I like to read FIRE and personal finance blogs; I find it refreshing and incredibly motivating to immerse myself in a style of thinking that is very different to the “normal” approach to personal finances. This is especially so in the modern world where we seem to worship consumerism.
While it’s true that most personal finance bloggers don’t have any formal qualifications, I disagree with the idea that their insights do not hold value. In fact, I believe there is much that can be learned from them sharing their experience and the knowledge they have gained over time. In this post I want to talk about some things that I’ve learned from reading other personal finance blogs to highlight where you might also be able to also find value.
Early retirement is possible
If you’ve read the about me section, you’ll know that I’m keen on becoming financially independent way before the pension/standard retirement age. Initially, I thought that retiring at 50 would be considered an early. However, it was not until I heard about Mr Money Mustache and the couple at Millennial Revolution retiring in their early 30s did I think that very early retirement was possible.
The fact that these people were not CEO’s, movie stars or lottery winners makes it all the more motivating for me. They were simply hardworking, rationally minded and had high savings rates. If they could do it so early, I believe that with a similar recipe I can achieve financial independence as well – albeit in my own style.
Savings rate is key
One of the biggest things that I’ve learned from the FIRE community is that the time it takes to retire is directly related to your savings rate. Previously I simply assumed that I would need at least $1 million to retire as my expenses would be $50k per annum. While $1 million is a figure many people aim for, depending on your expenses, it could be more, or less. What actually matters the most is your savings rate and once I realized this and did the math for myself it opened my eyes to how powerful a lever controlling expenses is for reducing the time it takes to reach financial independence.
The 4% rule
Even though this is not a definitive calculation for the required portfolio size to achieve financial independence it is a pretty good guide. Previously, based on term deposit rates at the time, I thought a 5% withdrawal rate was safe, however the 4% rule has challenged my initial assumption.
Ideas on reducing costs without sacrifice
This is especially true of housing and transport, growing up in a suburban Australian house with 2 cars I naturally assumed that this was the only way to live, once again, myth busted! It turns out that you don’t need to own a 4-bedroom, 2-bathroom home, apartment living is also an option with many benefits. Also, renting, can work out cheaper than owning a home; and who would have thought that eating whole foods is actually healthier and cheaper than buying processed food.
Another huge realization I’ve had is how effective marketing companies are at turning us into compliant consumers that upgrade our phones every 2 years; renovate our homes; own the best gadgets and indulge in status items so that we stay current. The FIRE movement shows how trading a life of consumption for a life of freedom, learning and experiences is not only cheaper but far more fulfilling.
How others invest
I advise against copying other people’s investment strategies because your investment style needs to be based on your own risk profile. However, it’s really good to see that the FIRE community is big on passive investing; index funds and having a long-term focus. I believe, that given the evidence, passive index type investing is the most rational solution for most retail investors.
Side hustling
Many members of the FIRE community have side hustles. Prior to reading other personal finance blogs I never considered how beneficial side hustling can be, not only for increasing your income but also for diversifying income streams and helping an early retiree transition to a life without full time work. I will admit that I do struggle in this department somewhat, but hey, it’s an opportunity for improvement for me.
Time is money
Perhaps more so that money is time, everything that we buy costs money which means we need to pay for it with our time and effort. When we start to see freedom (our time) as the opportunity cost of frivolous spending we start to get an appreciation for what it is really costing us. This also causes us to see how debt used for consumption stifles our freedom instead of enabling a better life.
We have abundance
If you listen to the news, you’ll be aware of how people are always complaining that the cost of living is rising, and everything is becoming unaffordable. While this is true for some, I do not believe this is true for the majority of Australian households. What personal finance blogs made me realize is that we are privileged to be living in one of the richest countries in the world, during the richest time in all human history. The mindset that everything is unaffordable is a result of expectations being in excess of our incomes.
Given that many FIRE bloggers have such high savings rates (>60%) you would be excused for thinking that they lead shitty lives of deprivation and sacrifice. However, I was amazed to learn that this could not be further from the truth. They understand that what we have come to accept as a standard lifestyle is one of huge excess, by simply focusing our spending on what really gives us value and eliminating waste we can start to build a strong savings rate without sacrifice.
Engineer your freedom