. So essentially, rather than retiring in your mid 60s, like most people do, you’re retiring in your 20s to 40s. So that you have more time to live your life. But that really means a lot of things, you could still be self employed. But the idea is you can do whatever you want. With that time, you could even take a job if you wanted to. It’s just really about having the freedom to do what you want in life. You don’t have to worry about getting laid off or getting fired from your job or anything like that, because you have the financial means to be able to do whatever you want. I think one of the most confusing things about this movement is how do I know how much I need to save in order to retire? And that question is a difficult one to answer. And there are a lot of different ways to approach it. In an interview on my blog, I interviewed Anita Dhaka who retired at 32. And she did this based off of the 4% rule. So I’m going to read kind of what she said about the 4% rule. So I use the 4% rule, which has been written about pretty extensively, theoretically, my investments will increase 7% per year on average, and inflation will be 3% per year on average. That means theoretically, I can plot 4% and the principal will not dwindle. projected passive income is just that 4% rule that might sound confusing, so let me break that down. So after Anita saved around $700,000, she decided that nest egg would be enough for her to retire. Because with the 4% rule, she’s basically equating to around $28,000 yearly spending, right? So 4% of that 700,000 is 28,000. And that’s what she accounts for as the passive income she will generate from her investments of that 700,000. So basically, that 4%, which is $28,000 per year, is what she projects as passive income that she’s allowed to spend without using her principal, she put the majority of her savings into Vanguard index funds, which is pretty safe index fund that pays out dividends. So theoretically, her investment should give her that $28,000 per year that she needs without dipping into her $700,000 principle. So if she’s only spending that much per year, she’s pretty much safe. She doesn’t ever even touch that principle of $700,000 hope that makes sense. Here’s a chart that she had put up before of her projected passive income in the mouth she had been spending in expenses as you can see, she was over a bit and some months this is like a while back right but on her blog, she essentially proves that he has been working her projected passive income has covered her expenses so that 4% is kind of an ideal concept right? You can argue that stocks go up and down and investments can tank but if you look at what mister money mustache says he argues that 4% is actually pretty safe rule.So it really depends on you. So when I mentioned this rule, it is not like this hard rule that you know that you’re going to be saved. So don’t take that 4% as totally risk free. Okay, so make sure you do your due diligence. You want to make sure that You are completely safe if you want to retire early. That rule is not a hard rule. Okay, so I’m not a financial advisor or anything like that. That’s a disclaimer, make sure to consult with a financial advisor before you make any decisions like that. Another way to think about calculating a retirement number is your savings rate. So in reality, it’s all about how much you’re spending and how much you’re taking home, right. So if you spend zero percent of your income, obviously, you’re gonna be okay, you’re gonna retire now. However, if you’re spending 100% of your income, you know that you’ll never be able to retire. Here’s a chart from mister money mustache that really goes into that. So for example, here, it says you can retire in 10.9 years with the savings rate of 64%. If you’re saving 64% of your income, essentially, if you can keep that up, you can basically retire in 10.9 years is what it says. So technically, if I didn’t have kids or anything like that, I pretty much could retire. Now, I know that my passive income covers basically all of my expenses. I’ve made a video before talking about how I saved 100% of my income, right. But the reason I am not retiring yet is I know, I still have a lot to learn, I’m learning a lot from my day job. And I want that higher level financial freedom where I don’t need to think about these numbers at all, I’m just more of a risk averse person. And I get stressed out about things. So I want to make sure that I’m super covered. My nest egg is high, my passive income numbers are high, but I want to make them higher to make sure I’m safe. Especially if I’m going to start a family, I know that it’s going to take more money. So this goes into my personal outlook on everything right? Personally, I do worry about depending solely on that 4% rule I agree with and trust these principles. However, I’m just more risk averse. I’m just a worrier. By nature, I also realize for me, retirement just doesn’t mean I will stop completely working. If I were to just retire and like live on a beach every day and not do anything I’d probably be bored of my life, to be honest, I need to always be creating and to me making this content for you guys building on my blog, creating courses and things like that it’s been really fulfilling. And being able to work on more things in the future is exciting to me, it doesn’t make me feel like I’m working. You know, I’m not like working for someone else. I’m like, excited about doing these things. And also, I still am working a day job right now because actually enjoy what I’m learning. And actually, it feels like I’m building a project together. So with my full time work, I am working in a startup. I’m the general manager there. And we’re kind of creating the social media app. And I’m kind of leading the way to where we’re trying to go. So it’s actually exciting for me, and I’m learning a lot. And that’s where this whole retirement thing comes in is that it doesn’t mean that you have to quit everything you’re doing it just means you have the opportunity to do what you love. So essentially, even if I retired, I would still be working on projects and learning a lot. Another thing is the 4% rule doesn’t account for other passive income streams you might have or money collected from Social Security and inheritances. So for me building these passive income streams is like another security blanket for me on top of this 4% rule, I don’t want to just depend on a nest egg, I want to make sure I have multiple income streams going for me so that I always feel safe. So I had mentioned that I could technically probably retire now my expenses are not that high. However, I can see myself having a family in the future. So if I’m going to account for that, I want to make sure I am saving a lot more and making a lot more passive income so that I can guarantee a stress free life for myself, my spouse and my kid and things like that. So in order to achieve fire, it really comes down to two things, you’re going to save money and you’re going to increase your income in order to save money. A lot of financial freedom fighters focus on minimalism, they know that like clearing up your space, having less things actually creates for more happiness, as Marie Kondo puts it, you know, as I traveled the world, I only needed a backpack and a carry on for two years, I didn’t need much stuff. So knowing that you don’t need much in order to be happy, a lot of financial freedom fighters have a lot less and just buy a lot less. And then another part is reducing liabilities and those expenses. So if you have things like magazine subscriptions, that you never read an expensive gym membership, you might want to cut those down in order to have a lifestyle that you can easily support. And then another thing is you want to make sure you’re continuously tracking your net worth. I personally recommend tracking it through personal capital, I’m going to link that below. It’s an easy way to track your net worth. So these three things will really help you in that save money area. But personally for me, I prefer leveling up my financial freedom numbers, rather than depending on lean fire where I have to cut down things. I don’t want to reduce my lifestyle in order to be able to retire early. However, I am super minimal and frugal. Like I don’t really spend that much regardless. And then lastly, you’re going to need to increase your income. I’m all about building multiple income sources and just figure out ways to increase that income so that you’re safe. So in conclusion, I think the fire movements really exciting and I I totally believe in it. I think some people are extreme and that lean fire part of it and just really focus on saving money. I’m more about increasing your income. As you see in my channel, I talk a lot more about building multiple passive income streams and building that income but I’m an advocate for both. I truly believe that it’s a happier life when you know that you don’t need to buy as much stuff, you can reduce your expenses and you can just be more worryfree when you don’t have things you haveto worry about. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.Transcribed by https://otter.ai
